If a covenant restricting competitive activity in the Chem Dry franchise agreement is deemed unenforceable due to its scope, what will happen?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
Except as expressly provided to the contrary herein, each section, paragraph, term and provision of this Agreement, and any portion thereof, shall be considered severable and if, for any reason, any such portion of this Agreement is held to be invalid, contrary to, or in conflict with any applicable present or future law or regulation in a final, unappealable ruling issued by any court, agency or tribunal with competent jurisdiction in a proceeding to which CDI is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible, which shall continue to be given full force and effect and bind the parties. If any covenant herein which restricts competitive activity is deemed unenforceable by virtue of its scope in terms of area, business activity prohibited and/or length of time, but would be enforceable if modified, FRANCHISEE and CDI agree that same shall be enforced to the fullest extent permissible under the laws and public policies applied in the jurisdiction in which enforcement is sought. If any applicable and binding law or rule of any jurisdiction requires a greater prior notice than this Agreement requires of this Agreement's termination or of CDI's refusal to enter into a successor franchise agreement, or some other action not required hereunder, or if under any applicable and binding law or rule of any jurisdiction, any provision of this Agreement or any System Standard is invalid or unenforceable, the prior notice and/or other action required by such law or rule shall be substituted for the comparable provisions hereof, and CDI shall have the right, in its sole discretion, to modify such invalid or unenforceable provision or System Standard to the extent required to be valid and enforceable. Such modification(s) to this Agreement shall be effective only in such jurisdiction, unless CDI elects to give it greater applicability, and shall be enforced as originally made and entered into in all other jurisdictions. FRANCHISEE agrees to be bound by any such modification to this Agreement.
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, if a covenant restricting competitive activity is deemed unenforceable due to its scope, Chem Dry and the franchisee agree that the covenant will be enforced to the fullest extent permissible under applicable laws and public policies. This means that if a court finds the original scope too broad (in terms of area, prohibited business activity, or time), it will modify the covenant to make it enforceable to the greatest degree allowed by law.
This ensures that some level of protection against competition remains in place, even if the original terms are deemed unreasonable. The franchisee is agreeing to abide by a modified, narrower restriction rather than having the entire non-compete agreement thrown out. This could impact the franchisee's ability to engage in competitive activities after the franchise agreement ends, but only to the extent legally permissible.
Furthermore, if any applicable law requires greater prior notice of termination or refusal to enter a successor agreement than the Chem Dry agreement stipulates, that requirement will be substituted. Chem Dry also retains the right to modify any invalid or unenforceable provision or System Standard to the extent required to make it valid and enforceable. These modifications are effective only in the specific jurisdiction unless Chem Dry decides to apply them more broadly, and the franchisee agrees to be bound by these changes.