Is a proposed transferee of a Chem Dry franchise allowed to be engaged in a competitive business?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
m, and all related rights to that item, to CDI and agrees to take whatever action (including signing assignment or other documents) CDI requests to evidence CDI's ownership or to help CDI obtain intellectual property rights in the item.
6. EXCLUSIVE RELATIONSHIP/ COMPETITIVE BUSINESS
- FRANCHISEE acknowledges and agrees that CDI would be unable to protect the Confidential Information against unauthorized use or disclosure if franchisees of CHEM-DRY Businesses were permitted to hold interests or otherwise participate in or promote any Competitive Business (as defined below).
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- FRANCHISEE therefore agrees that during the term of this Agreement, neither FRANCHISEE, nor any Owner, manager, officer, partner or director of FRANCHISEE, if an Entity, and any of their respective spouses and adult offspring shall:
- a. have any direct or indirect controlling or non-controlling interest as an owner – whether of record, beneficially, or otherwise – in a Competitive Business – wherever located or operating (except that equity ownership of less than two percent (2%) of a Competitive Business whose shares or other forms of ownership interest are publicly traded on a recognized United States securities exchange will not be deemed to violate this subparagraph);
- b. perform services as a director, officer, manager, employee, consultant, contractor, representative, or agent for a Competitive Business, wherever located or operating;
- c. solicit any existing customer of the BUSINESS, or any party to whom or which the BUSINESS has communicated for the purpose of marketing the services of the BUSINESS, in order to divert or attempt to divert any actual or potential business or customer of the BUSINESS to a Competitive Business or any other business; or
- d. engage in any other activity which might injure the goodwill of the Marks and Franchise System.
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- The term "Competitive Business" as used in this Agreement shall mean any business which provides, sells or grants franchises or licenses to others to provide or sell, carpet or upholstery/drapery cleaning services or products, tile and stone care services or products, spot removal, applying anti-allergen and deodorizer, or protective services or products, Approved Services, or any related or ancillary services or products.
7. INDEMNIFICATION
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, a franchisee is restricted from holding interests in or promoting a competitive business during the term of the Franchise Agreement. A "Competitive Business" is defined as any business that offers or franchises carpet/upholstery cleaning, tile and stone care, spot removal, anti-allergen application, or related services.
Specifically, the franchisee, its owners, managers, officers, partners, directors, and their respective spouses and adult offspring are prohibited from having any direct or indirect interest in a Competitive Business, performing services for a Competitive Business, soliciting customers of the Chem Dry business for a Competitive Business, or engaging in any activity that might harm the goodwill of the Chem Dry brand. However, owning less than 2% of a publicly traded Competitive Business is permitted.
These restrictions are in place to protect Chem Dry's confidential information, maintain its standards of quality and service, and preserve the goodwill of its trademarks and franchise system. These non-compete obligations are typical in franchising to protect the brand and prevent franchisees from using the franchisor's knowledge to directly compete.
A franchisee transferring their Chem Dry franchise must also agree to a post-transfer restriction. The franchisee and its transferring owners (and any spouses or other immediate family members) must acknowledge in writing that they will not engage in activities proscribed in Section 16.D for two years after the transfer's effective date. This ensures that the seller does not immediately start a competing business using the knowledge gained from operating the Chem Dry franchise.