Is a proposed transferee of a Chem Dry franchise allowed to be involved in a competitive business?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
- 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.
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 participating in a Competitive Business.
Specifically, during the term of the Franchise Agreement, neither the franchisee, nor any owner, manager, officer, partner, or director of the franchisee (if an entity), nor their respective spouses and adult offspring can have any direct or indirect controlling or non-controlling interest as an owner in a Competitive Business, regardless of its location. An exception exists for equity ownership of less than 2% of a Competitive Business if its shares are publicly traded on a recognized U.S. securities exchange. They are also prohibited from performing services for a Competitive Business in any capacity (director, officer, manager, employee, consultant, etc.) or soliciting customers of the Chem Dry business to divert business to a Competitive Business.
A "Competitive Business" is defined as any business that provides or sells 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, or grants franchises or licenses to others to do the same.
These restrictions aim to protect Chem Dry's confidential information, maintain the uniformity of standards across all Chem Dry businesses, and preserve the goodwill of the Chem Dry brand and franchise system. This non-compete clause ensures that franchisees and related parties remain dedicated to the Chem Dry system and do not use their knowledge or resources to benefit competing businesses during the term of their agreement.