How does the indemnification obligation for Chesters franchisees (Item 7) relate to the franchisor's right to engage in any activities they deem appropriate (Item 12)?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 23: **RECEIPTS]
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- Indemnification.
Any provision in the franchise agreement or related agreements requiring the franchisee to indemnify, reimburse, defend, or hold harmless the franchisor or other parties is hereby modified such that the franchisee has no obligation to indemnify, reimburse, defend, or hold harmless the franchisor or any other indemnified party for losses or liabilities to the extent that they are caused by the indemnified party's negligence, willful misconduct, strict liability, or fraud.
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- Attorneys' Fees. If the franchise agreement or related agreements require a franchisee to reimburse the franchisor for court costs or expenses, including attorneys' fees, such provision applies only if the franchisor is the prevailing party in any judicial or arbitration proceeding.
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Noncompetition Covenants.
Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable against an employee, including an employee of a franchisee, unless the employee's earnings from the party seeking enforcement, when annualized, exceed $100,000 per year (an amount that will be adjusted annually for inflation).
In addition, a noncompetition covenant is void and unenforceable against an independent contractor of a franchisee under RCW 49.62.030 unless the independent contractor's earnings from the party seeking enforcement, when annualized, exceed $250,000 per year (an amount that will be adjusted annually for inflation).
As a result, any provision contained in the franchise agreement or elsewhere that conflicts with these limitations is void and unenforceable in Washington.
Nonsolicitation Agreements.
RCW 49.62.060 prohibits a franchisor from restricting, restraining, or prohibiting a franchisee from (i) soliciting or hiring any employee of a franchisee of the same franchisor or (ii) soliciting or hiring any employee of the franchisor.
As a result, any such provisions contained in the franchise agreement or elsewhere are void and unenforceable in Washington.
[Item 23: **RECEIPTS]
We and our affiliates have the right to receive payments from suppliers on account of their actual or prospective dealings with you and other licensees and to use all amounts we receive without restriction for any purposes we deem appropriate (unless we and our affiliates agree otherwise with the suppliers).
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, Item 23 clarifies the indemnification obligations of the franchisee. Specifically, franchisees are not required to indemnify, reimburse, defend, or hold harmless Chesters for losses or liabilities resulting from Chesters's own negligence, willful misconduct, strict liability, or fraud. This modification protects franchisees from bearing the financial burden of Chesters's actions.
Item 12, as referenced in Item 1, states that Chesters and its affiliates have the right to receive payments from suppliers due to their dealings with franchisees and other licensees. Chesters can use these funds without restriction for any purposes they deem appropriate, unless otherwise agreed with the suppliers. This arrangement gives Chesters broad discretion over supplier payments.
The interplay between these clauses means that while Chesters has considerable latitude in its business activities and supplier relationships, the franchisee is shielded from liability arising from Chesters's potential negligence or misconduct in those activities. This provides a degree of protection for the franchisee, ensuring they are not held responsible for issues stemming directly from Chesters's actions or business decisions. However, franchisees should be aware that this protection is limited to instances of negligence, willful misconduct, strict liability, or fraud on the part of Chesters.