Does the Chicken Guy franchise agreement include covenants restricting competition that do not disclose that such covenants are subject to Section 9-08-06, N.D.C.C.?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
| PROVISION | SECTION IN FRANCHISE AGREEMENT | SUMMARY |
|---|---|---|
| q. Non-competition covenants during the term of the franchise | Section 21.C. | No diversion of any business or customer to any competitor; no interest in any restaurant business that that features chicken as a primary menu item (i.e., sales of chicken menu items comprise at least 20% of sales) or whose method of operation or trade dress is similar to that used in the System (subject to state law). |
| r. Non-competition covenants after the franchise is terminated or expires | Section 21.C. | No activity as described in q. above for one year within the Protected Area and within two miles of any then-existing Chicken Guy! Restaurant. If you violate the post-termination non-competition provisions, you must pay liquidated damages equal to our then-current Initial Franchise Fee and 8% of the Gross Sales of the competing business until the expiration of the non- competition period (subject to state law). |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 40–46)
What This Means (2025 FDD)
Based on the 2025 Chicken Guy Franchise Disclosure Document, the document does not explicitly state whether the non-competition covenants within the franchise agreement disclose that such covenants are subject to Section 9-08-06, N.D.C.C. However, the FDD does address non-competition covenants in general terms. Specifically, it mentions non-competition covenants both during the term of the franchise and after the franchise is terminated or expires.
The Chicken Guy franchise agreement outlines that during the franchise term, franchisees cannot divert business to competitors or have an interest in a restaurant business featuring chicken as a primary menu item (at least 20% of sales) or with a similar operation or trade dress. After termination or expiration, franchisees are restricted from similar activities for one year within the Protected Area and within two miles of any existing Chicken Guy! Restaurant. Violating these post-termination covenants requires paying liquidated damages equal to the then-current Initial Franchise Fee and 8% of the competing business's Gross Sales until the non-competition period expires.
Prospective Chicken Guy franchisees in North Dakota should seek clarification from the franchisor regarding the specific applicability and disclosure of Section 9-08-06, N.D.C.C. to the non-competition covenants. It is important to understand the full scope and enforceability of these provisions under North Dakota law before entering into a franchise agreement.