What are the liquidated damages for violating the post-termination non-competition provisions of the Chicken Guy Development Agreement?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
ou should read these provisions in the agreements attached to this disclosure document.**
DEVELOPMENT AGREEMENT
| PROVISION | SECTION IN DEVELOPMENT AGREEMENT | SUMMARY |
|---|---|---|
| a. Length of the development term | Section 1.A. | The term is from the date of execution of the Development Agreement to the date that you sign a lease or purchase the site for the last Franchised Restaurant that you are required to develop under the Development Schedule. |
| PROVISION | SECTION IN DEVELOPMENT AGREEMENT | SUMMARY |
| r. Non-competition covenants after the franchise is terminated or expires | Section 12.C. | No activity as described in q. above for one year within your Development Territory, within two miles of its border 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). |
| s. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 40–46)
What This Means (2025 FDD)
According to Chicken Guy's 2025 Franchise Disclosure Document, if a developer violates the post-termination non-competition provisions outlined in Section 12.C. of the Development Agreement, they must pay liquidated damages. These damages are equal to Chicken Guy's then-current Initial Franchise Fee and 8% of the Gross Sales of the competing business. This payment continues until the expiration of the one-year non-competition period, but is subject to state law. The non-competition provisions prevent the developer from engaging in activities described in Section q. of the Franchise Agreement for one year within their Development Territory, within two miles of its border, and within two miles of any then-existing Chicken Guy! Restaurant. Section q. prohibits any interest in a restaurant business 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 Chicken Guy system.
For a prospective Chicken Guy developer, this means that after the Development Agreement is terminated or expires, they cannot be involved in a competing chicken restaurant within the specified geographic area for one year. If they do, they will be required to pay significant liquidated damages, potentially impacting their financial stability. The liquidated damages include both a lump sum payment equivalent to the initial franchise fee and an ongoing percentage of the competing business's gross sales. This could create a substantial financial burden, especially if the competing business is successful.
It is important to note that the enforceability of non-competition agreements and liquidated damages clauses can vary significantly by state. For example, the FDD includes additional disclosures for California, stating that the non-compete and liquidated damages provisions may not be enforceable under California law. Therefore, a prospective Chicken Guy developer should carefully review these provisions with legal counsel to understand their specific rights and obligations in their state. They should also inquire about the current Initial Franchise Fee to accurately assess the potential financial impact of violating the non-competition agreement.