What are the liquidated damages for violating the post-termination non-competition provisions of the Chicken Guy franchise agreement?
Chicken_Guy Franchise · 2025 FDDAnswer from 2025 FDD Document
| PROVISION | SECTION IN FRANCHISE AGREEMENT | SUMMARY |
|---|---|---|
| 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)
According to Chicken Guy's 2025 Franchise Disclosure Document, if a franchisee violates the post-termination non-competition provisions, they must pay liquidated damages. These damages are equal to Chicken Guy's then-current Initial Franchise Fee, plus 8% of the gross sales of the competing business. This payment continues until the expiration of the non-competition period, but is subject to state law.
The non-competition covenant restricts the franchisee from engaging in activities similar to those prohibited during the franchise term. Specifically, the franchisee cannot divert business or customers to a competitor, nor can they have an interest in a restaurant business that features chicken as a primary menu item (where chicken sales comprise at least 20% of sales) or whose operation or trade dress is similar to the Chicken Guy system.
The post-termination non-competition period lasts for one year. The restricted area includes the franchisee's Protected Area and within two miles of any then-existing Chicken Guy! Restaurant. Franchisees should be aware of these restrictions and the potential financial implications of violating them, especially considering the liquidated damages include a percentage of the competing business's gross sales, which could be substantial.