What happens to the franchisee's obligations related to non-competition after the Chocolate Bash franchise agreement is terminated?
Chocolate_Bash Franchise · 2024 FDDAnswer from 2024 FDD Document
13.2 Covenants Not to Compete.
- (a) Restriction In Term. During the term of this Agreement, neither Franchisee, any Owner, nor any spouse of an Owner (the "Restricted Parties") shall directly or indirectly have any ownership interest in, or be engaged or employed by, any Competitor.
- (b) Restriction Post Term. For two years after this Agreement expires or is terminated for any reason (or, if applicable, for two years after a Transfer), no Restricted Party shall directly or indirectly have any ownership interest in, or be engaged or employed by, any Competitor within five miles of Franchisee's Territory or the territory of any other Chocolate Bash business operating on the date of termination or transfer, as applicable.
- (c) Interpretation. The parties agree that each of the foregoing covenants is independent of any other covenant or provision of this Agreement. If all or any portion of the covenants in this Section is held to be unenforceable or unreasonable by any court, then the parties intend that the court modify such restriction to the extent reasonably necessary to protect the legitimate business interests of CB Franchising. Franchisee agrees that the existence of any claim it may have against CB Franchising shall not constitute a defense to the enforcement by CB Franchising of the covenants of this Section. If a Restricted Party fails to comply with the obligations under this Section during the restrictive period, then the restrictive period will be extended an additional day for each day of noncompliance.
- 13.3 Employee Recruitment. During the term of this Agreement and for one year after termination, transfer, or expiration of this Agreement, Franchisee shall not knowingly employ or seek to employ or engage as an independent contractor any person then employed by CB Franchising or its affiliates.
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
According to Chocolate Bash's 2024 Franchise Disclosure Document, the franchisee's obligations related to non-competition survive the termination or expiration of the Franchise Agreement. Specifically, for two years after the agreement expires or is terminated, the franchisee, any owner, or any spouse of an owner cannot have any ownership interest in, or be engaged or employed by, any competitor within five miles of the franchisee's territory or the territory of any other Chocolate Bash business operating on the date of termination. A "Competitor" is defined as any business which offers dessert products from a retail location focusing on chocolate.
This restriction is designed to protect Chocolate Bash's legitimate business interests by preventing former franchisees from using the brand's confidential information and business model to compete against the system. The agreement specifies that each covenant is independent of any other provision, and if a court finds any portion unenforceable, the parties intend for the court to modify the restriction to protect Chocolate Bash's interests.
If a restricted party fails to comply with these non-compete obligations, the restrictive period will be extended by an additional day for each day of noncompliance. This provision ensures that Chocolate Bash can enforce the non-compete agreement effectively. However, for franchisees in California, the addendum to the franchise agreement notes that this covenant may not be enforceable under California law.
In addition to the non-compete agreement, for one year after termination, transfer, or expiration of the Franchise Agreement, the franchisee cannot knowingly employ or seek to employ any person then employed by Chocolate Bash or its affiliates. This prevents a franchisee from poaching Chocolate Bash's employees after leaving the system.