Is the post-term non-compete restriction for a Chocolate Bash franchise applicable to the territory of any other Chocolate Bash business?
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.
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
According to Chocolate Bash's 2024 Franchise Disclosure Document, the post-term non-compete agreement extends to the territory of other Chocolate Bash businesses. Specifically, for two years after the franchise agreement expires or is terminated, the franchisee cannot have any ownership interest in, or be 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 or transfer. This restriction applies to the franchisee, any owner, or any spouse of an owner.
This means that after leaving the Chocolate Bash system, a former franchisee is restricted from engaging with a competing business within a defined radius that includes not only their former territory but also the territories of other existing Chocolate Bash franchises. This provision aims to protect Chocolate Bash's market share and brand integrity by preventing former franchisees from using their knowledge of the Chocolate Bash system to benefit a competitor.
It is important to note that in California, this covenant may not be enforceable under California Law. Furthermore, 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. Franchisees should seek legal counsel to fully understand the implications and enforceability of these non-compete clauses in their specific jurisdiction.