After the Chocolate Fish Coffee agreement expires, what is the geographic limit of the non-compete restriction for a Chocolate Fish Coffee franchisee?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- (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, lend money or provide financial assistance to, provide any services to, or be employed by, any Competitor within five miles of Franchisee's Territory or the territory of any other Chocolate Fish Coffee business operating on the date of termination or transfer, as applicable. If this Agreement is terminated before the Territory is determined, then the area of non-competition will the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination.
- (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 arbitrator or court, then the parties intend that the arbitrator or court modify such restriction to the extent reasonably necessary to protect the legitimate business interests of Chocolate Fish Franchising. Franchisee agrees that the existence of any claim it may have against Chocolate Fish Franchising shall not constitute a defense to the enforcement by Chocolate Fish 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 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to the 2024 Chocolate Fish Coffee Franchise Disclosure Document, after the franchise agreement expires or is terminated, a franchisee is restricted from engaging in competitive activities within a specific geographic area for a period of two years. This restriction applies to the franchisee, any owner, and any spouse of an owner.
The geographic scope of this non-compete clause extends to within five miles of the franchisee's territory or the territory of any other Chocolate Fish Coffee business operating on the date of termination or transfer. This means a former franchisee cannot own, operate, work for, or finance a competing business within that radius. The restriction aims to protect Chocolate Fish Coffee's market share and brand integrity by preventing former franchisees from using their knowledge of the Chocolate Fish Coffee system to unfairly compete.
However, if the franchise agreement is terminated before the franchisee's territory is formally determined, the non-compete area will default to the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination. This is particularly relevant for franchisees in the early stages of development or those with agreements that are terminated prematurely. The Development Area is defined in the Multi-Unit Development Agreement (MUDA).
It's also important to note that if a restricted party fails to comply with these non-compete obligations, the restrictive period will be extended by one day for each day of noncompliance, effectively prolonging the duration of the non-compete agreement. This provision serves as an additional deterrent against violating the terms of the non-compete agreement.