What is the maximum duration of a non-compete covenant required by Chocolate Fish Coffee after termination or non-renewal?
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.
- 13.3 General Manager and Key Employees. If requested by Chocolate Fish Franchising, Franchisee will cause its general manager and other key employees to sign Chocolate Fish Franchising's then-current form of confidentiality and non-compete agreement (unless prohibited by applicable law).
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, franchisees and certain related parties are subject to a non-compete covenant for a period of two years after the franchise agreement expires or is terminated. This restriction applies to any ownership interest, lending of money, providing financial assistance, providing services to, or being employed by a competitor. The non-compete area 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. If the territory hasn't been determined before termination, the non-competition area will be the Development Area and the territory of any other Chocolate Fish Coffee business operating at termination.
This non-compete obligation is a significant restriction for franchisees considering exiting the Chocolate Fish Coffee system. The two-year period could limit their ability to work in or invest in competing businesses within a defined geographic area. It is important to note that this restriction also applies to owners and their spouses, broadening the scope of the non-compete.
Furthermore, the FDD states that if a restricted party fails to comply with the non-compete obligations, the restrictive period will be extended by one day for each day of noncompliance. This clause could potentially lengthen the non-compete period beyond the initial two years if a franchisee violates the agreement. Chocolate Fish Coffee also requires that the franchisee's general manager and other key employees sign a non-compete agreement.
Prospective franchisees should carefully consider the implications of this non-compete clause, especially if they have prior experience or future aspirations in the coffee business. They should evaluate the enforceability of the clause under applicable state laws and assess how it might affect their career options after leaving the Chocolate Fish Coffee franchise system.