What restrictive covenants must a former Cinch I.T. franchisee abide by after termination?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
- 11.2 You covenant that, except as otherwise approved in writing by Us, You shall not, for a continuous uninterrupted period commencing upon the expiration or termination of this Agreement, regardless of the cause for termination, and continuing for two (2) years thereafter, either directly or indirectly, for Yourself or through, on behalf of or in conjunction with any person, persons, partnership or corporation, own, maintain, engage in, be employed by, advise, assist, invest in, franchise, make loans to, or have any interest in any business which is the same as or substantially similar to a CINCH I.T. franchised business and which is located within a radius of twenty-five (25) miles of each Designated Territory described in the Development Area hereunder or within twenty-five (25) miles of the location of any Franchisor-owned, franchisee-owned or affiliate-owned CINCH I.T.
Business under the System which is in existence on the date of expiration or termination of this Agreement.
11.3 Sections 11.1 and 11.2 shall not apply to ownership by You of less than a five percent (5%) beneficial interest in the outstanding equity securities of any publicly-held corporation provided that You have no management responsibility or advisory responsibility with such publicly-traded company.
11.4 The Parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement.
If any or all portions of the covenants in this Section 11 are held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which Franchisor is a party, You expressly
agree to be bound by any lesser covenant subsumed within the terms of this covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Section 11.
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to the 2024 Cinch I.T. Franchise Disclosure Document, a franchisee is subject to certain restrictive covenants for a period of two years after the termination or expiration of the Franchise Agreement. Specifically, unless Cinch I.T. provides written approval, the franchisee cannot engage in any business that is the same as or substantially similar to a Cinch I.T. franchised business.
This restriction applies within a 25-mile radius of each Designated Territory outlined in the Development Area, or within 25 miles of any Cinch I.T. business owned by the Franchisor, another franchisee, or an affiliate that was in operation on the date the Franchise Agreement expired or was terminated. However, this covenant does not prevent a former franchisee from owning less than 5% of the equity securities of a publicly-held corporation, provided they do not have any management or advisory responsibilities with that company.
The Franchise Agreement specifies that these covenants are independent of each other. If a court deems any part of these covenants unreasonable or unenforceable, the franchisee is still expected to adhere to the maximum duty permitted by law. This means that Cinch I.T. aims to enforce the broadest possible restrictions that are legally permissible to protect its business interests and goodwill.
These post-termination restrictions are designed to protect Cinch I.T.'s market share and prevent former franchisees from using the knowledge and experience gained during their franchise term to directly compete with the Cinch I.T. system. Prospective franchisees should carefully consider the implications of these restrictions, especially if they plan to remain in the same geographic area and industry after leaving the Cinch I.T. system.