During the term of the Non-Compete Agreement, can a City Wide franchisee own a competitive business without written approval from City Wide?
City_Wide Franchise · 2025 FDDAnswer from 2025 FDD Document
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- Franchisee covenants that during the term of this Non-Compete Agreement, except as otherwise approved in writing by CITY WIDE, Franchisee will not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, partnership, or corporation:
- b. Own, maintain, engage in, consult with, or have any material interest in any competitive business (including any business operated by Franchisee prior to entry into the Franchise Agreement) specializing, in whole or in part, in providing the same or similar services or products or activities of any type or nature, targeted at a retail market of a
type the same as or similar to the type of programs offered or provided or markets targeted in or by the System.
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- Paragraphs 3 and 4 will not apply to ownership by Franchisee of less than a five percent (5%) beneficial interest in the outstanding equity securities of any corporation which is registered under the Securities Exchange Act of 1934.
Source: Item 22 — CONTRACTS (FDD page 65)
What This Means (2025 FDD)
According to City Wide's 2025 Franchise Disclosure Document, during the term of the Non-Compete Agreement, a franchisee cannot own, maintain, engage in, consult with, or have any material interest in any competitive business without written approval from City Wide. This restriction applies to any business specializing in the same or similar services, products, or activities targeted at a retail market similar to those of the City Wide system.
This non-compete provision is designed to protect City Wide's market and business model by preventing franchisees from directly competing with the system during the term of their agreement. It ensures that franchisees focus their efforts on growing their City Wide franchise and do not divert resources or knowledge gained from the franchise to competing ventures.
However, there is an exception: a City Wide franchisee can own less than a five percent beneficial interest in the outstanding equity securities of any corporation which is registered under the Securities Exchange Act of 1934. This allows franchisees to invest in publicly traded companies that may have some competitive overlap with City Wide, without violating the non-compete agreement, as long as the ownership stake remains below the 5% threshold.
Prospective franchisees should carefully consider the scope and limitations of this non-compete agreement, as it could impact their ability to pursue other business opportunities during their time as a City Wide franchisee. It is advisable to seek legal counsel to fully understand the implications of this clause and how it aligns with their long-term business goals.