Does the Crab N Spice agreement specify that the non-compete applies after a transfer of the franchise?
Crab_N_Spice Franchise · 2024 FDDAnswer from 2024 FDD Document
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 Crab N Spice 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 CNS Franchising. Franchisee agrees that the existence of any claim it may have against CNS Franchising shall not constitute a defense to the enforcement by CNS 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 50–51)
What This Means (2024 FDD)
According to Crab N Spice's 2024 Franchise Disclosure Document, the non-compete agreement does apply after a transfer of the franchise. Specifically, for two years after a transfer, the franchisee, any owner, or any spouse of an owner cannot have any ownership interest in, or be engaged or employed by, any competitor within five miles of the Crab N Spice franchise's territory or the territory of any other Crab N Spice business operating on the date of the transfer.
This post-transfer restriction is similar to the post-term restriction that applies for two years after the agreement expires or is terminated. The non-compete aims to protect Crab N Spice's market share and brand recognition by preventing former franchisees from using their knowledge of the Crab N Spice system to benefit a competing business in the same geographic area.
It is important to note that if any part of the non-compete agreement is deemed unenforceable by a court, the parties intend for the court to modify the restriction to protect Crab N Spice's legitimate business interests. Additionally, any claim the franchisee may have against Crab N Spice does not excuse the franchisee from complying with the non-compete obligations. If a restricted party fails to comply with the non-compete, the restrictive period will be extended by one day for each day of noncompliance.