Does the Craters & Freighters in-term restrictive covenant prevent a franchisee from consulting for a Competitive Business?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
During the term of this Agreement, Franchisee and Franchisee's owner(s) may not, directly or indirectly, for themselves or through, on behalf of, or in conjunction with any other person, partnership, or corporation:
- 15.2.1 Perform any services for, consult for, engage in, acquire, lend money to, extend credit to, have any interest in, or be employed as an officer, director, executive, or principal of any business that offers shipping, packaging, crating, receiving and delivery, storage, transportation, moving, logistics, blanket wrap, or freight forwarding services, or products or services similar to the Franchised Business ("Competitive Business") without the prior written consent of Franchisor.
Notwithstanding the foregoing, Franchisee will not be prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market and represent five percent (5%) or less of that class of securities.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
According to the 2025 Craters & Freighters Franchise Disclosure Document, during the term of the agreement, franchisees and their owners are restricted from engaging with a Competitive Business. Specifically, without prior written consent from Craters & Freighters, franchisees cannot perform services for, consult for, engage in, acquire, lend money to, extend credit to, have any interest in, or be employed as an officer, director, executive, or principal of any Competitive Business. A Competitive Business is defined as one that offers shipping, packaging, crating, receiving and delivery, storage, transportation, moving, logistics, blanket wrap, or freight forwarding services, or products or services similar to the Franchised Business.
This restriction means that as a Craters & Freighters franchisee, you cannot be involved in any capacity with a competing business during the term of your franchise agreement. This includes not only direct employment but also indirect involvement such as consulting or investing. The FDD specifies that these covenants are material inducements for Craters & Freighters to enter into the agreement, highlighting their importance to the franchisor.
However, there is a limited exception to this restriction. Franchisees are permitted to own securities in a Competitive Business if those securities are listed on a stock exchange or traded on the over-the-counter market, provided that the securities represent five percent (5%) or less of that class of securities. This exception allows for minor, passive investments in publicly traded companies that might be considered Competitive Businesses without violating the in-term restrictive covenants.
It is important for prospective franchisees to understand the breadth of these restrictions and the definition of a Competitive Business, as any violation could have legal and financial repercussions. Franchisees should seek clarification from Craters & Freighters regarding any activities they are unsure about to ensure compliance with the franchise agreement.