Are Crawlspace Medic Principals subject to the same non-compete restrictions as franchisees?
Crawlspace_Medic Franchise · 2024 FDDAnswer from 2024 FDD Document
In consideration for such specialized training, trade secrets, Confidential Information and rights, Franchisee and each Principal, if any, covenant that, except as otherwise approved in writing by Franchisor:
- 19.5.1.
During the term of this Agreement, Franchisee and each Principal, if any, shall not, either directly or indirectly, for themselves or through, on behalf of, or in conjunction with, any person or entity (i) divert, or attempt to divert, any business or customer of the Franchised Business or of other franchisees in the System to any competitor, by direct or indirect inducement or otherwise; (ii) participate as an owner, partner, director, officer, employee, consultant or agent or serve in any other capacity in any crawlspace or basement service business similar to the System; or (iii) seek to employ any person who is at that time employed by Franchisor or otherwise induce such person to leave his or her employment; or (iv) do or
perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks and the System or (v) in any manner interfere with, disturb, disrupt, decrease or otherwise jeopardize the business of the Franchisor or any Crawlspace Medic franchisees or Franchisor-affiliated outlets.
- 19.5.2.
Upon the expiration or earlier termination of this Agreement or upon a Transfer and continuing for twenty-four (24) months thereafter, Franchisee and Principals, if any, shall not, either directly or indirectly, for themselves or through, on behalf of or in conjunction with any person or entity (i) divert, or attempt to divert, any business or customer of the Franchised Business or of other franchisees in the System to any competitor, by direct or indirect inducement or otherwise; or (ii) participate as an owner, partner, director, officer, employee, consultant or agent or serve in any other capacity in any crawlspace or basement service business within twenty-five (25) miles of the Territory or any Crawlspace Medic location; or (iii) seek to employ any person who is at that time employed by Franchisor or otherwise induce such person to leave his or her employment or (iv) do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks and the System or (v) in any manner interfere with, disturb, disrupt, decrease or otherwise jeopardize the business of the Franchisor or any Crawlspace Medic franchisees.
- 19.6.
Reasonableness of Restrictions.
Franchisee and each Principal, if any, acknowledges and agrees that the covenants not to compete set forth in this Agreement are fair and reasonable and will not impose any undue hardship on Franchisee or Principals, if any, since Franchisee or Principals, as the case may be, have other considerable skills, experience and education which afford Franchisee or Principals, as the case may be, the opportunity to derive income from other endeavors.
- 19.7.
Reduction of Time or Scope.
If the period of time or the geographic scope specified above, should be adjudged unreasonable in any proceeding, then the period of time will be reduced by such number of months or the geographic scope will be reduced by the elimination of such portion thereof, or both, so that such restrictions may be enforced for such time and scope as are adjudged to be reasonable.
Source: Item 22 — CONTRACTS (FDD page 42)
What This Means (2024 FDD)
According to the 2024 Crawlspace Medic Franchise Disclosure Document, Principals are indeed subject to non-compete restrictions similar to those imposed on franchisees. During the term of the Franchise Agreement, both the franchisee and their Principals are prohibited from engaging in any activity that could divert business from the Crawlspace Medic system or compete with it directly. This includes soliciting customers, participating in similar businesses, or employing individuals associated with Crawlspace Medic. These restrictions are designed to protect the goodwill and business interests of the franchisor and its franchisees.
Specifically, after the termination or transfer of the Franchise Agreement, the franchisee and their Principals are restricted from engaging in competitive activities for a period of twenty-four (24) months. This includes involvement in any crawlspace or basement service business within twenty-five (25) miles of the franchisee's territory or any Crawlspace Medic location. The FDD states that these restrictions are considered reasonable, acknowledging that franchisees and principals possess other skills and experiences that allow them to pursue income from other sources.
The Crawlspace Medic franchise agreement also addresses the possibility of these restrictions being deemed unreasonable. If a court finds the time period or geographic scope too broad, the agreement stipulates that the restrictions will be reduced to a level that is considered reasonable and enforceable. Furthermore, Crawlspace Medic retains the right to modify the scope of these covenants, providing flexibility in enforcing the non-compete provisions. This ensures that the restrictions are appropriately tailored to protect the franchisor's interests without unduly burdening the franchisee or their Principals.
Prospective Crawlspace Medic franchisees should carefully review these non-compete clauses with legal counsel to fully understand their obligations and limitations. Understanding the scope and duration of these restrictions is crucial for planning future business activities and ensuring compliance with the Franchise Agreement. Franchisees should also be aware of the potential for these restrictions to be modified or enforced differently depending on specific circumstances and legal interpretations.