Does the Cream Area Development Agreement contain a non-competition covenant that restricts diverting customers?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
to do all other lawfully permitted acts to further the purposes of this Section with the same legal force and effect as if executed by you.
7. RESTRICTIVE COVENANTS.
A. NON-COMPETITION DURING TERM.
We have granted you the rights in this Agreement in consideration of and reliance upon your agreement to deal exclusively with us. You therefore agree that, during the Term, you and your owners agree not to (and to use each of your best efforts to cause each of your respective current and former spouses, immediate family members, owners, officers, directors, representatives, affiliates, successors and assigns not to):
- (1) have any direct or indirect interest as an owner whether of record, beneficially, or otherwise – in a Competitive Business (defined below), wherever located or operating (except that equity ownership of less than 5% of a Competitive Business whose stock or other forms of ownership interest are publicly traded on a recognized United States stock exc
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 44–51)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, the Area Development Agreement includes a non-competition covenant that restricts franchisees from diverting customers. Specifically, during the term of the agreement, franchisees and their owners must not divert or attempt to divert any actual or potential business or customer of any Jeni's Ice Creams Scoop Shop to a Competitive Business. A Competitive Business is defined as any business (excluding any Jeni's Ice Creams Scoop Shop operated under a franchise agreement with Cream) that operates or grants franchises or licenses to others to operate any business for which ice cream, ice cream-based desserts or drinks, and/or other frozen desserts or drinks, or similar products represents more than 10% of the total gross revenue.
This restriction means that while operating a Cream franchise, franchisees are prohibited from actively trying to take Cream's customers and direct them to a competing business. This is a fairly standard clause in franchise agreements, designed to protect the Cream brand and customer base. The agreement specifies that this extends not only to the franchisee but also to their owners, family members, and related parties, ensuring a broad scope of coverage.
It is important to note the definition of a "Competitive Business" as it relates to the non-compete clause. The clause is triggered if the business in question derives more than 10% of its revenue from ice cream or similar products. This implies that franchisees may be able to engage with businesses that sell ice cream, provided that ice cream sales are a minor part of their overall revenue. Franchisees should carefully consider these definitions and restrictions to ensure they remain in compliance with the Area Development Agreement.