What is the consequence if the Cream franchisee violates the non-competition covenant during the term of the agreement?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
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 exchange will not be deemed to violate this subparagraph);
- (2) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, wherever located or operating; or
- (3) divert or attempt to divert any actual or potential business or customer of any Jeni's Ice Creams Scoop Shop to a Competitive Business.
The term "Competitive Business" means any business (excluding any Jeni's Ice Creams Scoop Shop operated under a franchise agreement with us) operating or granting 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.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 44–51)
What This Means (2025 FDD)
The 2025 Franchise Disclosure Document for Cream outlines non-competition restrictions during the term of the agreement. During the franchise term, Cream requires franchisees and their owners to deal exclusively with them. Franchisees and their owners must not have any direct or indirect interest in a Competitive Business, perform services for a Competitive Business, or divert business from 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 franchises businesses where ice cream, ice cream-based desserts/drinks, or similar products represent more than 10% of the total gross revenue.
However, the FDD does not explicitly state the consequences if a Cream franchisee violates the non-competition covenant during the term of the agreement. The document does not specify financial penalties, termination clauses, or other remedies Cream might pursue if a franchisee breaches this covenant.
Therefore, a prospective Cream franchisee should seek clarification from the franchisor regarding the specific repercussions of violating the non-competition agreement during the franchise term. Understanding the potential penalties or legal actions Cream could take is crucial for making an informed investment decision.