Does the Cream Franchise Agreement specify any exceptions to the non-competition covenants?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 23: RECEIPTS]
E. COVENANT NOT TO COMPETE.
For two years beginning on the date of termination or expiration of this Agreement, 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, employees, 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; and/or (2) perform services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, in each case, if such Competitive Business is located or operating:
- (a) within the Development Area, or
- (b) within a 5-mile radius of any other Jeni's Ice Creams Scoop Shop.
If any person restricted by this Section fails to comply with these obligations as of the date of termination or expiration, the two-year restricted period for that person will commence on the date the person begins to comply with this Section, which may be the date a court order is entered enforcing
this provision. You and your owners expressly acknowledge that you possess skills and abilities of a general nature and have other opportunities for exploiting these skills. Consequently, our enforcing the covenants made in this Section will not deprive you of your personal goodwill or ability to earn a living. The restrictions in this Section will also apply after any transfer, to the transferor and its owners, for a period of two years beginning on the effective date of the transfer, with the force and effect as though this Agreement had been terminated for such parties as of such date.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 44–51)
What This Means (2025 FDD)
According to the 2025 FDD, the Cream franchise agreement outlines specific exceptions to the non-competition covenants. During the term of the agreement, franchisees and their owners are restricted from having a direct or indirect interest in a Competitive Business. However, an exception exists for equity ownership of less than 5% in a Competitive Business if its stock is publicly traded on a recognized United States stock exchange. This means a franchisee can invest a small amount in a competing company without violating the agreement, as long as it's a publicly traded entity.
Following the termination or expiration of the franchise agreement, the non-compete extends for two years. During this period, franchisees are restricted from involvement with a Competitive Business within their Development Area or within a 5-mile radius of any other Jeni's Ice Creams Scoop Shop. The restriction applies to ownership and performing services for a Competitive Business. The agreement clarifies that if a restricted person fails to comply with these obligations, the two-year restricted period will commence on the date the person begins to comply with the section, which may be the date a court order is entered enforcing this provision.
These non-compete clauses also apply to the franchisee's current and former spouses, immediate family members, owners, officers, directors, employees, representatives, affiliates, successors, and assigns. Cream emphasizes that franchisees possess general skills and abilities, and enforcing these covenants will not deprive them of their personal goodwill or ability to earn a living. The restrictions also apply after any transfer, to the transferor and its owners, for a period of two years beginning on the effective date of the transfer, with the force and effect as though this Agreement had been terminated for such parties as of such date.