Does the Cream Franchise Agreement's non-competition covenant apply to diverting customers to a Competitive Business?
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 Franchise Agreement includes a non-competition covenant that restricts franchisees from diverting customers to a Competitive Business during the term of the agreement. Specifically, franchisees agree not to 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 applies to the franchisee, their owners, and their respective current and former spouses, immediate family members, owners, officers, directors, representatives, affiliates, successors, and assigns.
This non-competition covenant ensures that Cream franchisees focus on growing their Cream business and do not use their position to benefit competing businesses. It protects Cream's customer base and market share by preventing franchisees from actively steering customers towards other ice cream or frozen dessert businesses. The definition of "Competitive Business" is important for franchisees to understand, as it clarifies the scope of businesses they are restricted from diverting customers to. The 10% revenue threshold ensures that the restriction applies to businesses where ice cream or similar products are a significant part of their offerings.
For a prospective Cream franchisee, this means they must be fully committed to the Cream brand and not operate or promote any competing business during the term of their Franchise Agreement. Violating this covenant could lead to legal action and termination of the franchise agreement. Franchisees should carefully consider this restriction and ensure they are comfortable with the limitations it places on their business activities. This type of non-compete clause is standard in franchising to protect the brand and prevent franchisees from exploiting the franchisor's business model for their own competing ventures.