What constitutes a violation of the non-compete clause for Crown Gold Exchange franchisees?
Crown_Gold_Exchange Franchise · 2024 FDDAnswer from 2024 FDD Document
- (b) Restriction Post Term. For two years after this Agreement expires or is terminated for any reason (or, if applicable, for two years after a Transfer), no Restricted Party shall directly or indirectly have any ownership interest in, lend money or provide financial assistance to, provide any services to, or be employed by, any Competitor within five miles of Franchisee's Territory or the territory of any other Crown Gold Exchange business operating on the date of termination or transfer, as applicable. If this Agreement is terminated before the Territory is determined, then the area of non-competition will the Development Area and the territory of any other Crown Gold Exchange business operating on the date of termination.
- (c) Interpretation. The parties agree that each of the foregoing covenants is independent of any other covenant or provision of this Agreement. If all or any portion of the covenants in this Section is held to be unenforceable or unreasonable by any arbitrator or court, then the parties intend that the arbitrator or court modify such restriction to the extent reasonably necessary to protect the legitimate business interests of Crown Gold Franchising. Franchisee agrees that the existence of any claim it may have against Crown Gold Franchising shall not constitute a defense to the enforcement by Crown Gold Franchising of the covenants of this Section. If a Restricted Party fails to comply with the obligations under this Section during the restrictive period, then the restrictive period will be extended an additional day for each day of noncompliance.
- 13.3 General Manager and Key Employees. If requested by Crown Gold Franchising, Franchisee will cause its general manager and other key employees to sign Crown Gold Franchising's then-current form of confidentiality and non-compete agreement (unless prohibited by applicable law).
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
According to Crown Gold Exchange's 2024 Franchise Disclosure Document, a franchisee violates the non-compete clause if, for two years after the franchise agreement expires or is terminated, a Restricted Party has any ownership interest in, lends money or provides financial assistance to, provides any services to, or is employed by any Competitor within five miles of the franchisee's territory or the territory of any other Crown Gold Exchange business operating on the date of termination or transfer. If the agreement is terminated before the territory is determined, the non-competition area will be the Development Area and the territory of any other Crown Gold Exchange business operating on the date of termination.
This restriction applies to the franchisee and any other "Restricted Party," which likely includes owners, managers, and potentially other key personnel. The definition of "Competitor" is not provided in this excerpt, so it is important to understand what businesses Crown Gold Exchange considers to be competitive. The non-compete extends for two years, which is a fairly standard duration for franchise agreements. The geographic scope of five miles may be reasonable depending on the population density and market conditions of the territory.
The FDD also states that if a Restricted Party fails to comply with the obligations under this section during the restrictive period, then the restrictive period will be extended an additional day for each day of noncompliance. This clause means that any violation of the non-compete agreement will result in an extension of the restricted period, potentially prolonging the franchisee's inability to engage in competitive activities.
Crown Gold Exchange also requires the franchisee to cause its general manager and other key employees to sign Crown Gold Franchising's then-current form of confidentiality and non-compete agreement (unless prohibited by applicable law). This ensures that not only the franchisee but also key personnel are bound by non-compete obligations, further protecting Crown Gold Exchange's interests. Prospective franchisees should carefully review the non-compete agreement and seek legal counsel to fully understand its implications.