Is Degree Wellness considered a third-party beneficiary of the covenants contained in Section 10 of the agreement?
Degree_Wellness Franchise · 2025 FDDAnswer from 2025 FDD Document
- 10.5. Licensed Provider acknowledges and agrees that a breach of any provision of this Section 10 would cause immediate and irreparable harm to Management Company and Degree Wellness. Therefore, Licensed Provider acknowledges and agrees that the foregoing restraints are fair and reasonable, are required for the protection of Management Company's and Degree Wellness's legitimate business interests, and do not impose any undue hardship on Licensed Provider. Degree Wellness shall be deemed to be a third party beneficiary of all of the covenants contained in this Section 10.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 63–66)
What This Means (2025 FDD)
According to Degree Wellness's 2025 Franchise Disclosure Document, Degree Wellness is indeed considered a third-party beneficiary of the covenants outlined in Section 10 of the agreement. This section pertains to restrictive covenants, which include non-competition, non-disparagement, and non-solicitation clauses designed to protect Degree Wellness's business interests.
Being a third-party beneficiary means that Degree Wellness has the right to enforce these covenants directly against the Licensed Provider (franchisee) even though Degree Wellness is not a direct party to the franchise agreement between the Licensed Provider and the Management Company. This provides Degree Wellness with legal standing to take action if a franchisee violates the restrictive covenants, such as by competing with the franchise during the agreement term or for a specified period afterward, disparaging the brand, or soliciting patients, franchisees, vendors, or suppliers.
This arrangement is common in franchising, as it allows the franchisor to maintain brand standards, protect confidential information, and prevent unfair competition across the entire franchise system. The franchisee acknowledges that breaching these covenants would cause immediate and irreparable harm to Degree Wellness, reinforcing the importance of adhering to these restrictions. The FDD also states that Degree Wellness is a third-party beneficiary of Section 11.1, which covers indemnification, and of certain covenants and agreements related to confidential information.