If a covenant restricting competitive activity in the Dermani Medspa franchise agreement is deemed unenforceable due to its scope, what will happen?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
The prohibitions in this Paragraph 7 do not apply to my interests in or activities performed in connection with a Franchised Business. This restriction does not apply to my ownership of less than five percent (5%) beneficial interest in the outstanding securities of any publicly held company.
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- I agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement. If all or any portion of a covenant in this Agreement is held unreasonable or unenforceable by a court or agency having valid jurisdiction in an unappealed final decision to which the Company is a party, I expressly agree to be bound by any lesser covenant subsumed within the terms of such covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Agreement.
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- I understand and acknowledge that the Company shall have the right, in its sole discretion, to reduce the scope of any covenant set forth in this Agreement, or any portion thereof, without my consent, effective immediately upon receipt by me of written notice thereof; and I agree to comply forthwith with any covenant as so modified.
Source: Item 23 — RECEIPTS (FDD pages 66–311)
What This Means (2025 FDD)
According to the 2025 Dermani Medspa FDD, if a court or agency with valid jurisdiction deems any part of a covenant within the franchise agreement unreasonable or unenforceable, the franchisee expressly agrees to be bound by any lesser covenant within the original terms that imposes the maximum duty permitted by law. This implies that the unenforceable covenant will be modified to the maximum extent allowable to ensure some level of restriction remains in place.
Additionally, Dermani Medspa has the right to reduce the scope of any covenant in the agreement without the franchisee's consent. This change becomes effective immediately upon the franchisee receiving written notice. The franchisee must then comply with the modified covenant.
These provisions ensure that Dermani Medspa retains some protection against franchisee competition even if the original terms are found to be too broad. It also grants Dermani Medspa flexibility to adjust the covenants as needed to comply with legal requirements while still safeguarding its business interests. This is a fairly common practice in franchising, as franchisors seek to protect their brand and system while operating within legal boundaries regarding non-compete agreements.