What constitutes a violation of the non-compete clause by a Desi District franchisee that could lead to termination?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
- (vi) Franchisee or any Owner commits a material violation of Section 7.2 (compliance with laws) or Section 13.1 (confidentiality), violates Section 13.2 (non-compete) or Article 15 (transfer), or commits any other violation of this Agreement which by its nature cannot be cured;
13.2 Covenants Not to Compete.
- (a) Restriction In Term. During the term of this Agreement, neither Franchisee, any Owner, nor any spouse of an Owner (the "Restricted Parties") 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.
- (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 Desi District 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 noncompetition will the Development Area and the territory of any other Desi District business operating on the date of termination.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, a franchisee can be terminated for violating the non-compete clause outlined in Section 13.2 of the franchise agreement. This clause includes restrictions both during the term of the agreement and for a period of two years after the agreement expires or is terminated. These restrictions apply to the franchisee, any owner, and any spouse of an owner (referred to as "Restricted Parties").
During the term of the agreement, Restricted Parties are prohibited from having any ownership interest in, lending money or providing financial assistance to, providing any services to, or being employed by any competitor. After the agreement expires or is terminated, the same restrictions apply for two years within five miles of the franchisee's territory or the territory of any other Desi District business operating on the date of termination or transfer. If the territory is not yet determined when the agreement is terminated, the non-compete area will be the Development Area and the territory of any other Desi District business operating at the time of termination.
Desi District retains the right to terminate the franchise agreement without an opportunity to cure if the franchisee violates Section 13.2 (non-compete). This means that any breach of the non-compete covenants, whether during or after the franchise term, could result in immediate termination of the franchise agreement. The franchisee should carefully review these restrictions and ensure full compliance to avoid potential termination and legal repercussions.