Is the covenant not to compete in the Dq Treat Operating Agreement, which extends beyond termination, always enforceable under California law?
Dq_Treat Franchise · 2025 FDDAnswer from 2025 FDD Document
- C. The Operating Agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law.
- D. The Operating Agreement requires binding arbitration. The arbitration will occur at Minneapolis, Minnesota or at such other place as may be mutually agreeable to the parties with the cost being borne by the nonprevailing party. The prevailing party is entitled to recover its reasonable attorneys' fees and costs of the arbitration. You are encouraged to consult private legal counsel to determine the applicability of California and federal laws (such as Business and Professions Code Section
Source: Item 23 — UItem 23U***:** U**Receipts (FDD pages 67–70)
What This Means (2025 FDD)
According to Dq Treat's 2025 Franchise Disclosure Document, the enforceability of the covenant not to compete, which extends beyond the termination of the franchise, is not guaranteed under California law. Item 17 of the addendum to the disclosure document for the state of California specifically addresses this issue. This means that if a franchisee's operating agreement with Dq Treat contains a post-termination non-compete clause, a California court might not uphold it.
This has significant implications for prospective Dq Treat franchisees in California. Non-compete clauses generally restrict a franchisee's ability to engage in similar business activities after the franchise agreement ends, aiming to protect the franchisor's market share and trade secrets. However, California law is often less receptive to such restrictions, especially those extending beyond the franchise term. Therefore, a franchisee who exits the Dq Treat system in California may have more freedom to start a competing business or work for a competitor compared to franchisees in other states with more lenient non-compete laws.
It is important for potential Dq Treat franchisees in California to understand the specific terms of the non-compete clause in the Operating Agreement and to consult with legal counsel to assess its potential enforceability. The FDD explicitly encourages franchisees to seek legal advice on this matter. While the franchisor includes the clause in its standard agreement, its actual impact on a franchisee's future business activities in California could be limited by state law. This does not mean the clause is automatically void, but rather that its enforceability will depend on the specific circumstances and legal interpretation at the time.
In summary, while Dq Treat includes a post-termination covenant not to compete in its Operating Agreement, prospective franchisees in California should be aware that this provision may not be fully enforceable under California law. They should seek legal counsel to understand the specific implications and potential limitations of this clause in their individual circumstances.