After the Ella Cafe agreement expires, for how long does the non-compete period last?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
United States, its territories or commonwealths, or any other country, province, state or geographic area in which Franchisor or its Affiliates have used, sought registration of or registered the Marks or similar marks or operate or license others to operate a business under the Marks or similar marks. This restriction will apply for two years after I cease to be an Owner (or two years after termination or expiration of the Development Agreement, whichever occurs first) to any location that: (i) is, or is intended to be, located at the location of any Coffee House developed by Developer or previously operated by Developer of its Affiliate(s) under the terms of a Franchise Agreement; (ii) is within a five-mile radius of any Coffee House developed by Developer or operated by Developer or its Affiliate(s) under the terms of a Franchise Agreement; or (iii) is within a fivemile radius of any other Coffee House operating under the System and Marks that is in existence or under development at any location within the United States, its territories, or commonwealths, or any other country, province, state, or geographic area in which Franchisor or its Affiliates have used, sought registration of, or registered the Marks or similar marks, or operate or license others to operate a business under the Marks or similar marks, at the time of such expiration, termination, or transfer. The time periods relating to the restrictions set forth in this Section 6. will be tolled during any period of my noncompliance.
Source: Item 23 — RECEIPTS (FDD pages 50–181)
What This Means (2024 FDD)
According to the 2024 Ella Cafe Multi-Unit Development Agreement, the non-compete restriction lasts for two years after the termination or expiration of the Development Agreement. This restriction applies to any location that is, or is intended to be, at the location of any Ella Cafe developed by the Developer, within a five-mile radius of any Ella Cafe developed by the Developer, or within a five-mile radius of any other Ella Cafe operating under the Ella Cafe system.
This means that after the agreement ends, a former Ella Cafe developer is restricted from engaging in or being associated with any casual, fast-casual, or quick-service coffee house, retail Coffee House, coffee/food truck, kiosk, cart, or store inside store of any type, that offers coffee and/or assorted café items as a primary menu item or that derives more than 25% of its revenue from the sale of coffee and/or assorted café items. The restriction applies within a specific geographic area to protect Ella Cafe's market presence.
It's important to note that the non-compete period can be extended if the developer is in noncompliance with the agreement. The time during which the developer is not complying with the terms of the agreement will be added to the end of the non-compete period. This ensures that Ella Cafe is protected from unfair competition even if the developer violates the agreement during the non-compete period.
This non-compete clause is a standard practice in franchising to protect the brand and market share of the franchisor. Prospective Ella Cafe developers should carefully consider the implications of this restriction before entering into a development agreement, especially if they have prior experience or future plans in the coffee shop industry.