After the Ella Cafe agreement expires, does the non-compete agreement prevent a franchisee from being employed by a competing coffee house within the specified radius?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
foregoing events or with respect to enforcement of this Section 13.2., and continuing for an uninterrupted period of two years thereafter, Franchisee will not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with any person, persons, or legal entity, own, maintain, advise, operate, engage in, be employed by, make loans to, invest in, provide any assistance to, or have any interest in (as an owner or otherwise) or relationship or association with any casual, fast-casual, or quick-service Coffee house, retail Coffee House, food truck, kiosk, cart, or store inside store of any type, that offers coffee and assorted café items as a primary menu item or that derives more than 25% of its revenue from the sale of coffee and assorted café items, other than an Coffee House operated pursuant to a then-currently effective franchise agreement with Franchisor, that: (i) is, or is intended to be, located at the location of the former Location; (ii) is within a five-mile radius of the former Location; or (iii) is within a five-mile 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. If any Owner ceases to be an Owner of Franchisee for any reason during the Term of this Agreement, the foregoing covenant will apply to the departing Owner for a two-year period beginning on the date such person ceases to meet the definition of an Owner. The time periods relating to the obligations described in this Section 13.2. will be tolled during any period of noncompliance.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, the non-compete agreement restricts a franchisee's activities after the franchise agreement expires or terminates. Specifically, for two years following the end of the agreement or any enforcement actions related to the non-compete terms, the franchisee cannot be involved with any casual, fast-casual, or quick-service coffee house, retail coffee house, food truck, kiosk, cart, or store inside a store that primarily sells coffee or derives more than 25% of its revenue from coffee and related items. This restriction applies if the competing business is located at the former Ella Cafe location, within a five-mile radius of that location, or within a five-mile radius of any other Ella Cafe operating under the brand's system and marks.
This non-compete clause extends not only to ownership or operation of a competing business but also to being employed by, advising, making loans to, investing in, or providing assistance to such a business. The geographic scope includes the United States, its territories, commonwealths, and any other region where Ella Cafe or its affiliates have used, sought to register, or registered their trademarks, or operate or license businesses under similar marks. This broad scope means that even if a franchisee leaves the Ella Cafe system, their ability to work in the coffee industry is significantly limited for two years within a potentially large area.
For a prospective Ella Cafe franchisee, this non-compete agreement is a critical consideration. It restricts their ability to work for a competitor or operate a similar business after leaving the franchise system, which could impact their future career options. The franchisee should carefully evaluate the implications of this restriction, especially if they have significant experience or future plans in the coffee industry. The franchisee should also seek legal advice to fully understand the enforceability and potential impact of the non-compete agreement in their specific circumstances.