What is the duration of the non-compete period after cessation or termination of my relationship with the Ella Cafe franchisee?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
the foregoing events or with respect to enforcement of this Section 10.2., and continuing for an uninterrupted period of two years thereafter, Developer 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, 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, other than a Ella Coffee Company, LLC 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 Developer 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 10.2. will be tolled during any period of noncompliance.
Source: Item 23 — RECEIPTS (FDD pages 50–181)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Multi-Unit Development Agreement, both the developer and its owners are subject to a non-compete clause that lasts for two years after the termination or expiration of the Development Agreement, or after an owner ceases to be an owner. This restriction applies if the location is at the site of a former Ella Cafe, within a five-mile radius of a former Ella Cafe, or within a five-mile radius of any other Ella Cafe operating under the Ella Cafe system.
The non-compete restricts the developer and its owners from owning, maintaining, advising, operating, or being involved 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 non-compete applies to any location within the United States, its territories, or commonwealths, or any other country, province, state, or geographic area in which Ella Cafe 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 means that after leaving the Ella Cafe system, a former franchisee or owner is restricted from engaging in a similar coffee business within a specific geographic area for a defined period. The time periods relating to the obligations described in this section will be tolled during any period of noncompliance. This is a fairly standard practice in franchising to protect the brand and market share of the franchisor. Prospective franchisees should carefully consider these restrictions and how they might impact their future business opportunities before investing in an Ella Cafe franchise.