Under what conditions is the post-term non-competition agreement for Ella Cafe triggered?
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 Franchise Disclosure Document, the post-term non-competition agreement is triggered following the expiration, termination, or transfer of the franchise agreement. After any of these events, the franchisee is restricted from involvement with any similar coffee house business. This restriction applies for two years following the triggering event.
The non-compete clause prevents the franchisee from owning, maintaining, advising, operating, or being employed by any casual, fast-casual, or quick-service coffee house, retail coffee house, coffee/food truck, kiosk, cart, or store inside a store that offers coffee and/or assorted café items as a primary menu item or derives more than 25% of its revenue from such sales. This restriction applies if the competing business is located at the former Ella Cafe location, within a five-mile radius of the former location, or within a five-mile radius of any other Ella Cafe operating under the System and Marks.
This non-compete extends to any location within the United States, its territories, or commonwealths, or any other geographic area where Ella Cafe or its affiliates have used, sought registration of, or registered the Marks. The agreement also applies to departing owners of the Developer for a two-year period starting from the date they cease to be an owner. The time periods related to these obligations will be tolled during any period of noncompliance.
For a prospective Ella Cafe franchisee, this means that upon leaving the Ella Cafe system, they face significant restrictions on their ability to operate or be involved with a competing coffee business. The broad scope of the non-compete, both in terms of the types of businesses restricted and the geographic area covered, could significantly limit their future business opportunities. Franchisees should carefully consider these restrictions and their potential impact on their long-term career plans before investing in an Ella Cafe franchise.