Is violating Ella Cafe's non-compete agreement considered a non-curable default?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Section in franchise or | Summary |
|---|---|---|
| other agreement | ||
| If you sign a MUDA, you may terminate | ||
| it at any time. | ||
| e. Termination by | None None | |
| franchisor without cause | ||
| f. Termination by | We may terminate your agreement for | |
| franchisor with cause | ||
| cause, subject to any applicable notice | ||
| and cure opportunity. | ||
| If you sign a MUDA, termination of | ||
| your MUDA does not give us the right | ||
| to terminate your franchise agreement. | ||
| However, if your franchise agreement is | ||
| terminated, we have the right to | ||
| terminate your MUDA. | ||
| g. “Cause” defined-- curable defaults | FA: Section 14.3, 14.4 | Non-payment by you (10 days to cure); violate franchise agreement other than non-curable default (30 days to cure). Non-payment by you (10 days to cure); |
| MUDA: Article 9 | violate franchise agreement other than | |
| non-curable default (30 days to cure). | ||
| h. “Cause” defined-- | FA: Section 14.1, 14.2 | FA: Misrepresentation when applying to |
| non-curable defaults | ||
| MUDA: Article 4, 9 | be a franchisee; knowingly submitting | |
| false information; bankruptcy; lose | ||
| possession of your location; violation of | ||
| law; violation of confidentiality; | ||
| violation of non-compete; violation of | ||
| transfer restrictions; slander or libel of | ||
| us; refusal to cooperate with our | ||
| business inspection; cease operations for | ||
| more than 5 consecutive days; three | ||
| defaults in 12 months; cross-termination; | ||
| charge or | ||
| accusation of an act that is reasonably | ||
| likely to materially and unfavorably | ||
| affect our brand; any other breach of | ||
| franchise agreement which by its nature | ||
| cannot be cured. | ||
| MUDA: failure to meet development | ||
| schedule; violation of franchise | ||
| agreement or other agreement which | ||
| gives us the right to terminate it. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION (FDD pages 41–45)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, violating the non-compete agreement is considered a non-curable default. This means that if a franchisee violates the non-compete agreement, Ella Cafe has the right to terminate the franchise agreement without providing an opportunity to cure the default.
This is a significant issue for prospective franchisees because it means that any violation of the non-compete terms, whether intentional or unintentional, can result in immediate termination of the franchise. The FDD states that non-curable defaults include violation of confidentiality, violation of non-compete, and violation of transfer restrictions.
It is important for prospective franchisees to carefully review the non-compete provisions in the franchise agreement and understand the restrictions they impose. The non-compete covenants during the term of the franchise state that neither the franchisee, any owner of the business, or any spouse of an owner may have ownership interest in, or be engaged or employed by, any competitor. After the franchise is terminated or expires, the franchisee is restricted for two years from ownership or employment by a competitor located within five miles of their former territory or the territory of any other Ella Coffee business operating on the date of termination. Franchisees should seek legal counsel to fully understand the implications of these restrictions before signing the franchise agreement.