Under the Exit franchise agreement, to what extent should the provisions of Section 21 be enforced?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
areholders, partners or members, from violating this section. In cases where EXIT or Subfranchisor is granted ex parte injunctive relief against Franchisee and/or Franchisee's shareholders, partners or members, Franchisee will have the right to petition the court for a hearing on the merits at the earliest time convenient to the court.
21.5. Severability
It is the desire and intent of the parties to this Agreement, including Franchisee's shareholders, partners or members, that the provisions of this Section 21 be enforced to the fullest extent permissible under the laws and public policy applied in each jurisdiction in which enforcement is sought. Accordingly, if any part of this section is adjudicated to be invalid or unenforceable, then this section will be deemed amended to modify or delete that portion thus adjudicated to be invalid or unenforceable, such modification or deletion to apply only with respect to the operation of this section and the particular jurisdiction in which such adjudication is made. Further, to the extent any provision of this Section 21 is deemed unenforceable by virtue of its scope or limitation, the parties to this Agreement, including Franchisee and Franchisee's shareholders, partners or members, agree that the scope and limitation provisions will, nevertheless, be enforceable to the fullest extent permissible under the laws and public policies applied in such jurisdiction where enforcement is sought.
22. NOTICES
All notices, requests, demands and other communications required or permitted under this Agreement or applicable law shall be in writing and, unless a specific method of delivery is required by applicable law, may be delivered by in-person delivery; private courier, such as UPS or FED EX; certified or priority U.S. Mail; or e-mail transmission. Notice shall be deemed sufficiently given, if served in any manner specified in this Section 22. Any notice sent by private courier or U.S. mail shall be effective as of the time it is delivered to the private courier or deposited in the mail, postage prepaid. Notices transmitted by e-mail transmission shall be deemed delivered upon transmission. The parties' addresses noted in this Agreement or, if more recent, in the records of the party sending the notice, shall be the recipient's address for delivery or mailing of notices. Either party may, by written notice to the other, specify a different address for notice.
23. WAIVER
No terms of this Agreement shall be held to have been waived by any act or knowledge of either party to this Agreement, or its employees, except by instrument in writing duly executed by both parties hereto. If at any time either party shall waive its rights upon any breach of any of the provisions of this Agreement, then the waiver is not to be construed as a continuing waiver of other breaches of the same or other provisions of the Agreement.
24. TIME OF THE ESSENCE
Time is of the essence in the performance of this Agreement and each and every provision in this Agreement.
25. GOVERNING LAW; STATE MODIFICATIONS
25.1 Governing Law
Except to the extent governed by the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. § 1051 et seq.), this Agreement and the relationship between Subfranchisor and Franchisee will be governed by the laws of the state in which the Protected Territory is located. If the Protected Territory contains more than one (1) state, then this Agreement and the relationship between Subfranchisor and Franchisee will be governed by the laws of the state in which Franchisee's principal place of business is located, as indicated on the cover page of this Agreement. The provisions of this Agreement which conflict with or are inconsistent with applicable governing law will be superseded and/or modified by such applicable law only to the extent such provisions are inconsistent. All other provisions of this Agreement will be enforceable as originally made and entered into upon the execution of this Agreement by Franchisee and Subfranchisor.
25.2. State Modifications
- (A) CALIFORNIA. If this Agreement is governed by the laws of the State of California, then the covenant not to compete upon termination or expiration of this Agreement contained in Section 21 may be unenforceable, except in certain circumstances provided by law.
- (B) ILLINOIS. If this Agreement is governed by the laws of the State of Illinois, then: (1) the acknowledgments made by Franchisee in Section 41 are not allowed under the Illinois Franchise Disclosure Act and (2) any provision of this Agreement which designates jurisdiction or venue outside of the State of Illinois is void
- (C) INDIANA. If this Agreement is governed by the laws of the State of Indiana, then: (1) the geographical limitation contained in Section 21 will be limited to within the Protected Territory; (2) Section 21 which states Subfranchisor is entitled to injunctive relief may be inapplicable; rather, Subfranchisor is entitled to seek injunctive relief; (3) notwithstanding any provisions of this Agreement to the contrary, a court of competent jurisdiction will determine (a) whether damages alone can adequately compensate Subfranchisor if there is a violation by Franchisee, Franchisee's shareholders or the partners or members, as the case may be, and (b) whether Subfranchisor will be required to post a bond or other security, and the amount of such bond or other security, in any injunctive proceeding commenced by Subfranchisor against Franchisee, Franchisee's shareholders or the partners or members, as the case may be.
- (D) MARYLAND. If this Agreement is governed by the laws of the State of Maryland, then: (1) the acknowledgments made by Franchisee contained in Section 41 of this Agreement will not be construed to act as a waiver of Franchisee's rights under the Maryland Franchise Registration and Disclosure Law, Md. Code Ann., Bus. Reg. § 14-201 et seq.;
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, Section 21 of the franchise agreement, which likely contains covenants not to compete, should be enforced to the fullest extent permissible under applicable laws and public policy in the relevant jurisdiction. This means that Exit intends to pursue maximum legal enforcement of these provisions to protect its interests. If any part of Section 21 is deemed invalid or unenforceable, it will be modified or deleted, but only to the extent necessary and only in the specific jurisdiction where the issue arises. The intent is to maintain the enforceability of the remaining provisions as much as possible.
Exit franchisees and their shareholders, partners, or members agree that the limitations outlined in Section 21 are reasonable and necessary to safeguard Exit and its other franchises, especially if the franchise agreement expires or is terminated. These protections are designed to prevent damage to Exit's brand, unauthorized disclosure of confidential information, and the misuse of trade secrets.
However, the enforceability of Section 21 can vary significantly depending on the state laws governing the agreement. For example, if the agreement is governed by California law, the covenant not to compete in Section 21 may be unenforceable except in specific legally defined circumstances. Similarly, in Indiana, the geographical limitations within Section 21 may be restricted to the franchisee's protected territory, and the availability of injunctive relief may be subject to court determination and potential bond requirements. In South Dakota, certain provisions of Section 21 may also be unenforceable under specific circumstances, and acknowledgment provisions may be subject to judicial review. Therefore, the actual enforcement of Section 21 is highly dependent on the specific legal jurisdiction and circumstances.
Exit also has the right to seek temporary and permanent injunctions and orders for specific performance to enforce provisions related to the Proprietary Marks and the EXIT System, obligations upon termination or expiration, assignment of the agreement, covenants not to compete, confidentiality, or any act that violates laws or impairs goodwill. Franchisees agree that violations will cause irreparable injury to the EXIT System, justifying injunctive relief. Subfranchisor is entitled to obtain injunctive relief against Franchisee enforcing the foregoing provisions without the need to present evidence of irreparable injury and without the posting of any bond or security.