What constitutes a violation of the covenant not to compete for a Fat Shack franchise, as defined in Section 21.1?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee acknowledges that, in addition to the license of the Marks hereunder, FSI has also licensed commercially valuable information which comprises and is a part of the Licensed Methods, including without limitation operations, marketing, advertising and related information and materials, and that the value of this information derives not only from the time, effort and money which went into its compilation, but from the usage by all franchisees of FSI using the Marks and Licensed Methods. Franchisee therefore agrees that other than the FAT SHACK Restaurant licensed herein, neither Franchisee nor any of Franchisee's officers, directors, shareholders, managers, members or partners, nor any immediate family member of Franchisee or any of these individuals ("Bound Parties"), shall during the term of this Agreement:
- a. have any direct or indirect interest as a disclosed or beneficial owner in a "Competitive Business" as defined below;
- b. perform services as a director, officer, manager, employee, consultant, representative, agent or otherwise for a Competitive Business, wherever located or operating;
- c. divert or attempt to divert any business related to the FAT SHACK Restaurant, FSI's business, or any other FAT SHACK franchisee by direct inducement or otherwise, or divert or attempt to divert the employment of any employee of FSI or another franchisee licensed by FSI to use the Marks and Licensed Methods, to any Competitive Business; or
- d. directly or indirectly solicit or employ any person who is employed by FSI.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to the 2025 Fat Shack Franchise Disclosure Document, Section 21.1 outlines the non-competition agreement during the term of the franchise agreement. This section specifies actions that would be considered a violation of the agreement. The agreement applies not only to the franchisee but also to their officers, directors, shareholders, managers, members, partners, and immediate family members, collectively referred to as "Bound Parties."
During the term of the agreement, the franchisee and Bound Parties are prohibited from having any direct or indirect interest as a disclosed or beneficial owner in a "Competitive Business," which is defined as any business deriving more than 10 percent of its gross receipts (excluding alcohol sales) from the sale of sandwiches, burgers, and wings. They are also prohibited from performing services as a director, officer, manager, employee, consultant, representative, or agent for a Competitive Business, regardless of its location. Furthermore, franchisees cannot divert or attempt to divert business from the Fat Shack Restaurant, Fat Shack's business, or any other Fat Shack franchisee, nor can they attempt to divert the employment of any employee of Fat Shack or another franchisee to a Competitive Business. Lastly, they are prohibited from directly or indirectly soliciting or employing any person who is employed by Fat Shack.
In practical terms, this means that a Fat Shack franchisee and their close associates cannot be involved in any competing restaurant concept during the term of their franchise agreement. This restriction is designed to protect Fat Shack's market share, trade secrets, and employee base. Violation of this covenant could result in legal action and financial penalties, as detailed in other sections of the FDD.