Does the Fat Shack franchise agreement contain a non-competition covenant during the term of the agreement?
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.
The term "Competitive Business" as used in this Agreement shall mean any business operating, or granting franchises or licenses to others to operate a restaurant or other business deriving more than 10 percent of its gross receipts, excluding gross receipts relating to the sale of alcoholic beverages, from the sale of sandwiches, burgers and wings (other than another FAT SHACK Restaurant operated by Franchisee); provided, however, neither Franchisee nor the other Bound Parties shall be prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market and represent 2 percent or less of that class of securities issued and outstanding. Franchisee agrees that nothing in this Article 21 shall be construed to grant Franchisee any protected territory.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to the 2025 Fat Shack Franchise Disclosure Document, the franchise agreement includes non-competition covenants that apply during the term of the agreement. These covenants restrict the franchisee and related parties from engaging in competitive business activities.
Specifically, the franchisee and their officers, directors, shareholders, managers, members, partners, and their immediate family members are prohibited from having any direct or indirect interest in a "Competitive Business," performing services for a Competitive Business, diverting business from Fat Shack, or soliciting Fat Shack employees. A "Competitive Business" is defined as any business operating a restaurant deriving more than 10 percent of its gross receipts (excluding alcohol sales) from the sale of sandwiches, burgers, and wings. However, the franchisee is allowed to own less than 2 percent of securities in a Competitive Business if those securities are publicly traded.
These restrictions are designed to protect Fat Shack's licensed methods, trademarks, and the overall value of the franchise system. Franchisees should carefully consider these restrictions and how they might impact their other business interests or potential future ventures. These non-compete terms are fairly standard in the franchise industry to protect the brand and prevent franchisees from using the franchisor's confidential information to compete against them.