Does the Fat Shack franchise agreement prohibit me from attempting to divert the employment of any employee of FSI's affiliates to a Competitive Business?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
21.2. Post-Termination Covenant Not to Compete
For a period of two years from termination or expiration of this Agreement for any reason, or the date on which Franchisee ceases to conduct business, whichever is later, neither Franchisee nor any Bound Party shall have any direct or indirect interest as a disclosed or beneficial owner, investor, partner, director, officer, employee, consultant, representative or agent or in any other capacity in any Competitive Business located or operating within a 10-mile radius of the former Restaurant Location or within a 10-mile radius of any other franchised or company-owned FAT SHACK Restaurant. If Franchisee or any other Bound Party breaches this section, the two-year period shall start on the date that such person is enjoined from competing or stops competing, whichever is later. Franchisee and the Bound Parties expressly acknowledge that they possess skills and abilities of a general nature and have other opportunities for exploiting such skills.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, the franchise agreement does address the diversion of employees to a competitive business. Specifically, during the term of the agreement, a franchisee is prohibited from diverting or attempting 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. This restriction applies not only to the franchisee but also to their officers, directors, shareholders, managers, members, partners, and immediate family members.
The term "Competitive Business" is defined as any business operating or franchising a restaurant or other business deriving more than 10 percent of its gross receipts (excluding alcohol sales) from the sale of sandwiches, burgers, and wings. This definition excludes other Fat Shack Restaurants operated by the company. However, owning securities in a Competitive Business is permitted if the securities are listed on a stock exchange or traded over-the-counter and represent 2 percent or less of the outstanding securities.
After the termination or expiration of the franchise agreement, a post-termination covenant not to compete is in effect for two years. During this period, the franchisee and their immediate family are prohibited from having any direct or indirect interest in a Competitive Business within a 10-mile radius of the former Fat Shack Restaurant location or any other Fat Shack Restaurant, whether franchised or owned by FSI or its affiliates. If this covenant is breached, the two-year period restarts from the date the activity is stopped or enjoined, whichever is later. This means that Fat Shack places significant restrictions on franchisees and related parties regarding involvement with competitive businesses both during and after the franchise term.