Must a Fat Shack franchisee abide by post-termination covenants, including the covenant not to compete, when transferring the franchise?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
- k. Franchisee executes a general release, in a form satisfactory to FSI, of any and all claims against FSI, its affiliates and their respective shareholders, members, managers, officers, directors, employees and agents; and
- l. Franchisee abides by all post-termination covenants, including, without limitation, the covenant not to compete set forth in Section 21.2.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, a franchisee must abide by all post-termination covenants, including the covenant not to compete, when transferring their franchise. This requirement is explicitly stated as one of the preconditions for Fat Shack's approval of the franchise transfer.
This means that even when selling the Fat Shack franchise to a new owner, the original franchisee remains bound by the non-compete agreement. The non-compete agreement, as detailed in the FDD, prevents the franchisee from engaging in any Competitive Business within a 10-mile radius of the former Fat Shack Restaurant location or any other Fat Shack location for a period of two years after the termination or expiration of the Franchise Agreement or the date the franchisee ceases to conduct business, whichever is later. A Competitive Business is defined as any business deriving more than 10% of its gross receipts from the sale of sandwiches, burgers, and wings, excluding alcohol sales.
For a prospective franchisee, this condition has significant implications. It means that selling the franchise does not immediately release them from the obligations of the non-compete agreement. Therefore, when planning an exit strategy, franchisees must consider the restrictions imposed by the non-compete clause and how it might affect their future business endeavors. This requirement ensures that Fat Shack's interests are protected even after a franchise changes ownership, maintaining brand consistency and preventing unfair competition from former franchisees.