What happens if an Associate of a Fat Shack franchise breaches the post-termination covenant not to compete?

According to the 2025 Fat Shack Franchise Disclosure Document, if an Associate or any member of the Associate's immediate family breaches the post-termination covenant not to compete, the two-year non-compete period restarts. The two-year period begins again on the date that the Associate or their family member is legally stopped (enjoined) from the competitive activity, or when they voluntarily cease the activity, whichever date is later. This means the non-compete clock effectively resets if a violation occurs.

This clause is designed to protect Fat Shack's interests by ensuring that former associates do not immediately leverage their knowledge and experience to compete with existing Fat Shack locations. The definition of "Competitive Business" is any business that derives more than 10% of its gross receipts (excluding alcohol sales) from selling sandwiches, burgers, and wings. However, owning a small amount (2% or less) of stock in a publicly traded competitor is permitted.

For a prospective franchisee, this highlights the importance of ensuring that all employees and family members understand and adhere to the non-compete agreement. Failure to do so can result in legal action and an extended period during which the associate is restricted from working in a competing business within the specified radius. The 10-mile radius restriction applies both to the location of the former Fat Shack Restaurant and to any other Fat Shack Restaurant, whether franchised or company-owned.

It is important to note that the enforcement of non-compete agreements can vary by jurisdiction, and courts may scrutinize such agreements to ensure they are reasonable in scope and duration. Franchisees should consult with legal counsel to fully understand the implications of these covenants in their specific location.