If a franchisee breaches the post-termination covenant not to compete for a Fat Shack franchise, when does the two-year non-compete period restart?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
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. Consequently, enforcement of the covenants made in this section will not deprive them of their personal goodwill or ability to earn a living.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, if a franchisee or any related party breaches the post-termination covenant not to compete, the two-year non-compete period restarts. The two-year period begins on the date the franchisee or related party is legally stopped from competing (enjoined) or when they voluntarily stop competing, whichever occurs later. This clause ensures that Fat Shack can enforce its non-compete agreement effectively, preventing former franchisees from immediately opening a competing business nearby and potentially drawing away customers or employees.
This provision is designed to protect Fat Shack's market share and brand reputation by preventing former franchisees from leveraging their knowledge of the business to operate a competing venture in close proximity. The non-compete applies within a 10-mile radius of the former Fat Shack location or any other franchised or company-owned Fat Shack restaurant. The agreement specifies that the franchisee acknowledges having general skills and opportunities, so enforcing the non-compete will not deprive them of their ability to earn a living.
For a prospective franchisee, this means that violating the non-compete agreement can lead to legal action and an extension of the period during which they are prohibited from engaging in a competitive business. The definition of a "Competitive Business" includes any establishment deriving more than 10% of its gross receipts (excluding alcohol sales) from selling sandwiches, burgers, and wings. This definition is important for franchisees to understand to avoid unintentional breaches.
It is also important to note that the non-compete obligations extend not only to the franchisee but also to other "Bound Parties," which may include family members or business partners. This broad application highlights the importance of ensuring that all related parties are aware of and comply with the terms of the non-compete agreement to avoid triggering the restart of the two-year period.