What remedies are available for breach of the restrictive covenants in the Fat Shack franchise agreement?

According to the 2025 Fat Shack Franchise Disclosure Document, if a franchisee breaches the restrictive covenants outlined in Sections 21.1 or 21.2 of the franchise agreement, Fat Shack Inc. (FSI) is entitled to specific remedies. The franchisee must pay FSI a fee equivalent to the then-current initial franchise fee for each competitive business opened in violation of these covenants. Additionally, the franchisee is obligated to pay 6 percent of the gross sales of each such competitive business until the non-competition period expires.

These remedies provide Fat Shack with financial compensation for damages resulting from a franchisee's breach of the non-compete agreement. The fee based on the initial franchise fee serves as a penalty for establishing a competing business, while the percentage of gross sales ensures ongoing compensation for the duration of the violation. The restrictive covenants and associated penalties are designed to protect Fat Shack's market position and prevent franchisees from unfairly competing with the brand after leaving the system.

For a prospective franchisee, this means that violating the non-compete agreement can result in significant financial penalties. It is crucial to understand the scope and duration of these covenants, as well as the definition of what constitutes a "Competitive Business," to avoid unintentional breaches. The definition of "Competitive Business" includes businesses deriving more than 10 percent of gross receipts from the sale of sandwiches, burgers, and wings, excluding alcohol sales. Franchisees should carefully consider these restrictions before entering into a franchise agreement with Fat Shack.