What is the scope of the non-competition agreement for Associates regarding Fat Shack?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
plicate the Confidential Information.
-
- Noncompetition Covenant. Associate covenants and agrees that, during the term of his or her Affiliation, except while conducting Company's business in a manner authorized by FSI and Company, Associate shall not, either directly or indirectly through any member of Associate's immediate family, separate business entity or otherwise:
- 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;
- c. divert or attempt to divert any business related to, or any customer or account of Company's FAT SHACK Restaurant, FSI's business, or any other FSI franchisee's business; or
- d. divert or attempt to divert the employment of any employee of Company, FSI, FSI's affiliates, or another FSI franchisee, to any Competitive Business.
The term "Competitive Business" as used in this Agreement means 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 Company); provided, however, Associate will not 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.
-
- Post-Termination Covenant Not to Compete. Associate covenants and agrees that, for a period of two years after the earlier of (i) the effective date of termination or expiration of Associate's Affiliation with Company, or (ii) the effective date of termination or expiration of Company's Franchise Agreement, neither Associate, nor any member of Associate's immediate family, shall have any direct or indirect interest, as a disclosed or a beneficial owner, investor, partner, director, officer, manager, employee, consultant, representative or agent or in any other capacity, in or with any Competitive Business located or operating within a 10-mile radius of the location of Company's FAT SHACK Restaurant, or within a 10-mile radius of any other FAT SHACK Restaurant, whether franchised or owned by FSI or its affiliates. If Associate or any member of Associate's immediate family breaches this Section, then the two-year period under this Section shall start on the date that Associate or its family member, as applicable, is enjoined from such activity or ceases such activity, whichever is later.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, Associates are subject to both non-disclosure and non-competition agreements. During their affiliation with the Fat Shack franchise, Associates are restricted from having any direct or indirect interest in a "Competitive Business," defined as any business deriving more than 10% of its gross receipts (excluding alcohol sales) from the sale of sandwiches, burgers, and wings. They are also prohibited from performing services for a Competitive Business. However, Associates are permitted to own securities in a Competitive Business if those securities are listed on a stock exchange or traded over-the-counter and represent 2% or less of the outstanding securities.
Following the termination or expiration of their affiliation, or the termination or expiration of the Franchise Agreement, Associates are subject to a post-termination non-compete covenant for two years. This prevents them (or any member of their immediate family) from having any direct or indirect interest in a Competitive Business within a 10-mile radius of the Fat Shack Restaurant they were associated with, or any other Fat Shack Restaurant. If an Associate breaches this post-termination covenant, the two-year period restarts from the date they are either legally stopped from the activity or cease the activity, whichever is later.
These restrictions are put in place to protect Fat Shack's confidential information and business interests. Associates gain access to valuable proprietary information and methods, and these covenants aim to prevent them from using that knowledge to unfairly compete with Fat Shack, either during their affiliation or for a reasonable period afterward. Prospective franchisees should ensure that all employees and anyone considered an 'Associate' fully understand these restrictions before being granted access to Fat Shack's confidential information.