During the term of the Fat Shack agreement, can a franchisee divert business from another Fat Shack franchisee to a Competitive Business?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee therefore agrees that other than the FAT SHACK Restaurant licensed herein, neither Franchisee nor any of Franchisee's officers, directors, shareholders, managers, members or partners, nor any immediate family member of Franchisee or any of these individuals ("Bound Parties"), shall during the term of this Agreement:
- 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, wherever located or operating;
- c. divert or attempt to divert any business related to the FAT SHACK Restaurant, FSI's business, or any other FAT SHACK franchisee by direct inducement or otherwise, or divert or attempt to divert the employment of any employee of FSI or another franchisee licensed by FSI to use the Marks and Licensed Methods, to any Competitive Business; or
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to the 2025 Fat Shack Franchise Disclosure Document, during the term of the agreement, a franchisee is restricted from diverting business to a competitive business. Specifically, the franchisee is prohibited from diverting or attempting to divert any business related to the Fat Shack restaurant, FSI's business, or any other Fat Shack franchisee's business. This restriction is in place to protect the brand's integrity, the franchisor's interests, and the interests of fellow franchisees within the Fat Shack system.
The term "Competitive Business" is defined as any business operating or granting franchises or licenses to operate a restaurant or other business deriving more than 10 percent of its gross receipts (excluding alcohol sales) from the sale of sandwiches, burgers, and wings. This definition excludes other Fat Shack restaurants operated by the company. However, a franchisee is not 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.
This non-competition clause ensures that franchisees remain committed to the Fat Shack system and do not use their knowledge or resources gained as a franchisee to benefit a competing business. This restriction applies not only to the franchisee but also to their officers, directors, shareholders, managers, members, partners, and immediate family members. The agreement emphasizes that the value of the licensed methods comes from its use by all franchisees within the Fat Shack system, reinforcing the importance of maintaining brand consistency and preventing unfair competition.