After the Fitstop agreement terminates, can a franchisee engage in a business similar to the Franchised Business within a certain distance without prior written consent?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
e or any of our other franchises.
- 18.2.5 You shall not do or perform, directly or indirectly, any other act injurious to or prejudicial to the goodwill associated with us, our trademarks, our trade names, or the Franchise System.
- 18.3 Post-Term Covenant(s) Against Competition and Other Restrictive Covenants. In consideration of the aforementioned valuable consideration, for a continuous, uninterrupted period for 2 calendar years after the Term, commencing upon expiration, termination, assignment, or transfer of this Agreement, regardless of the cause, you agree to the following:
- 18.3.1 Without our prior written consent, you shall not disclose the Competitive Information to any person nor shall you reprint or reproduce the Competitive Information in whole or in part;
- 18.3.2 Without our prior written consent, you shall not employ or seek to employ any person who is at the time employed by us, any of our subsidiaries, or any person who is at the time operating a Franchise or otherwise induce, directly or indirectly, such person to leave such employment. This paragraph shall not be violated if such person has left the employment of any of the foregoing parties for a period in excess of 180 calendar days;
Source: Item 23 — RECEIPTS (FDD pages 50–135)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, for two years after the termination, expiration, assignment, or transfer of the Franchise Agreement, a franchisee is restricted from engaging in any business similar to the Fitstop franchised business without prior written consent. This restriction applies to acquiring financial or beneficial interests in, or becoming a landlord for, such a business.
The restricted area extends 25 miles from (a) the original Premises, (b) the perimeter of the Designated Territory, or (c) the location of any other Fitstop System Business that is open or under development when the Agreement ends. However, this restriction does not apply if the franchisee owns less than 2% of the shares of a company listed on a national or regional securities exchange.
This post-term covenant against competition has significant implications for a franchisee. After leaving the Fitstop system, the franchisee's ability to operate or invest in a similar fitness business is severely limited for two years within a 25-mile radius of their former Fitstop location or any other Fitstop location. A prospective franchisee should carefully consider these limitations and how they might affect their future business plans before entering into a Franchise Agreement with Fitstop.