After the Fitstop agreement terminates, what is the geographic radius around the Designated Territory where a franchisee cannot operate a similar business without consent?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
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;
- 18.3.3 Without our prior written consent, you shall not, directly or indirectly, engage in, acquire any financial or beneficial interest (including interests in corporations, partnerships, trusts, unincorporated associations, or joint ventures) in, or become a landlord for any business, which is similar to the Franchised Business, from a physical location within 25 miles of (a) the Premises, (b) the perimeter of the Designated Territory, or (c) the location of any other System Business that is open or under development as of the date this Agreement is terminated or expires, except that the Parties agree and acknowledge that this covenant shall not be applicable to ownership of less than 2% of the shares of a company whose shares are listed and traded on a national or regional securities exchange by Franchise or any Franchise Owner;
- 18.3.4 You shall not divert or attempt to divert to any competitor, by direct or indirect inducement or otherwise, any member or potential member of the Franchise or any of our other franchises; and/or
- 18.3.5 You shall not do or perform, directly or indirectly, any other act injurious to or prejudicial to the goodwill associated with us, the System, Proprietary Marks and/or the Franchise System generally.
Source: Item 23 — RECEIPTS (FDD pages 50–135)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, a franchisee is restricted from engaging in any similar business within a 25-mile radius of certain locations after the franchise agreement terminates. Specifically, this restriction applies to locations within 25 miles of (a) the original Fitstop Premises, (b) the perimeter of the Designated Territory, or (c) the location of any other Fitstop System Business that is open or under development at the time of termination or expiration. This restriction requires the franchisee to obtain prior written consent from Fitstop to engage in a similar business within this radius.
This non-compete clause has significant implications for a franchisee planning their future after leaving the Fitstop system. The 25-mile radius could severely limit options for starting a similar fitness business, especially in densely populated areas or regions with multiple Fitstop locations. The franchisee must consider these limitations when deciding to exit the franchise, as violating this clause could lead to legal action from Fitstop.
However, there is an exception to this covenant: owning less than 2% of the shares of a publicly traded company is permitted. This exception allows a franchisee to invest in a competitor without violating the agreement, provided their ownership stake remains minimal. The FDD also states that each covenant within the agreement is considered independent. If any part of the non-compete agreement is deemed unreasonable or unenforceable by a court, the franchisee agrees to be bound by a lesser covenant that imposes the maximum duty permitted by law.
It is important for prospective Fitstop franchisees to fully understand the scope and limitations of this non-compete agreement. They should carefully evaluate the potential impact on their future business opportunities and consult with legal counsel to assess the enforceability of these provisions in their specific jurisdiction. Understanding these restrictions is crucial for making an informed decision about investing in a Fitstop franchise.