Does the Gold Star franchise agreement prevent a franchisee from participating in a similar business as a representative?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
11.1.3 Upon expiration or termination of this Agreement for any reason, or if FRANCHISEE assigns or transfers its interest in any Restricted Assets in any manner, then for a period of three (3) years thereafter, FRANCHISEE shall not, in any capacity whatsoever, either directly or indirectly, for itself, himself or herself, or through, on behalf of or in conjunction with any other person, partnership, limited liability company, corporation or organization, own, operate, maintain, engage in, participate in (as director, officer, manager, employee, consultant, representative, agent or otherwise) have any interest whatsoever in any Similar Business at a location within a radius of ten (10) miles of the Retail Location or any other Restaurant site then existing or approved for development.
11.1.4 During the term of this Agreement and all extensions or renewals thereof and for three (3) years thereafter, FRANCHISEE shall not, directly or indirectly: (a) divert or attempt to divert any of the COMPANY's business or any of the COMPANY's customers to any Similar Business; (b) induce COMPANY employees to leave their employment with the COMPANY; or (c) do or perform any other act injurious or prejudicial to the COMPANY's goodwill associated with its Marks and System.
FRANCHISEE acknowledges and confirms that the time, content and geographical restrictions contained in this Section are fair and reasonable. They are not the result of overreaching, duress, or coercion of any kind by the COMPANY. FRANCHISEE further acknowledges and confirms that FRANCHISEE's observance of the covenants contained in this Agreement will not cause FRANCHSIEE any undue hardship, financial or otherwise, and that enforcement of each of the covenants contained in this Agreement will not impair FRANCHISEE's ability to obtain employment commensurate with FRANCHIEE's abilities and on terms fully acceptable to FRANCHSIEE.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to the 2025 Gold Star Franchise Disclosure Document, Section 11.1.3 outlines restrictions on a franchisee's involvement in similar businesses. Specifically, upon expiration or termination of the Franchise Agreement, or if the franchisee transfers their interest in any restricted assets, they are restricted for a period of three years. During this time, the franchisee cannot participate in any capacity, either directly or indirectly, in a similar business within a 10-mile radius of the Retail Location or any other Gold Star restaurant site existing or approved for development. This restriction applies to the franchisee acting for themselves or through any other entity, including as a director, officer, manager, employee, consultant, representative, or agent.
Additionally, Section 11.1.4 states that during the term of the Franchise Agreement and for three years after, the franchisee is prohibited from diverting Gold Star's business or customers to any similar business, inducing Gold Star employees to leave their employment, or performing any act that is injurious or prejudicial to Gold Star's goodwill associated with its Marks and System.
Gold Star franchisees acknowledge that these restrictions are fair and reasonable and are not a result of overreaching, duress, or coercion by Gold Star. Franchisees also confirm that adhering to these covenants will not cause them undue hardship and will not impair their ability to obtain employment commensurate with their abilities and on terms acceptable to them.
In practical terms, this means that a prospective Gold Star franchisee needs to carefully consider these restrictions, especially if they have prior experience or future aspirations in the restaurant industry. The non-compete clauses could significantly limit their options after the franchise agreement ends, or even during the term of the agreement, both in terms of business ownership and employment.