Does the Gold Star franchise agreement prevent a franchisee from participating in a similar business as an agent?
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, the franchise agreement includes restrictions on a franchisee's involvement with similar businesses, both during the term of the agreement and for a period afterward. Specifically, for three years after the agreement expires or terminates, the franchisee cannot participate in any capacity (including as an agent) in a similar business within a 10-mile radius of the Gold Star location or any other approved site. This restriction applies whether the franchisee is acting directly or indirectly, for themselves or in conjunction with another entity.
During the term of the franchise agreement, a Gold Star franchisee is prohibited from diverting business or customers to a similar business, inducing Gold Star employees to leave their employment, or performing any action that could harm the goodwill associated with Gold Star's trademarks and system. These restrictions are designed to protect Gold Star's market position and brand reputation by preventing franchisees from using their knowledge and resources gained from the franchise to benefit a competing business.
The Gold Star franchise agreement states that the franchisee acknowledges the fairness and reasonableness of these restrictions, confirming they are not the result of overreach or duress. The franchisee also acknowledges that complying with these covenants will not cause undue hardship or impair their ability to find suitable employment. This acknowledgement suggests that Gold Star believes the restrictions are necessary to protect its business interests while still allowing franchisees to pursue other opportunities after the franchise agreement ends.
Prospective Gold Star franchisees should carefully consider these non-compete provisions and how they might affect their future business endeavors. It is important to understand the scope and duration of the restrictions, as well as the definition of what constitutes a "Similar Business." Franchisees should also evaluate whether the restrictions are reasonable in their specific circumstances and seek legal counsel if they have any concerns.