Does the Gold Star franchise agreement prevent a franchisee from participating in a similar business as a consultant?
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 Gold Star's 2025 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, upon expiration or termination of the agreement, or if the franchisee transfers their interest in the franchise, they are restricted from participating in a similar business in any capacity, including as a consultant. This restriction lasts for three years.
This non-compete clause extends to owning, operating, maintaining, engaging in, or participating in any similar business within a 10-mile radius of the Retail Location or any other existing or approved Gold Star restaurant site. The definition of "participating" is broad, encompassing roles such as director, officer, manager, employee, consultant, representative, or agent. This means that a former Gold Star franchisee is prohibited from offering consulting services to a competing business within the specified geographic area and time frame.
The FDD states that Gold Star franchisees acknowledge these restrictions are fair and reasonable and that adhering to them will not cause undue hardship. Franchisees also confirm that these restrictions are not the result of overreaching, duress, or coercion by Gold Star. Furthermore, franchisees acknowledge that enforcing these covenants will not impair their ability to find suitable employment.
Prospective franchisees should carefully consider the implications of this non-compete agreement. It could significantly limit their future career options in the restaurant industry, particularly within a 10-mile radius of their former Gold Star location. It is advisable to seek legal counsel to fully understand the scope and enforceability of these restrictions before entering into a franchise agreement with Gold Star.