Does the Gold Star Franchise Agreement prevent a franchisee from being a representative for a similar business during the term of the agreement?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
d future partners, shareholders, or members acknowledge that the Products and the System are unique and distinctive and have been developed by the COMPANY at great effort, time and expense, and that FRANCHISEE will have regular and continuing access to valuable and confidential information, training and trade secrets regarding the Proprietary Products, the System and the Business and that FRANCHISEE would not have had such access except as a result of entering into this Agreement. In consideration of the foregoing, FRANCHISEE agrees that:
- 11.1.1 During the term of this Agreement or any renewal or extension thereof, 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) or have any interest whatsoever in any "Similar Business". As used herein, "Similar Business" means the production, preparation or sale of any food items similar to the Products or any other business similar to the Restaurants, the Business or the System or that offers or grants franchises or licenses to others to operate such a business.
- 11.1.2 During the term of this Agreement and all extensions of renewal thereof and for three (3) years thereafter, FRANCHISEE shall not let or permit any part of any premises owned or controlled by FRANCHISEE in the Protected Territory to be used for a business, all or any part of which consists of a Similar Business.
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 restrictive covenants that prevent a franchisee from participating in a similar business during the term of the agreement. Specifically, during the term of the Franchise Agreement, the franchisee cannot own, operate, maintain, engage in, or participate in any capacity (including as a director, officer, manager, employee, consultant, representative, or agent) in a "Similar Business." A "Similar Business" is defined as one that involves the production, preparation, or sale of food items similar to Gold Star's products or any business similar to the Gold Star restaurants.
This restriction ensures that franchisees are fully committed to the Gold Star brand and do not divert their efforts or resources to competing businesses. It protects Gold Star's market position and prevents franchisees from using the knowledge and resources gained from the franchise to benefit a competing venture. This type of restriction is common in franchising to maintain brand consistency and prevent conflicts of interest.
Additionally, the agreement specifies that franchisees cannot allow any premises they own or control within their protected territory to be used for a Similar Business during the term of the agreement and any extensions or renewals. This clause further reinforces Gold Star's control over its brand and market presence within the franchisee's territory. Franchisees must also not divert or attempt to divert any of Gold Star's business or customers to any Similar Business, induce Gold Star employees to leave their employment, or perform any other act injurious or prejudicial to Gold Star's goodwill associated with its Marks and System.