Is the liquidated damages amount for a Gold Star franchisee's breach of confidentiality considered a penalty?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
o take any action but may take any action it deems appropriate. FRANCHISEE also agrees not to contest or aid in contesting, directly or indirectly, the COMPANY's right, title, ownership or interest in or to, or the validity or enforceability of, any copyrights, Confidential Material or the System, or contest the COMPANY's sole right to register, use or franchise or license others to use any such copyrights, the System or the Confidential Material, during or after the term of this Agreement or any extension or renewal thereof.
- 12.2 Damages for Violations. If FRANCHISEE discloses any Confidential Material to any person, firm or entity or otherwise breaches its obligations under this Section 12, or if one of the Related Parties or any other person subject to FRANCHISEE's control makes such a disclosure or otherwise breaches its obligations under this Section 12 as a result of the failure of FRANCHISEE
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, if a franchisee discloses confidential material or breaches confidentiality obligations, they must pay Gold Star $100,000 for each breach. This amount is considered liquidated damages and not a penalty. The FDD states that this sum is a reasonable pre-estimate of actual damages, acknowledging that precisely determining the actual damages would be extremely difficult.
This means that if a Gold Star franchisee violates the confidentiality terms outlined in their agreement, they will be liable for a significant fixed payment. This provision aims to protect Gold Star's proprietary information and trade secrets, which are crucial to maintaining the brand's competitive advantage. The liquidated damages clause provides a clear financial consequence for breaches of confidentiality, potentially deterring franchisees from disclosing sensitive information.
However, the FDD also clarifies that this liquidated damages provision does not prevent Gold Star from seeking injunctive or other relief. This means that in addition to the $100,000 payment, Gold Star can pursue legal action to stop the franchisee from further disclosing confidential information or to seek other remedies available under the law. This dual approach provides Gold Star with multiple avenues to protect its confidential information and address breaches of the franchise agreement.
Prospective franchisees should carefully consider the implications of this clause and ensure they understand their obligations regarding confidentiality. They should also assess their ability to protect sensitive information and implement appropriate safeguards to prevent breaches. Consulting with legal counsel to fully understand the scope of the confidentiality obligations and the potential consequences of a breach is advisable.