Considering the Hardees litigation (Item 3), what are the potential risks and liabilities for a franchisee who is considering selling their restaurant to another party?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
- (2) Accordingly, Franchisee covenants and agrees that, except with HR's prior written consent, during the term of this Agreement, and for a continuous period of 2 years following its expiration, Transfer, or termination, Franchisee shall not, either directly or indirectly, for itself, or through, on behalf of, or in conjunction with, any person, firm, partnership, corporation, or other entity:
- (a) Divert or attempt to divert any business or customer, or potential business or customer, of any Hardee's Restaurant to any competitor, by direct or indirect inducement or otherwise.
- (b) Own, maintain, operate, engage in, grant a franchise to, advise, help, make loans to, lease property to, sell the property underlying the Franchised Location and related assets to, or have any interest in, either directly or indirectly, any restaurant business: (i) whose sales of Designated Entrée Items (as defined below) during any daypart are reasonably likely to account collectively for 20% or more of the restaurant's sales of all entrée items during that daypart; (ii) that features or promotes any Designated Entrée Item in its advertising; or (iii) that operates in a quick-service format (with or without table service). For purposes of the previous sentence, the term "Designated Entrée Items" means any hamburger sandwich, chicken sandwich, breakfast sandwich and any other entrée item of a type designated by HR as part of the System at any time during the term of this Agreement. During the term of this Agreement, there is no geographical limitation on this restriction. Following the expiration, transfer or termination of this Agreement, this restriction shall apply to any restaurant business located within a 2-mile radius of the Franchised Location and any restaurant business within a 2-mile radius of any then-existing Hardee's Restaurant. This restriction shall not apply to Franchisee's existing restaurant or foodservice operations, if any, which are identified in Appendix A, nor shall it apply to other restaurants operated by Franchisee that are franchised by HR or its affiliates.
What This Means (2025 FDD)
Based on the 2025 Hardees Franchise Disclosure Document, Item 22 outlines post-termination restrictions that could impact a franchisee's ability to sell their restaurant. Specifically, for two years after the expiration, transfer, or termination of the Franchise Agreement, the franchisee is restricted from engaging in any competitive restaurant business. This includes owning, operating, or having any interest in a restaurant that derives 20% or more of its sales from 'Designated Entrée Items' (hamburger, chicken, or breakfast sandwiches) or promotes these items in its advertising, or operates in a quick-service format.
This restriction applies without geographical limitation during the term of the agreement. However, after the agreement concludes via expiration, transfer, or termination, the restriction is limited to a 2-mile radius of the former Hardees location and any existing Hardees restaurant. This non-compete clause could significantly limit the pool of potential buyers for a Hardees franchise, as any prospective buyer already involved in the restaurant industry would need to carefully consider these restrictions.
For a franchisee looking to sell, these restrictions could lower the sale price or make it more difficult to find a buyer. It is important to note that these restrictions do not apply to existing restaurant or foodservice operations the franchisee already owns, as long as they are identified in Appendix A of the Franchise Agreement, or to other restaurants franchised by Hardees or its affiliates. Therefore, a prospective seller needs to carefully review these clauses and their implications with a legal professional before attempting to sell their Hardees franchise.