If a court finds a non-compete covenant in the Hyper Kidz agreement unreasonable, what happens?
Hyper_Kidz Franchise · 2024 FDDAnswer from 2024 FDD Document
- 12.3 The parties agree that each of the foregoing covenants shall be construed as independent of any other covenant or provision of this Agreement.
If all or any portion of a covenant in this Section 12 is held unreasonable or unenforceable by a court or agency having valid jurisdiction in any unappealed final decision to which we are a party, you expressly agree to be bound by any lesser covenant subsumed within the terms of such covenant that imposes the maximum duty permitted by law, as if the resulting covenant were separately stated in and made a part of this Section 12.
12.4 You understand and acknowledge that we shall have the right, in our sole discretion, to reduce the scope of any covenant stated in Sections 12.1 and 12.2 or any portion thereof, without your consent, effective immediately upon receipt by you of written notice thereof, and you agree that you shall comply forthwith with any covenant as so modified, which shall be fully enforceable notwithstanding the provisions of Section 16 hereof.
12.5 You expressly agree that the existence of any claim you may have against us, whether or not arising from this Agreement, shall not constitute a defense to our enforcement of the covenants in this Section 12.
Source: Item 23 — RECEIPTS (FDD pages 52–205)
What This Means (2024 FDD)
According to Hyper Kidz's 2024 Franchise Disclosure Document, if a court deems any part of the non-compete covenant in Section 12 unreasonable or unenforceable, the franchisee agrees to be bound by a lesser covenant that imposes the maximum duty permitted by law. This means that the franchisee is still subject to a non-compete agreement, but one that is modified to be legally enforceable.
This provision ensures that Hyper Kidz retains some protection against franchisees competing against the system, even if the original non-compete terms are found to be too broad. The franchisee expressly agrees to abide by this modified covenant as if it were originally written that way in the agreement.
Hyper Kidz also has the right to reduce the scope of any covenant in Sections 12.1 and 12.2, without the franchisee's consent, by providing written notice. The franchisee must comply with the modified covenant immediately, and it will be fully enforceable. This allows Hyper Kidz to proactively adjust the non-compete terms to ensure enforceability.
This section also states that any claims the franchisee may have against Hyper Kidz will not be a valid defense against the enforcement of the covenants in Section 12. This means Hyper Kidz can still enforce the non-compete agreement even if the franchisee has a dispute with them.