What happens if a Jersey Mikes franchisee engages in activities that conflict with their obligations?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
You will at all times faithfully, honestly and diligently perform your obligations arising under the Franchise Agreement and will not engage in any business or other activities that will conflict with these obligations. Company may condition the approval of a new designated manager or Controlling Principal upon the individual's successful completion of Phase II of Company's initial training program.
You, or your Controlling Principal (if you are operating as a business entity), or a manager whom you have designated and Company has approved, must devote full-time energy and best efforts to the management and ope ration of the Fr anchised Restaurant, unless otherwise approved in writing by Company. Your Controlling Principal must be approved by Company and must satisfactorily complete all required training Company offers.
- a.
Divert or attempt to divert any busi ness or c ustomer of the business fra nchised hereunder to any c ompetitor, by di rect or indire ct inducement, or disparage or otherwise speak or write negatively, directly or indirectly, of Franchisor, its affiliates, any of Franchisor's directors, officers, employees, representatives, owners, current and former franchisees or de velopers, the JERSEY MIKE's brand, the System, any JERSEY MIKE's Restaurant, any business using the Marks, any other brand or service-marked or trademarked concept of Franchisor or its affiliates, or which would subject the System to ridicule, scandal, reproach, scorn or indignity, or which would be injurious or prejudicial to the goodwill associated with Franchisor's Marks and the System, or which would constitute an act of moral turpitude.
- b.
Own, maintain, engage in, or have any interest in any business (including any business operated by Franchisee prior to entry into this Agreement) specializing in whole or in part, in the sale of submarine-type sandwiches or prepared food products the same as or similar to any product or service sold in the System.
- d.
Makes any unauthorized use, disclosure or duplication of any portion of the Manual or duplicates or discloses or make s any una uthorized use of a ny trade secret or confidential information provided to Franchisee by Franchisor;
- c.
Is convicted of or pleads no contest to a felony or to any other crime or offense that is likely to adversely affect the re putation of Franchisor, Franchisee or the JERSEY MIKE'S System;
- b.
In the event this Agreement is terminated prior to the end of its term due to Franchisee's default, Franchisee shall promptly pay to Je rsey Mike's a lump sum payment as
liquidated damages and not as a penalty, for breaching this Agreement and for Jersey Mike's lost future revenue as a result of such breach in an amount equal to: (a) the average monthly royalty fees and advertising fees payable by Franchisee (as required under Sections 10 and 11 of this Agreement) over the twelve (12) full calendar months immediately preceding the date of termination; (b) multiplied by the lesser of (i) thirtysix (36) months, or (ii) the number of full calendar months then remaining in the thencurrent term of this Agreement; provided, however, that if (x) as of the termination date, the Restaurant had not operated a twelve (12) full calendar months, then the monthly royalty fees and a dvertising fees will be c alculated based on the ave rage monthly royalty fees and advertising fees for all JERSEY MIKE'S Restaurants during the fiscal year immediately preceding the termination date; and/or (y) the termination was based on Franchisee's unapproved closure of the Restaurant, average monthly royalty fees and advertising fees will be based on the twelve (12) full calendar months immediately preceding the closure of the Restaurant. Franchisee acknowledges that a precise calculation of the f ull extent of the damages Jersey Mike's will incur in the event of termination of this Agreement as a result of Franchisee's default is difficult to determine and that this lump sum payment as liquidated damages is reasonable in light of the damages Jersey Mike's will incur for Franchisee's material default causing the premature termination of th is Agreement. This lump sum payment of l iquidated damages shall be in lieu of any dam ages for Jersey Mike's lost future revenue that Jersey Mike's may incur as a result of Franchisee's default, but it shall be in addition to all amounts provided in Sections 18.7(a) and 18.8 and other costs and expenses to which Jersey Mike's is entitled under th
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISED RESTAURANT (FDD page 56)
What This Means (2025 FDD)
According to the 2025 Jersey Mikes Franchise Disclosure Document, a franchisee must faithfully, honestly, and diligently perform their obligations under the Franchise Agreement and must not participate in any business or activities that conflict with these obligations. This includes ensuring that the Jersey Mike's restaurant is under the direct supervision of a Controlling Principal or a competent, trained, and approved manager. The Controlling Principal, or an approved manager, must devote full-time energy and best efforts to the management and operation of the franchised restaurant, unless the company approves otherwise in writing.
Jersey Mikes outlines specific actions that constitute a conflict of interest or a breach of the agreement. These include diverting business to competitors, disparaging the Jersey Mike's brand, or engaging in a similar submarine-type sandwich business. The agreement also prohibits unauthorized use or disclosure of confidential information, trade secrets, or the operations manual. Furthermore, actions that could damage the reputation of Jersey Mike's, such as conviction of a felony, are also considered a breach of obligations.
If a franchisee defaults on their agreement, Jersey Mikes has the right to terminate the agreement. In the event of termination due to the franchisee's default, the franchisee must promptly pay Jersey Mike's a lump sum as liquidated damages, not as a penalty. This amount is calculated based on the average monthly royalty and advertising fees over the twelve full calendar months preceding termination, multiplied by the lesser of 36 months or the number of full calendar months remaining in the agreement term. If the restaurant hasn't operated for twelve full calendar months, the calculation will be based on the average monthly royalty and advertising fees for all Jersey Mike's Restaurants during the fiscal year immediately preceding the termination date. If the termination was due to an unapproved closure, the calculation will be based on the twelve months preceding the closure.
Jersey Mikes emphasizes that this liquidated damages payment is in lieu of damages for lost future revenue but is in addition to other costs and expenses Jersey Mike's is entitled to under the agreement. The franchisee also acknowledges that accurately calculating the full extent of damages from a premature termination is difficult, and the lump sum payment is considered reasonable. This clause highlights the financial risks associated with failing to meet the obligations outlined in the franchise agreement and the potential costs of termination due to default.