Does the non-competition covenant for Kidokinetics franchisees prevent them from indirectly diverting business to a competitor?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
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| Provision | Section In the Franchise or Other Agreement | Summary | |
|---|---|---|---|
| q. | Non-competition covenants during the term of the franchise | Section 18.5.1 | You, each principal, and your and your principals' spouses shall not, either directly or indirectly, for themselves or through, on behalf of, or in conjunction with, any person or entity: (i) divert, or attempt to divert, any business or customer of the Kidokinetics Business or of other franchisees in the System to any competitor, by direct or indirect inducement or otherwise; (ii) participate as an owner, partner, director, officer, employee, consultant or agent or serve in any other capacity in any children's sports or fitness business or any other business offering any other goods or services offered or authorized for sale by System franchisees ("Competing Business"); (iii) do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks and the System; or (iv) in any manner interfere with, disturb, disrupt, decrease or otherwise jeopardize our business or the business of any Kidokinetics franchisees (Subject to applicable state law). |
| r. | Non-competition covenants after the franchise is terminated or expires | Section 18.5.2 | Upon the expiration or earlier termination of this Agreement or upon a transfer and continuing for 24 months, you and your principals, and your spouse and the spouse of each principal, shall not, either directly or indirectly, for themselves or through, on behalf of or in conjunction with any person or entity (i) divert, or attempt to divert, any business or customer of the Kidokinetics Business or of other franchisees in the System to any competitor, by direct or indirect inducement or otherwise; (ii) participate as an owner, partner, director, officer, employee, consultant or agent or serve in any other capacity in Competing Business within (i) a 20-mile radius from Franchisee's Kidokinetics business (and including the premises of the approved location of Franchisee); and (ii) a 20-mile radius from all other Kidokinetics businesses that are operating or under development as of the beginning of the Restricted Period; provided, however, that if a court of competent jurisdiction determines that the foregoing Restricted Territory is too broad to be enforceable, then the "Restricted Territory" means the geographic area within a 10-mile radius from Franchisee's Kidokinetics business (and including the premises of the approved location of Franchisee). (iii) do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with the Marks and the System; |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 40–46)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, the non-competition covenants during the franchise term and after termination or expiration explicitly prevent franchisees from indirectly diverting business or customers to competitors. This applies not only to the franchisee but also to their principals and their spouses.
During the term of the franchise, the franchisee, principals, and their spouses are prohibited from diverting or attempting to divert any business or customer of Kidokinetics or other franchisees to any competitor, whether through direct or indirect inducement. They are also barred from participating in any capacity in a competing children's sports or fitness business or any business offering goods or services authorized for sale by Kidokinetics franchisees. Additionally, they cannot perform any act injurious to the goodwill associated with the Kidokinetics brand or interfere with the business of Kidokinetics or its franchisees.
After the franchise is terminated or expires, the non-competition covenant extends for 24 months. During this period, the franchisee, principals, and their spouses are restricted from diverting business or customers to competitors through direct or indirect means. This restriction applies within a 20-mile radius of the franchisee's Kidokinetics business and a 20-mile radius from all other Kidokinetics businesses operating or under development. However, if a court deems the 20-mile radius too broad, the restricted territory will be reduced to a 10-mile radius from the franchisee's Kidokinetics business. Similar to the in-term covenant, they are also prohibited from any action that harms the goodwill of the Kidokinetics brand.