Under the Kidokinetics agreement, what constitutes a 'Competing Business'?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
During the term of this Agreement, Franchisee, each Principal, and the spouse of Franchisee and each Principal if any, 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 youth 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 the business of the Franchisor or any Kidokinetics franchisees.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics' 2024 Franchise Disclosure Document, a "Competing Business" is defined within the context of covenants not to compete, which restrict franchisees and principals from engaging in certain activities during and after their association with Kidokinetics. During the term of the agreement, franchisees, principals, and their spouses are prohibited from participating as an owner, partner, director, officer, employee, consultant, or agent in any youth fitness business or any other business offering goods or services that are also offered or authorized for sale by Kidokinetics franchisees. This restriction applies unless otherwise approved in writing by Kidokinetics.
After the agreement expires or terminates, the restrictions continue for a period of 24 months. During this time, franchisees and principals are prohibited from participating in a Competing Business within a 20-mile radius of the perimeter of the granted territory or any other territory licensed by Kidokinetics as of the date of expiration or termination. These restrictions aim to protect Kidokinetics' goodwill, trade secrets, and confidential information, ensuring that former franchisees do not use their knowledge of the Kidokinetics system to unfairly compete against the franchisor or other franchisees.
Furthermore, the FDD specifies that "Prohibited Activities" include owning, operating, or having any interest in a Competitive Business, diverting business from Kidokinetics, or inducing Kidokinetics customers to transfer their business to another entity. However, owning an interest of five percent or less in a publicly-traded company that is a Competitive Business is an exception to this rule. These detailed restrictions highlight the importance Kidokinetics places on protecting its market position and proprietary information, which prospective franchisees should carefully consider.
These non-compete clauses are designed to prevent franchisees from leveraging the knowledge and resources gained from Kidokinetics to directly compete with the franchise, either during the term of the agreement or for a specified period afterward. Franchisees should be aware of these limitations and how they might affect their future business endeavors after leaving the Kidokinetics system. It is also important to note that the definition of "youth fitness business or any other business offering any other goods or services offered or authorized for sale by System franchisees" could be interpreted broadly, so franchisees should seek clarification from Kidokinetics regarding any potential conflicts.