Do the covenants in the Learningrx agreement impose a greater restraint than necessary to protect the Franchisor's interests?
Learningrx Franchise · 2025 FDDAnswer from 2025 FDD Document
ce or on more favorable terms than disclosed to Franchisor in writing. Such transfer remains subject to Franchisor's prior written approval and other conditions specified in this Agreement. If Franchisor does not transfer the franchised Business to the transferee on the same terms offered to Franchisor, then Franchisee must again extend the right of first refusal to Franchisor in the manner described above, before another desired transfer.
15. GENERAL PROVISIONS
15.1 Covenants Not to Compete. During the term of this Agreement and for two (2) years after termination, transfer, or expiration of this Agreement for any reason, Franchisee agrees that neither Franchisee, nor any manager of Franchisee, any person associated with Franchisee, including officers, directors, shareholders, partners, members, trustees, employees or agents, and any members of Franchisee's immediate families (collectively "Franchisee Affiliates"), will (i) have any direct or indirect controlling interest as a legal or beneficial owner in a Competitive Business (as hereinafter defined); (ii) perform services as a director, partner, officer, manager, employee, consultant, representative, agent or otherwise for a Competitive Business; or (iii) divert or attempt to divert any business related to, or any customer or account of the LearningRx Training Center, Franchisee's Business, Franchisor's business, the business of any affiliate of Franchisor or any other franchisee licensed by Franchisor, by direct inducement or otherwise, or divert or attempt to divert the employment of any employee of Franchisor or another franchisee licensed by Franchisor, to any Competitive Business by any direct inducement or otherwise. During the term of this Agreement, this Covenant Not to Compete applies anywhere in the United States. For two (2) years after the termination, transfer, or expiration of this Agreement, for any reason, this Covenant Not to Compete applies: (a) within Franchisee's Territory; (b) within counties adjacent to Franchisee's Territory or within a Territory then operated by or under development by Franchisor or another franchisee of Franchisor; (c) within a fifty mile radius from the boundary of Franchisees Territory or from any other franchised or company-owned LearningRx Training Center, (d) on the Internet or (e) on any other Multi-Area Marketing channels used by Franchisor.
Franchisee acknowledges that, in addition to the license of the Marks hereunder, Franchisor has also licensed commercially valuable information which comprises and is a part of the System, including without limitation, proprietary processes, operations, marketing and related information and materials and that the value of this information derives not only from the time, effort and money which went into its compilation, but from the usage of the same by all franchisees of Franchisor. Accordingly, this covenant not to compete is given in part in consideration for the commercially valuable information described herein, training and access to Franchisor's Trade Secrets, and which, if used without permission, would give Franchisee an unfair advantage over Franchisor and Franchisor's franchisees and affiliates. Franchisee
acknowledges that it will be difficult or impossible to deliver learning enhancement services or cognitive or math and reading training services without using Franchisor's proprietary information and Trade Secrets and therefore in addition to the covenant not to compete found above, Franchisee agrees that Franchisee Affiliates will have the obligation of demonstrating and proving that any deliveries of learning enhancement services or cognitive or math and reading training services do not infringe on Franchisor's rights to its proprietary Information and Trade Secrets at a time when Franchisee no longer has any rights to that proprietary information or Trade Secrets.
Source: Item 23 — RECEIPT (FDD pages 54–209)
What This Means (2025 FDD)
According to Learningrx's 2025 Franchise Disclosure Document, the franchise agreement contains covenants not to compete that apply both during the term of the agreement and after its termination, transfer, or expiration. During the agreement, these covenants apply anywhere in the United States. After the agreement ends, the non-compete applies for two years.
The post-term covenant restricts franchisees and their affiliates from having any interest in a Competitive Business; performing services for a Competitive Business; or diverting business, customers, or employees to a Competitive Business. A Competitive Business is defined as one offering learning enhancement, brain training, or math and reading training courses, programs, or products. The geographic scope of the post-term covenant includes the franchisee's territory, adjacent counties, areas within a fifty-mile radius of any Learningrx Training Center, and the Internet or other Multi-Area Marketing channels used by Learningrx.
These restrictions are designed to protect Learningrx's goodwill, trade secrets, and the integrity of its system. The agreement states that violating these covenants would cause irreparable injury to Learningrx, justifying injunctive relief. However, these covenants do not prevent a franchisee from acquiring rights to operate additional Learningrx Centers, nor do they restrict a franchisee's affiliates from purchasing a Center from Learningrx or an existing franchisee. Additionally, owning up to 5% of the stock of a publicly traded company is permitted. The franchisee also agrees to pay all costs and expenses (including reasonable attorneys' fees) incurred by Learningrx in connection with the enforcement of this section if Learningrx prevails in any or all of its claims against the franchisee.
Whether these covenants are overly restrictive depends on a legal interpretation of what is necessary to protect Learningrx's legitimate business interests versus the franchisee's ability to earn a living after the franchise relationship ends. Prospective franchisees should carefully consider the scope and duration of these restrictions and seek legal advice to determine their enforceability in their specific jurisdiction.