Can the Operating Principal for a Lees Famous Recipe restaurant engage in other business activities?
Lees_Famous_Recipe Franchise · 2025 FDDAnswer from 2025 FDD Document
You (and the Operating Principal and each other Principal Owner) will not, during the term of this Agreement, directly or as an employee, agent, consultant, partner, officer, director or shareholder of any other person, firm, entity, partnership or corporation: (i) divert or attempt to divert any business or customers of the Restaurant to any Competing Business or perform any act that would damage the goodwill associated with the Marks or the System; or (ii) own, operate, lease, franchise, conduct, engage in, be connected with, have any interest in, or assist any person or entity engaged in any Competing Business (including any e-commerce or Internet-based business), except: (1) with our prior written consent; (2) if you own securities listed on a stock exchange or traded on the over-the-counter market that represent one percent (1%) or less of that class of securities; or (3) under a separate agreement between you and us.
Source: Item 15 — OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS (FDD pages 53–54)
What This Means (2025 FDD)
According to the 2025 Lees Famous Recipe Franchise Disclosure Document, the Operating Principal is restricted from engaging in other business activities that are considered a "Competing Business" during the term of the Franchise Agreement. Specifically, the Operating Principal cannot divert business or customers away from the Lees Famous Recipe restaurant or damage the goodwill associated with the brand. They are also prohibited from owning, operating, or being involved with any Competing Business. There are limited exceptions to this rule.
The restrictions on the Operating Principal's outside business activities are in place to protect the Lees Famous Recipe system and brand. These restrictions prevent the Operating Principal from using their knowledge and resources gained from operating a Lees Famous Recipe franchise to benefit a competing business. This is a fairly standard practice in franchising, as franchisors want to ensure that franchisees are fully committed to their brand and do not have conflicting interests.
However, the Operating Principal is allowed to own securities listed on a stock exchange or traded on the over-the-counter market that represent one percent (1%) or less of that class of securities. Additionally, the franchisee and Lees Famous Recipe can enter into a separate agreement to allow the Operating Principal to engage in a Competing Business. It is important for prospective franchisees to carefully review these restrictions and exceptions to understand the full scope of the limitations on the Operating Principal's outside business activities.
After the franchise agreement expires or is terminated, the Operating Principal and Principal Owners are subject to a post-term covenant not to compete for two years. This prevents them from engaging in a Competing Business within a specified radius of the former Lees Famous Recipe restaurant or any other existing Lees Famous Recipe restaurant. This restriction is designed to further protect the Lees Famous Recipe brand and prevent former franchisees from directly competing with the system after leaving it.