Does the Pearce Bespoke Franchise Agreement contain a covenant not to compete that extends beyond the termination of the franchise, and is this always enforceable, particularly in California?
Pearce_Bespoke Franchise · 2025 FDDAnswer from 2025 FDD Document
4. Item 17 is amended to state:
- (a) The Franchise Agreement provides for termination upon bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. § 101 et seq.).
- (b) The Franchise Agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law.
- (c) The franchise agreement contains a liquidated damages clause. Under California Civil Code section 1671, certain liquidated damages clauses are unenforceable.
- (d) The Franchise Agreement requires application of the laws of [State]. This provision may not be enforceable under California law.
Source: Item 22 — CONTRACTS (FDD page 39)
What This Means (2025 FDD)
According to the 2025 Pearce Bespoke Franchise Disclosure Document, the Franchise Agreement does include a covenant not to compete that extends beyond the termination of the franchise agreement. Specifically, for a period of two years after the agreement expires or is terminated (except in cases of termination due to Pearce Bespoke's breach), the franchisee is restricted from engaging in any competitive Pearce Bespoke clothing business involving custom clothing and accessories within a ten-mile radius of the franchised territory or any Pearce Bespoke franchise. This restriction applies to the franchisee, personal guarantors, and owners.
Pearce Bespoke emphasizes the reasonableness and necessity of the two-year period and ten-mile radius to protect its interests. The non-compete period can be extended if the franchisee breaches the non-competition provisions. Additionally, Pearce Bespoke seeks injunctive relief in the event of a breach, stipulating that damages alone are insufficient compensation and waiving the requirement to post a bond for such relief.
However, the FDD includes a specific caveat for California franchisees. It states that the covenant not to compete extending beyond the termination of the franchise may not be enforceable under California law. This is due to California's general prohibition of non-compete agreements, although there are some limited exceptions. Therefore, a prospective Pearce Bespoke franchisee in California should be aware that the enforceability of the post-term non-compete provision is uncertain and may depend on the specific circumstances and interpretation of California law.