Are the affiliates of a Red Wagon Club licensee subject to the non-compete agreement?
Red_Wagon_Club Franchise · 2024 FDDAnswer from 2024 FDD Document
- (a) Non-Competition. During the Term and for a period of 24 months after the expiration or termination of this Agreement, neither Licensee, its affiliates, nor any owner nor any member of the immediate family of Licensee or any owner, shall directly or indirectly:
- (i) have any interest as a disclosed or beneficial owner in any Competitive Business;
- (ii) perform services as a director, officer, manager, employee, consultant, lessor, representative, agent, or otherwise for any Competitive Business; or
- (iii) divert or attempt to divert any business or any customers of any Businesses to any Competitive Business.
- A "Competitive Business" means (1) any membership-based business that is affiliated with a law firm that provides non-legal services to clients or members (including, but not limited to, training, social events, and seminars); or (2) any businesses granting
franchises or licenses to others to operate the type of businesses specified in subparagraph (1).
Source: Item 23 — RECEIPTS (FDD pages 47–142)
What This Means (2024 FDD)
According to the 2024 Red Wagon Club Franchise Disclosure Document, the non-compete agreement extends to the licensee's affiliates. During the term of the agreement and for 24 months after its expiration or termination, the licensee, their affiliates, owners, and immediate family members of the licensee or any owner are restricted from engaging in activities that could be considered competitive.
Specifically, these parties are prohibited from having any ownership interest in a Competitive Business, performing services for a Competitive Business as a director, officer, manager, employee, consultant, lessor, representative, or agent, or diverting business or customers to a Competitive Business. A Competitive Business is defined as any membership-based business affiliated with a law firm that provides non-legal services, such as training, social events, and seminars, or any business that grants franchises or licenses to others to operate such businesses.
This non-compete clause is quite broad, covering not only the licensee but also their affiliates and family members, which is a common practice in franchising to protect the Red Wagon Club's business model and market. The restrictions extend for a significant period (24 months) after the agreement ends, which could impact the licensee's future business opportunities. Licensees should carefully consider these limitations and how they might affect their long-term plans before entering into a franchise agreement with Red Wagon Club.