What is the purpose of the covenant not to compete in the Southern Steer Franchise Agreement?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
(i) The Franchisee, and each Owner, and the Recipients expressly agree that the nature of the Franchisor's Southern Steer Business is such that if they were to directly or indirectly own or operate a Competitive Business or engage in Competitive Activity it would be virtually impossible for the Franchisee, the Owner or the Recipients to not to rely on or use the Confidential Information and Trade Secrets.
- (ii) The Franchisee, each Owner, and the Recipients agree that the limitations of time, geography, and scope of the prohibited activity are reasonable because, among other things, (i) Franchisor is engaged in a highly competitive industry, (ii) Franchisee, and each Owner, and the Recipients will have access to the Confidential Information and Trade Secrets, including Franchisor's confidential and proprietary Brand Manual, (iii) these limitations are necessary to protect Franchisor's Confidential Information, Trade Secrets, goodwill and the goodwill of its other franchisees and developers, (iv) that this covenant not to compete is necessary to give the Franchisor the opportunity to resell and/or develop a new Southern Steer Business at or in the area near the Franchised Location, and (v) Franchisee, each Owner, and the Recipients are able to engage in lawful trade and business in a suitable and satisfactory manner without violating the terms of this Agreement.
The Franchisee, each Owner, and the Recipients further agree that these provisions are necessary to protect the legitimate business interests of the Franchisor, including protecting the integrity of the System and preventing duplication of the System by unauthorized third parties.
- (d) The Franchisee, each Owner, and the Recipients also agree that money damages alone cannot adequately compensate the Franchisor if there is a breach of this Agreement by the Franchisee, any of the Owners, or the Recipients, and that injunctive relief against the Franchisee, Owners, and/or the Recipients is essential for the protection of the Franchisor and its franchisees and developers.
Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)
What This Means (2025 FDD)
According to the 2025 Southern Steer Franchise Disclosure Document, the covenant not to compete serves to protect Southern Steer's business interests by preventing franchisees, owners, and recipients of confidential information from engaging in competitive activities that could exploit the franchisor's trade secrets, confidential information, and established goodwill. This is particularly important because Southern Steer operates in a competitive industry where access to their proprietary Brand Manual and other confidential information could be detrimental if used by a competitor.
The covenant includes both an in-term and post-term component. During the term of the Franchise Agreement, franchisees, owners, and recipients are prohibited from involvement in any Competitive Activity or Competitive Business without prior written consent from Southern Steer. After the agreement terminates, this restriction continues for 24 months, preventing them from engaging in a Competitive Business or Activity within the Franchised Location, the Protected Area, or within 50 miles of these locations or any other Southern Steer Business. This geographical scope ensures that former franchisees cannot directly compete with existing Southern Steer locations.
Southern Steer emphasizes that these restrictions are reasonable and necessary to protect its legitimate business interests, including the integrity of its system and preventing unauthorized duplication. The agreement acknowledges that monetary damages may not adequately compensate Southern Steer for breaches of the covenant, thus injunctive relief is essential to protect the franchisor and its franchisees. This measure allows Southern Steer the opportunity to resell or develop a new Southern Steer Business in the area without facing immediate competition from a former franchisee.