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TexLaw, Attorney
Category: Business Law
Satisfied Customers: 4430
Experience:  Internationational Commercial Attorney
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I have a fitness franchise in CA with 20 months remaining on my agreement. Will I be able to sell the assets of the business to an employee to operate under a different name, different business at the expiration of the franchise agreement?

Thank you for your question. Can you please email a copy of the franchise agreement to my attention "ZDNlaw" in regard to:

[email protected]

This will take a while to get transferred over to me, but as soon as I get it, I will review the franchise agreement and let you know the answer to your question.

I look forward to hearing back from you.


Customer: replied 3 years ago.

Email with franchise agreement has been sent. Thank you.

Ok. Please be patient and await an answer. It may take a while to get through the system to me.

Thanks and sorry for the inconvenience.

Just following up with you. I still have not received the document from customer service. You did send it to "[email protected]"?
Customer: replied 3 years ago.

Verified address. Sending again...

I apologize for how long this is taking.
Finally received it.

You asked: "Will I be able to sell the assets of the business to an employee to operate under a different name, different business at the expiration of the franchise agreement?"

The franchise agreement limits your use of the trade marks and trade secrets of TXS. The trade secrets include the TXS exercise programs, operation manuals, marketing strategy and marketing materials. The franchise agreement provides that you "will not, at any time during the term of this Agreement or any time thereafter, use or attempt to use these trade secrets in connection with any other entity or business in which you have an interest, direct or indirect, nor shall you disclose, duplicate, reveal, sell or sublease the trade practices...."

In short, you cannot transfer any property belonging to TXS after the franchise terminates. Most importantly, this includes membership lists and leads and the agreement requires that you destroy these lists after the agreement terminates.

Also, the Franchise Agreement contains a Non-Compete Covenenant which limits you from, directly or indirectly, operating a competing business at the same location (or 20 mile radius) for a period of 2 years. This brings into question whether you may sell the assets to an employee to operate after the franchise agreement expires. It appears that if you were to continue on with the business yourself after the franchise expiration, this would violate the non-compete clause. Selling to an employee likely gets around the non-compete, but you must not have any interest or participation in the business after the sell.

So, in short, after reviewing the franchise agreement, it appears that you are not prohibited from selling the business assets/studio to an employee to operate a fitness facility, as long as none of the TXS confidential information, property, or customer lists are involved in the transaction and the TXS trade secrets are not used. Further, the sell must be complete and you may not retain any interest or participation in the business.

Please let me know if you have further questions on this matter.


Customer: replied 3 years ago.
The customer list issue seems very unclear. I presume a violation there would have to be direct contact such as direct mail or phone calls. Conversely, what's to prevent me from saying to my customers "I'm closing shop but 'Betty' is opening a studio down the street".

The rest of it makes sense, clearly no continued use of the "brand" would be allowed, and I have no intention of any further involvement. Again, the customer issue seems a bit murky.
The customer issue is indeed murky. Essentially, the franchise agreement is stating that you cannot keep or transfer a customer list. So that would mean any list or file containing or comprising a list of current or potential customers. In other words, you shouldn't transfer any accounts receivable list, membership list, calendering or class scheduling document or file, which has the customers' names in it.

That being said, there's absolutely nothing with the verbal statement "I'm shutting down, but a new fitness facility run by Betty will be opening up".
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