Reason for proposal

The current Act provides diverse protective measures against various unfair acts to allow franchisees to deal with franchisors on an equal footing. 

However, since the current Act mainly protects franchisees from unfair acts, franchisees' regional headquarters, which act on behalf of the franchisor within a certain region under a contract with the franchisor, are in a blind spot of legal protection, in which even franchisors often abuse their superior position, such as imposing unfair charges and issuing unilateral termination notices.

In addition, the current Act provides that franchisors should obtain the consent of a certain percentage of their franchisees before conducting advertising or promotional events and imposing the costs thereof on the franchisees. However, this may cause some franchisees with insufficient solvency to experience business difficulties, and may lead to disputes regarding the sharing of costs after the event. 

In addition, the current Act guarantees a franchisee's right to request contract renewal for up to only 10 years, leading to cases in which franchisors have unilaterally terminated franchise agreements with their franchisees when the agreement has reached the 10-year mark.

In addition, although the current Act provides that franchisees are entitled to form a franchisee organization to request franchisors to participate in a consultation on the terms of transaction, it has been pointed out that the right to form a franchisee organization and the right to request consultation on the terms of transaction terms have not been properly established in practice, as the Act does not provide specific guidelines regarding the exercise of such rights.

Due to these deficiencies in the current law, unfair behavior in franchise business transactions has not been eradicated but rather has increased. Therefore, the proposed amendment aims to establish a fair trading order in the franchise business by improving the legal provisions.

Main contents

a. The Act has been revised to prohibit unfair acts and retaliatory measures by franchisors toward regional headquarters, guarantee the right to apply for contract renewal, advance notice of contract termination, and the imposition of sanctions on franchisors (Newly established Article 2-2 of the draft).

b. The franchisor should obtain the prior consent of all franchisees to conduct advertising or promotional events (Article 12-6 of the draft).

c. The revision deletes the time limit for the franchisee's right to request contract renewal (Article 13 (2) of the draft).

d. The revision provides that the Presidential Decree should provide the number of times and the topics of consultation whenever a franchisee requests its franchisor to consult on the terms and conditions of the transaction. It also provides that the franchisor should not refuse such requests without justifiable reasons (Article 14-2 of the draft).

e. The revision provides the requirements for the registration of franchisee organizations by introducing a system for their registration, and it also stipulates the causes for revoking their registration and provides a hearing procedure for cancellation or revocation of their registration (Newly established Article 14-3 of the draft).

f. The revision introduces the imposition of sanctions in the event that a franchisor fails to respond to a request for consultation by a registered franchisee organization in accordance with the standards prescribed by the Presidential Decree (Article 33 of the draft).

g. The revision introduces a punitive damages system for franchisors that violate the law by failing to disclose the required information documents, provide false or exaggerated information, or engage in unfair trade practices (Article 37-2 (2) of the draft).

h. The revision provides penalties for franchisors that do not follow the termination procedure or unfairly terminate the franchise agreement (Article 41 (2) of the draft).