Franchise Advertising and Promotions Require Prior Consent from Franchise Owners

Amendment to the Franchise Business Act Passed at the Cabinet Meeting

Consent Rate to Be Determined by Presidential Decree
Introduction of Franchisee Association Registration System

[Sejong=Asia Economy Reporter Joo Sang-don] From now on, franchise headquarters must obtain prior consent from franchisees when conducting advertising and promotional events. Additionally, a 'Franchisee Association Registration System' will be introduced to allow franchisee associations to register with the Fair Trade Commission.

The Fair Trade Commission announced on the 27th that the "Partial Amendment to the Act on the Fairness of Franchise Transactions," which includes these provisions, has passed the Cabinet meeting.

The cost burden of advertising and promotional events is an important transaction condition between franchise headquarters and franchisees. However, the current law only requires franchise headquarters to notify franchisees of the cost execution details after conducting advertising and promotional events. This structure makes it difficult for franchisees to know the cost burden in advance and negotiate with the headquarters.

Accordingly, the amendment mandates that franchise headquarters intending to conduct advertising or promotional events for which franchisees bear the costs must obtain prior consent from a certain percentage of franchisees regarding the cost burden. The consent rate will be determined by presidential decree.

However, in the case of separate promotional events in which only franchisees who have entered into separate agreements or consent participate, prior consent is not required.

The franchisee association registration system will also be introduced. Under the current law, franchisee associations composed of franchisees can request negotiations with the franchise headquarters regarding transaction conditions, and the headquarters is generally obligated to respond sincerely to such negotiations. However, there has been a practical issue where franchise headquarters refuse to respond sincerely by questioning the representativeness of the association.

Therefore, the amendment allows franchisee associations that meet certain requirements, such as having a certain percentage of franchisees as members, to register with the Fair Trade Commission. This official procedure enables franchisee associations to confirm their representativeness.

Additionally, to manage the qualifications of franchise transaction agents, a provision prohibiting the lending or brokerage of registration certificates has been newly established, and violators may face imprisonment of up to one year or a fine of up to 10 million won.

A Fair Trade Commission official stated, "Through this amendment to the Franchise Business Act, approximately 260,000 franchise stores are expected to enhance their negotiating power in the negotiation process with franchise headquarters regarding transaction conditions such as the cost burden of advertising and promotional events." He added, "Also, through thorough management and supervision of franchise transaction agent registration certificates, the reliability of franchise transaction agent qualifications can be improved."