BBQ 490 Million KRW vs Mom's Touch 300 Million KRW... What Made the Difference in Franchisee Abuse Fines

Fair Trade Commission imposes 300 million won fine on Mom's Touch for blocking union formation
Previously, Pizza Etang, BBQ, and bhc also fined 500 million won
Fair Trade Commission targets franchises with intensified investigation of unfair practices

#MOM's Touch Sangdo Station franchise owner Hwang Seong-gu was notified of contract termination by the headquarters in August 2021. The reason was that in March, Hwang sent mail to franchisees nationwide about forming an association, containing false statements such as 'the headquarters only pursues its own interests' and 'almost all store profits have declined.' The headquarters also filed complaints against Hwang for defamation and obstruction of business with the police and prosecution in July and September of the same year. However, all cases were ultimately dismissed. When the court ruled in October that the headquarters must compensate 50 million KRW per day if they did not supply materials to the Sangdo Station store, only then did they resume material supply.

The Korea Fair Trade Commission (KFTC) imposed a fine of 300 million KRW on the fast-food franchise MOM's Touch headquarters. This was a strong penalty for unfairly terminating the franchise contract with Hwang due to his group activities. Previously, the KFTC had imposed similar fines on franchise headquarters such as Pizza Etang, BBQ, and bhc for similar reasons. However, MOM's Touch's fine was relatively smaller because only one franchise was terminated and the termination period was short. Nevertheless, the KFTC announced it will continue to monitor violations by franchise headquarters and impose strict penalties.

KFTC: "MOM's Touch fined 300 million KRW for terminating contract due to franchisee association formation"

On the 31st, the KFTC announced that MOM's Touch headquarters, MOM's Touch & Company Co., Ltd., was ordered to correct its actions and fined 300 million KRW for terminating the contract with the Sangdo Station franchise owner, who was the representative of the franchisee association, due to the formation, joining, and activities of the franchisee business association. The KFTC explained, "This action severely sanctions the unfair practices of franchise headquarters aimed at obstructing franchisee business association activities," and added, "It is significant in guaranteeing collective activities to protect franchisees' rights."

This is the fourth time the KFTC has sanctioned a franchise headquarters for disadvantaging franchisees due to group activities. The first case was the pizza franchise Pizza Etang. In 2015, Pizza Etang terminated contracts with two franchisees who led the establishment of a franchisee association and was fined 1.467 billion KRW by the KFTC in 2018. Among this, the fine related to 'disadvantaging due to group activities and unfair contract termination,' similar to MOM's Touch, was 500 million KRW.

BBQ Chicken

Pizza Etang, BBQ, and bhc also fined 495 million to 500 million KRW for similar reasons

Chicken franchises BBQ and bhc also faced controversy for terminating contracts with franchisees who led the formation of franchisee associations. In 2021, the KFTC imposed fines of 1.503 billion KRW and 500 million KRW on the two headquarters, respectively. Among these, the fines related to group activities were 495 million KRW and 500 million KRW, respectively.

The reason MOM's Touch received a smaller fine despite corrective actions similar to Pizza Etang, BBQ, and bhc is that only one franchise was disadvantaged and the contract termination period was only two and a half months. For example, bhc terminated contracts with seven franchises.

A representative from the KFTC's Corporate Transaction and Merger Review Bureau, Franchise Transaction Investigation Team, explained, "Fines are determined up to 500 million KRW depending on the severity of the violation. The MOM's Touch case was classified as serious among violations ranging from very serious, serious, to less serious, so a fine of 300 million KRW was imposed."

The KFTC plans to continue strictly punishing and monitoring franchise headquarters that disadvantage franchisees due to group activities. Additionally, it plans to conduct ex officio investigations into unfair practices by franchise headquarters, such as price increases without consultation or excessive cost transfers.

However, whether this KFTC sanction will actually be enforced remains uncertain. Previously, courts partially ruled against the KFTC in lawsuits filed by Pizza Etang and BBQ headquarters seeking to cancel the KFTC sanctions, citing weak grounds and excessive fines imposed by the KFTC.