Store owners must be consulted in advance to increase mandatory franchise items

Amendment to the Enforcement Decree of the Franchise Business Act Passed at the Vice Ministerial Meeting

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In the future, when a franchisor increases the number of 'mandatory items' designated to maintain brand consistency or raises their prices, they must consult with franchisees in advance and include this in the franchise agreement.

On the 23rd, the Fair Trade Commission announced that the amendment to the Enforcement Decree of the "Act on the Fairness of Franchise Transactions" (hereinafter referred to as the Franchise Business Act) containing this provision has passed the vice-ministerial meeting.

According to the amendment, if a franchisor expands mandatory items or raises prices, or otherwise changes the transaction conditions related to mandatory items to the disadvantage of franchisees, they must consult with the franchisees. The consultation process between the franchisor and franchisees must also be recorded in the franchise agreement.

Mandatory items are those that the franchisor requires to be purchased only from designated suppliers to maintain brand consistency. Previously, the Fair Trade Commission identified that some franchisors unfairly exploited franchisees' interests through excessive designation of mandatory items and price increases, and thus initiated improvements to the system.

Meanwhile, the amendment also includes provisions to establish notification procedures to ensure the smooth implementation of the injunction system to suspend lawsuits in summary courts for dispute mediation cases, which was introduced last year through the revision of the Franchise Business Act.

The Fair Trade Commission explained, "This amendment to the Enforcement Decree is significant as it is the first time that consultation by franchisors is made mandatory."

This amendment will be promulgated after procedures such as the Cabinet meeting and presidential approval, and will take effect six months after promulgation (the provisions related to the injunction system in summary courts will take effect immediately after promulgation).