Kang Ki-jung, Chairman of the Fair Trade Commission, is speaking at the Min-Dang-Jeong Council held at the National Assembly on the 22nd to improve the essential item system for franchise businesses to prevent and protect franchisees from damage. Photo by Hyunmin Kim kimhyun81@
Starting from the 5th of next month, franchisors must consult with franchisees in advance when increasing the number of 'mandatory items' designated for maintaining brand consistency or raising their prices.
On the 28th, the Fair Trade Commission announced that the enactment of the "Notice on Consultation for Changes in Transaction Conditions of Mandatory Purchase Items," which includes these provisions, will take effect from the 5th of next month.
Mandatory purchase items refer to essential products that franchisors require franchisees to purchase only from the headquarters or designated suppliers to maintain brand consistency.
The Fair Trade Commission previously amended the Enforcement Decree of the Franchise Business Act to establish an obligation for franchisors to consult with franchisees when changing the transaction conditions of mandatory purchase items to the disadvantage of franchisees.
This improvement was initiated after recognizing that some headquarters unfairly exploit franchisees' interests through excessive designation of mandatory purchase items and price increases.
The enactment specifically enumerates cases of "unfavorable changes in transaction conditions," such as increasing the supply price of mandatory purchase items, reducing their quantity, volume, specifications, or weight, lowering the quality of mandatory purchase items, or narrowing the range of trading partners for mandatory purchase items.
It also stipulates the "specific procedures for consultation on changes in transaction conditions." Franchisors must notify franchisees of detailed information about the changes and the consultation method well in advance before starting the consultation.
Both face-to-face and non-face-to-face consultation methods are recognized, but the method used should allow franchisees to easily and freely express their opinions.
If franchisees request the provision of materials or fact verification during the consultation process, franchisors must comply and explain their position and grounds regarding the franchisees' opinions. After the consultation ends, the results must be specifically summarized and notified to all franchisees.
Franchisees are generally required to consult with all franchisees, but if more than 70% of franchisees agree, consultation with the franchisee association can substitute for this.
The Fair Trade Commission stated, "To prevent legal disputes arising from franchisors conducting consultations without fully understanding the contents of the enactment and to support the establishment of desirable consultation practices, a guidance period will be operated until January 31 of next year."
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