[Exclusive] Gubne Chicken and Twosome Place Franchise Owners Also File Difference in Franchise Fee Lawsuit... Already the 9th Case

208 Goobne Chicken Franchisees
273 Twosome Place Franchisees
Ninth Lawsuit Following Pizza Hut Case

Franchisees of Goobne Chicken and Twosome Place have filed lawsuits demanding the return of differential franchise fees they received from the headquarters without separate agreements.

With this, the number of domestic franchise companies involved in differential franchise fee lawsuits has increased to nine, including Pizza Hut, which had a second trial ruling last year.

A store of Goobne Chicken.

According to a comprehensive report by Asia Economy on the 8th, 208 Goobne Chicken franchisees filed a complaint on the 3rd at the Seoul Southern District Court against the headquarters, GN Food Co., Ltd., demanding the return of 1 million KRW per person in differential franchise fees.

The plaintiffs stated in the complaint, "For the headquarters to receive differential franchise fees, there must be an agreement between the headquarters and the franchisees," and "The defendant collected differential franchise fees without separate agreements with the plaintiffs, so this should be returned as unjust enrichment."

Regarding the scope of unjust enrichment to be returned, the plaintiffs initially claim 1 million KRW explicitly but stated that they will expand the claim by specifying the amount of differential franchise fees paid each year once the annual disclosure documents are secured.

A Tous Les Jours store. Photo by Yonhap News

Meanwhile, 273 Twosome Place franchisees also filed a complaint on the 4th at the Seoul Central District Court against Twosome Place Co., Ltd., the headquarters, demanding the return of 1 million KRW per person in differential franchise fees on the same grounds.

Differential franchise fees refer to the difference, or distribution margin, between the appropriate wholesale price and the amount the headquarters charges franchisees for supplying various goods.

According to the disclosure documents registered by the two companies, Goobne Chicken franchisees paid the headquarters an average differential franchise fee per store ranging from 36,466,000 KRW (11.6% of average sales) to 48,231,000 KRW (11.51%) from 2019 to 2023, while Twosome Place franchisees paid an average differential franchise fee per store ranging from 21,466,000 KRW (3.58%) to 42,610,000 KRW (7.65%) from 2019 to 2022.

Since the amendment of the Enforcement Decree of the Franchise Business Act in 2018, which mandated the disclosure of differential franchise fees by item in the franchise business disclosure documents, the existence of differential franchise fees, previously concealed, has been revealed, and in December 2020, Pizza Hut franchisees filed the first lawsuit.

In the Pizza Hut case, the court ruled in favor of the franchisees, stating that although the Pizza Hut headquarters received a fixed fee equivalent to 6% of total revenue under the franchise contract, it claimed and received differential franchise fees without any legal or contractual basis.

Notably, in September last year, the second trial court estimated the unjust enrichment amount for the period within the five-year statute of limitations for commercial claims, increasing the amount the headquarters must return from about 7.5 billion KRW in the first trial to 21 billion KRW. The Pizza Hut case, which will set a precedent for differential franchise fee lawsuits, is currently under final review by the Supreme Court.

Since the second trial ruling in the Pizza Hut case, eight companies have filed differential franchise fee lawsuits, including Lotte Super & Lotte Fresh, BHC, Baskin Robbins, Kyochon Chicken, Puradak Chicken, BBQ Chicken, and the two companies filing lawsuits this time. In addition, several other domestic franchisees are preparing similar lawsuits.

The key issue in differential franchise fee lawsuits is whether explicit or implicit agreements between the headquarters and franchisees regarding the payment of differential franchise fees can be recognized.

Some headquarters facing lawsuits argue that negotiations related to the collection of differential franchise fees were conducted either when drafting the franchise contract or through separate procedures, and that the conclusion will differ from the Pizza Hut case.

On the other hand, YK Law Firm, representing franchisees in nine differential franchise fee lawsuits including Pizza Hut, stated, "There are repeated cases where headquarters have taken profits in ways not disclosed in the disclosure documents or contracts," and "Actions infringing on franchisees' rights under the pretext of simple distribution margins must stop."