Gyeonggi Province Sanctions Unfair Franchise Practices, Protecting Franchisee Rights

Gyeonggi Province has imposed practical sanctions through proactive dispute mediation and reporting to the Fair Trade Commission in response to unfair practices by franchise headquarters.

On November 6, Gyeonggi Provincial Government announced that Frank F&B Co., the headquarters of the ‘Frank Burger’ franchise, which was reported to the Fair Trade Commission in April 2023 to protect franchisees, received a corrective order and a fine of 641 million won from the Commission on October 22.

At the time, six Frank Burger franchisees signed franchise agreements after being told by headquarters that the burger cost ratio was 42% and the profit margin would be 28-32%. However, when the actual cost ratio turned out to be excessively high and they continued to incur monthly losses, they applied for dispute mediation with Gyeonggi Province.

During the mediation process, Gyeonggi Province confirmed that the headquarters had provided false or exaggerated profit analysis data to franchisees and had designated 13 general industrial products, such as forks and knives, as mandatory purchase items, forcing franchisees to buy them exclusively from headquarters.

Gyeonggi Provincial Government

Accordingly, Gyeonggi Province presented a mediation proposal to the franchise headquarters, and when it was not accepted, the province reported the case to the Fair Trade Commission.

Previously, Gyeonggi Province also reported Dareum Plus Co., which operates ‘Ichadol’ (Chadolbagi), to the Fair Trade Commission for forcing franchisees to purchase new menu ingredients and general industrial products, providing false profit information, and making excessive damage claims. As a result, the company received a corrective order in July.

In addition, Mom’s Touch & Company, which operates ‘Mom’s Touch’ (handmade chicken burgers), was also reported by Gyeonggi Province for terminating franchise agreements due to franchisee group activities. As a result, the Fair Trade Commission issued a corrective order and imposed a fine of 300 million won in January last year.

Suh Bongja, Director of the Fair Economy Division at Gyeonggi Province, stated, “Frank Burger, Ichadol, and Mom’s Touch are representative cases where Gyeonggi Province has led to practical sanctions against unfair practices by franchise headquarters. We will continue to strengthen on-site responses to protect the rights and interests of franchisees and to improve fair trade practices in the franchise industry.”