"Up to 10 Franchisee Organizations Could Emerge"—Franchise Industry Pushes Back Against Franchise Business Act

[Financial News] The franchise industry is strongly opposing the enforcement decree of the Fair Transactions in Franchise Business Act, which is scheduled to take effect at the end of this year to strengthen franchisees’ bargaining power. Under the decree, franchisee organizations could register and demand legally mandated consultations with franchisors if they represent just 10% of all franchisees. The industry is concerned that this could lead to an excessive number of negotiating organizations and create management burdens.
Na Myung-seok, chairman of the Korea Franchise Association, held a press briefing at the association’s office in Yeouido, Seoul, on the 8th. He said, "We agree with the basic purpose of the system, which is to expand opportunities for substantive communication and consultation with franchisees. However, side effects could arise, including a lack of representativeness, the proliferation of multiple organizations, an unclear scope of consultations, and management burdens caused by repeated consultations. The system must be comprehensively revised."
On the 3rd of last month, the Korea Fair Trade Commission issued legislative and administrative notices on proposed amendments to the Enforcement Decree of the Fair Transactions in Franchise Business Act and a proposed notification concerning the registration system for franchisee organizations and their right to request consultations. The measures will take effect on December 31.
Na said, "The core provisions of the government’s draft discussed at the June briefing were unilaterally changed in just over two months, altering the basic direction." He explained, "In the final proposed notice, the basic registration threshold was lowered from 30% of all franchisees to 10%, and a provision was added allowing a person who ‘lawfully represents the parties concerned’ to participate in consultations."
He continued, "Although the industry had concerns about the government’s June draft, we respected the purpose of the system, engaged in discussions in good faith, and waited for a balanced proposal. Instead, the proposed notice has made matters worse, and prior consultations and explanations were insufficient."
Na pointed to what he called problematic provisions in the proposed notice and urged revisions. First, he cited the registration requirements for franchisee organizations. Under the proposal, an organization could request legally mandated consultations if at least 10% of all franchisees joined it. This means an organization could register if it had at least 30 members or if the number of participating franchisees was 1,000 or more.
Na expressed concern, saying, "It is difficult to regard an organization representing 10% of franchisees as representing the views of all franchisees. If as many as 10 organizations emerge and make different demands, franchisors will be unable to formulate normal policies and apply them across the entire network."
He urged, "The basic registration threshold should be raised to 30% to 40% of all franchisees. If the 10% threshold is retained, safeguards are needed, such as consolidating the consultation channel, making decisions applicable to all franchisees, or requiring consent from at least 40% of franchisees."
Na also pointed out that the scope of consultations was excessively broad, covering all legally required information in franchise agreements as well as matters related to advertising and promotional events. He added that the scope and responsibilities of a person who may participate in consultations as someone who ‘lawfully represents the parties concerned’ were not clearly defined.
The association plans to call for comprehensive revisions to the proposed notice at a meeting with the chairperson of the Korea Fair Trade Commission scheduled for the 11th.
Na emphasized, "The rights of all franchisees, brand competitiveness, consumer benefits, and the practical burdens faced by small and midsize franchisors must all be taken into account." He added, "We ask that an environment be created in which the system can be implemented stably after sufficient consultation with stakeholders."
[email protected] Kim Seo-yeon Reporter