"Franchise Owner Groups Can Negotiate with Headquarters with Just 10% Participation"…Fair Trade Commission Announces Legislative Notice for Franchise Act Enforcement Decree

Public Representation Granted for Groups with "10% or 1,000 Members or More"


Obligation to Gather Opinions Added for Groups with Less Than 30% Membership

With the implementation of the revised Fair Franchise Transactions Act, which grants franchise owners collective bargaining rights, the minimum registration requirements for franchise owner groups—a significant sticking point—have been set at "at least 10% of all franchisees" or "at least 1,000 individuals." Additional safety provisions have also been introduced to prevent the indiscriminate proliferation of organizations and relay negotiations, which could cause management disruption for headquarters.

On August 3, the Korea Fair Trade Commission announced that it would be issuing legislative and administrative notices for a draft revision to the Enforcement Decree of the Fair Franchise Transactions Act and an enactment of guidelines on franchise owner group registration and negotiation procedures for changing transaction conditions. These new and revised measures form the detailed implementation standards for the amended law, set to take effect on December 31 this year. The main points are the "franchisee group registration system" and the "mandatory negotiation obligation for registered groups."

During the process of preparing the enforcement decree after the law passed, there was contention over the recognition rate for registration: headquarters (such as the Korea Franchise Association) insisted on "at least 40%" citing management difficulties, while franchise owner groups (like the National Franchisee Association) argued for "less than 10%" to lower the barrier to entry. Ultimately, the Fair Trade Commission sided with the franchise owners, setting the requirements at "at least 10%" or "at least 1,000 individuals." However, to alleviate the burden on small headquarters, the minimum number of members was set at 30, thereby excluding headquarters with fewer than 30 franchisees (which account for 12.2% of all headquarters) from these rules.

Once the system is enacted, registered franchise owner groups can officially request negotiations with headquarters on transaction conditions such as designation of essential items, price increases, collection methods for franchise fees, and sharing of advertising and promotional expenses. Headquarters are required to commence negotiations within 14 days of receiving such a request and must keep meeting minutes for three years. If they refuse or delay negotiations without legitimate reason, they will be subject to corrective orders and other compulsory measures.

However, buffer mechanisms have been introduced to prevent excessive and unproductive negotiations due to a proliferation of groups. Groups with a membership rate of 10% to less than 30% must notify non-member franchisees of agenda items in advance and collect their opinions. Once a topic has been negotiated, it cannot be renegotiated for 180 days; requests for additional negotiations on other topics are also prohibited for 60 days (90 days for headquarters with fewer than 100 franchisees). As public authority is strengthened for franchise owner groups, rules for penalizing moral hazard have been clarified. If a group registers by using another person's identity or submitting forged or altered documents, or if headquarters forms a so-called "company union" through improper intervention, its registration will be immediately revoked.

The Fair Trade Commission stated, "We will meticulously review any opinions received during the legislative and administrative notice period, and will complete follow-up actions so that the revised Fair Franchise Transactions Act can be implemented without delay, including amendments to the enforcement decree and establishment of new guidelines within the year."

This content was produced with the assistance of AI translation services.