Franchisee Association Minimum Cut from "30 to 5"; FTC Weighs Easing Rules

Amended Franchise Business Act to Take Effect on Dec. 31 This Year
FTC Chair Joo Byungki Signals Easing of Minimum Registration Requirements

With the Korea Fair Trade Commission (KFTC) announcing plans to revise the draft amendment to the Enforcement Decree of the Franchise Business Act to strengthen franchisees' bargaining rights, reports say it is considering lowering the minimum number of members required to register a franchisee group from 30 to five. The change appears intended to ease the requirements following criticism that, while the KFTC sought to reduce the burden on small franchisors, franchisees affiliated with those franchisors faced greater difficulty registering a group.

According to industry sources on Oct. 21, the KFTC has revised the draft amendment and is discussing it with relevant government agencies as part of a regulatory review. The draft was announced for public comment on Aug. 3, but the KFTC later decided to revise it after franchisors, franchisees, and other stakeholders raised concerns. The commission plans to finalize the draft in line with the effective date of the amended Franchise Business Act, which passed the National Assembly in December last year and is set to take effect on Dec. 31 this year, and submit it to the Cabinet in December.

The key issue in the revisions to the draft enforcement decree is the requirements for registering franchisee groups. The original draft set out criteria for introducing a registration system for franchisee associations, including membership by at least 10% of all franchisees or 1,000 or more franchisees, and participation by at least 30 franchisees. Franchisors and franchisees have sharply disagreed over these thresholds. Franchisors have warned that the 10% threshold is quite low and could lead to a proliferation of groups, while franchisees have criticized requirements such as a minimum of 30 members as barriers to forming a group.

Last month, KFTC Chair Joo Byung-ki held a series of meetings with both sides and said, "We are considering lowering the minimum membership requirement for group registration." He was referring to revising the requirement for "participation by at least 30 members." He added, "We initially sought to reduce the burden by excluding small franchisors with fewer franchisees from the regulations, but we understand concerns that this has instead increased the registration burden on franchisees affiliated with small franchisors. We are considering lowering the minimum and will actively reflect feedback in the revised draft."

The KFTC is reportedly said to have stated in responses sent to individuals and groups that submitted comments on the draft that it would retain both the 10% franchisee participation rate and the minimum threshold itself. At the same time, it is reportedly working to revise the draft by lowering the minimum number from 30 to around five, thereby easing registration requirements for franchisees affiliated with some small franchisors. For the 1,000-member threshold, a rule aimed at large franchisors, including convenience store chains, the commission has indicated that it may ease the threshold while establishing rules for phased application based on the number of franchisees.

If the draft is revised along the lines currently under consideration by the KFTC, the requirements for registering groups affiliated with franchisors that have 50-299 franchisees would be eased. Under the original draft, these groups had difficulty forming even when they gathered 10% of franchisees because of the requirement for at least 30 members.

According to the KFTC, at the end of 2024 there were 8,802 franchisors and 365,014 franchise locations. Based on the distribution of franchisors by franchise-location count that the commission released for that year, lowering the minimum threshold from 30 to five would increase the number of franchisors whose franchisees could register a group with just 10% participation from 96 (1.1%) to 677 (7.7%). The number of franchise locations would rise from 209,518 (57.4%) to 300,771 (82.4%). These represent increases of 581 franchisors and 91,253 franchise locations, respectively.

In addition, franchisees affiliated with franchisors that have 5-29 locations, who could not form a group under the minimum-member rule, would be able to do so by meeting the five-member minimum.

The KFTC is also reportedly considering tightening the scope of "representatives" permitted to participate in the consultation process, another point of controversy. The current draft states: "Participants in a consultation process initiated at the request for consultation shall be employees of the franchisor or members of a registered franchisee association as of the time of attendance. This shall also include persons legally representing the parties." Franchisors have strongly criticized this provision, warning that the participation of unaffiliated outsiders could expose trade secrets.

The KFTC is reportedly planning to revise some provisions, including those concerning "persons entrusted with consultation-related matters," such as attorneys. A confidentiality clause is also expected to be added. The scope of consultation and the interval for renewed consultations are expected to remain as set out in the original draft.

A KFTC official said, "The relevant procedures concerning the draft amendment to the enforcement decree are ongoing, and its contents have not been finalized. We are seeking to revise the draft while reflecting, as much as possible, the feedback received from franchisees and franchisors."

However, the proposed revisions are causing significant concern in the franchise industry. An industry official said, "The requirements for registering a group are so low that disagreements and disputes could inevitably arise even among franchisees under the same brand. While franchisors may differ in their views on the details depending on the size of their franchise networks, most share concerns that this has created business risks."

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