Fair Trade Commission Rules "Illegal" in Refusal to Renew Franchise Contract for Opposing New Store in Sales Territory

Correction Order Issued to Jeong Hang-woo Cake for Violating Franchise Business Act

[Sejong=Asia Economy Reporter Joo Sang-don] Myeongpum Jeonghangwoo Cake, which refused to renew a franchise contract on the grounds that an existing franchise opposed the attraction of a new franchise within its business area, has been sanctioned by the Fair Trade Commission.

The Fair Trade Commission announced on the 25th that it decided to issue a corrective order regarding Jeonghangwoo Cake's violation of the Franchise Business Act.

According to the Fair Trade Commission, Jeonghangwoo Cake demanded the franchise owner to accept conditions such as "payment of 1 million KRW per month for 3 months as store support funds and support of Maru products worth 1.56 million KRW" in order to attract new franchises within the business area of Ulsan Woojeong Innovation Branch.

The Ulsan Woojeong Innovation Branch refused this and, fearing that outstanding payments could be used as a pretext for contract renewal refusal, repaid all accumulated outstanding payments amounting to 23.58 million KRW by December 2018.

When the Ulsan Woojeong Innovation Branch continued to oppose the attraction of new franchises, Jeonghangwoo Cake notified them that "trust has been lost, so the contract cannot be renewed" and completely stopped transactions after the contract expiration date in May 2019.

The Fair Trade Commission judged that such actions constituted an unfair refusal to renew the franchise contract, violating the Franchise Business Act. According to the Franchise Business Act, a franchise contract renewal can only be refused if the franchisee fails to pay the franchise fee, does not accept contract conditions or business policies that are normally applied, or fails to comply with important business policies of the franchisor.

Accordingly, the Fair Trade Commission issued a corrective order to Jeonghangwoo Cake to prevent repetition of the same or similar acts in the future and ordered that the fact of the corrective order be notified to all franchise owners.

A Fair Trade Commission official stated, "It has been clarified that opposing the attraction of new franchises within the business area of an existing franchise cannot be a reason for refusing contract renewal," and added, "The Fair Trade Commission plans to strengthen monitoring to prevent franchisors from forcing existing franchisees to accept new franchises within their business area as a means to overcome COVID-19 and economic downturns, or from abusing the right to refuse contract renewal."

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