Franchise Headquarters Disclose 'Difference Franchise Fees'… Constitutional Court Rules "Not Confidential"

[Image source=Yonhap News]

[Asia Economy Reporter Baek Kyunghwan] The Constitutional Court has ruled that the provision requiring franchise headquarters to disclose the profits earned from supplying goods to franchisees does not violate the law.

On the 7th, the Constitutional Court announced that it dismissed all 49 adjudication requests filed by franchise headquarters in a constitutional review lawsuit concerning the Enforcement Decree of the Act on the Fair Transactions in Franchise Business (Franchise Business Act). Additionally, the court dismissed similar adjudication requests from five suppliers delivering goods to the franchise headquarters.

Franchise owners operate their stores by signing contracts with the headquarters and purchasing ingredients for the food they sell. However, controversy arose as some franchise headquarters required purchasing ingredients at prices higher than the cost. In response, since 2019, the government has included "differential franchise fees" in the disclosure documents that franchise headquarters must submit under the Enforcement Decree of the Franchise Business Act. It also mandated disclosure of relationships between special related parties such as franchise headquarters owners and the headquarters, as well as related products, services, and economic benefits.

Some franchise headquarters argued that the differential franchise fees constitute trade secrets and claimed that the legal provision requiring their disclosure is unconstitutional.

However, the Constitutional Court stated, "If the logic of a formal free market or freedom of contract is emphasized to allow franchise headquarters to intervene in product supply and obtain excessive profits, it will cause disputes," adding, "Excessive profits reflected in product prices are likely to be passed on to consumers, which could shrink the entire franchise business."

The court further pointed out, "Considering that differential franchise fees are the main source of income for franchise headquarters and represent profits obtained from costs actually incurred by franchisees, this is a part that franchisees or prospective franchisees need to know even more than other franchise fees."

Meanwhile, suppliers also filed constitutional complaints, but the court dismissed them on the grounds that the legal provision concerns franchise headquarters and franchisees, and thus the suppliers lacked sufficient standing.

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