Seoul City Resolves 309 Franchise Headquarters-Business Owner Disputes Over 3 Years... Top Dispute: 'Penalty Fees'

Dispute Details, Compensation for Damages Including Penalties > Abuse of Trade Position > Violation of Obligation to Provide Information Disclosure Document in Order
Average Dispute Mediation Processing Time Reduced to 32 Days
105 Mediation Agreements with Estimated Economic Effect of 2.27 Billion KRW

[Asia Economy Reporter Lim Cheol-young] The Seoul Metropolitan Government announced on the 27th that since 2019, it has been operating the Franchise Headquarters-Franchisee and Agency Headquarters-Agent Dispute Mediation Committee to resolve disputes, and has mediated 309 dispute cases over three years.

The "Seoul Franchise and Agency Dispute Mediation Committee" was launched in 2019 following amendments to the Franchise Business Act and Agency Act, which allowed local governments to handle franchise and agency dispute mediation. The committee is operated not only by Seoul but also by local governments such as Gyeonggi Province, Incheon City, and Busan City, as well as by the Korea Fair Trade Mediation Agency under the Fair Trade Commission.

If franchisees or agents suffer damages while operating their businesses, they can apply for mediation through the "Seoul Dispute Mediation Committee." The committee assesses the situation of both parties and facilitates an amicable agreement between the business operators and headquarters. Mediation is free of charge, and once the committee drafts a mediation record, it has the same effect as a court settlement.

Since 2019, Seoul has received 309 dispute cases from franchise operators and others. Among these, 183 cases were closed due to withdrawal by the parties, and out of 126 dispute cases, 105 were resolved through mediation. The most common franchise business disputes involved "unfair burden of damage compensation obligations (23%)," followed by "abuse of bargaining position (14%)" and "violation of disclosure document provision obligations (10%)." Agency transaction disputes mostly involved "unfavorable changes to transaction conditions (30%)" and "unfavorable actions related to returns (11%)."

By year, franchise disputes in the first year of the committee's operation in 2019 showed a balanced distribution of issues such as "violation of disclosure document provision obligations (14.5%)" and "unfair burden of damage compensation obligations (14.5%)." However, since 2020, with many franchise store closures due to COVID-19, disputes related to penalty fees and other "unfair damage compensation obligations" between franchise headquarters and franchisees surged. The dispute occurrence rate by industry for franchise businesses was convenience stores (25%), food service (23%), and coffee/beverages (8%), while for agency transactions it was clothing (14%), food (7%), and automobiles (7%).

Seoul evaluated the economic impact of dispute mediation as significant. Considering the savings on costs such as court fees and delivery charges that franchise and agency owners would have incurred through litigation, as well as the amounts received or reduced through mediation, the total is estimated to be about 2.27 billion KRW over three years. Additionally, the dispute mediation processing period was greatly reduced. While the legal processing period can be up to 90 days, Seoul completed mediation in an average of 32 days, enabling swift dispute resolution.

Han Young-hee, Seoul’s Director of Labor, Fair Trade, and Win-Win Policy, stated, “Seoul will strive to quickly resolve franchise and agency disputes to prevent economic and time losses for franchise and agency operators struggling due to the prolonged COVID-19 pandemic. Furthermore, we will continue preventive education to avoid damages and provide prompt legal counseling for quick relief when damages occur, thereby establishing a fair trade order.”

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