Fair Trade Commission slaps 300 million won fine on Mom's Touch for franchise abuse

Unilateral Contract Termination and Supply Suspension Due to Formation of Franchisee Business Association

Mom's Touch, a fast-food franchise that engaged in unfair practices such as unilaterally terminating contracts on the grounds that franchisees formed a franchisee council, will face sanctions from the competition authorities.

The Korea Fair Trade Commission (KFTC) announced on the 31st that it will impose corrective orders and a fine of 300 million KRW on Mom's Touch & Company, the franchisor of Mom's Touch, for violations of the Franchise Business Act.

According to the KFTC, in March 2021, the owners of 61 Mom's Touch franchise stores, including the Sangdo Station branch, sent a "Notice of Formation of Franchisee Business Association and Encouragement to Participate" by mail to over 1,300 Mom's Touch franchisees nationwide.

The mail included statements such as "At the end of 2019, a private equity fund acquired Haemaro Food, and the franchisor has pursued only the headquarters' profits while disregarding the interests of franchisees," and "Recently, almost all stores have been suffering from declining sales and profits, with profit margins plummeting due to rising product costs."

In response, Mom's Touch sent a certified letter containing a warning to the franchise owner of the Sangdo Station branch. Subsequently, in April 2021, the franchisee council notified Mom's Touch of the formation of a franchisee business association with 418 member stores and submitted a list of executives, requesting negotiations on transaction conditions.

Mom's Touch then demanded the submission of the membership list from the council and ordered the suspension of activities under the franchisee council's name until its representativeness was verified.

Two Mom's Touch executives visited the Sangdo Station branch, which led the council's formation, and pressured the franchise owner to resign from the chairmanship, stating, "We cannot recognize a council hostile to headquarters."

They also warned that if legal disputes began, they would pressure franchisees to cease operations by terminating contracts, and even if franchisees proceeded with injunction applications, damage claims, KFTC complaints, media reports, and franchisee council activities (known as 'Ga-Son-Gong-Eon-Jeom'), they would suffer huge losses without any practical benefits.

Mom's Touch subsequently notified the Sangdo Station franchise owner of contract termination and stopped supplying goods, citing "damage to the headquarters' credit and obstruction of franchise business."

The KFTC found these actions by Mom's Touch headquarters to be violations of the Franchise Business Act and imposed corrective orders and fines.

The KFTC stated, "We will continuously monitor franchisors who impose disadvantages due to association activities and take strict action if violations are confirmed."

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