Hankyung Association Submits Opposition to Franchise Business Act and Agency Act Amendments to National Assembly

"Opposition to Indefinite Contract Renewal Rights... Harm to Consumer Welfare"

The Korea Economic Association submitted an opposition opinion to the National Assembly regarding the amendments to the 'Franchise Business Act' and the 'Agency Act.' They argued that granting franchisees an indefinite right to request contract renewal, as proposed in the amendments, would restrict the management activities of franchisors, lower service quality, and ultimately harm consumer welfare.

Representatives of the Yeondon Bolkatsu Franchise Owners Association and the National Franchise Owners Association held a press conference on the afternoon of June 18 in front of the Theborn Korea headquarters in Gangnam-gu, Seoul, to announce cases of damages suffered by Yeondon Bolkatsu franchisees.
[Photo by Yonhap News]

On the 24th, the Korea Economic Association announced that it recently submitted opposition opinions to the National Assembly concerning the amendments to the Franchise Business Act and the Agency Act. They requested careful consideration of the introduction of regulations such as granting business operators an indefinite right to request contract renewal, mandating franchisors to initiate negotiations on transaction conditions, and codifying the right of agency business operators to form associations.

The Korea Economic Association argued that granting business operators an indefinite right to request contract renewal violates fairness and may infringe on the principle of freedom of contract. According to the amendments, business operators can request contract renewal from the franchisor, and the franchisor cannot refuse without justifiable reasons.

Under current law, the period during which business operators can exercise the right to request contract renewal is limited to 10 years. The amendments remove this time limit. Unlike the franchise transaction amendments, the Commercial Building Lease Protection Act limits the exercise period of the right to request contract renewal to 10 years. The Subcontracting Act, Agency Act, and Large-scale Distribution Business Act do not separately guarantee the right to request contract renewal. A Korea Economic Association official stated, "If only franchise transactions, among areas involving significant investment based on continuous business relationships between operators, recognize an indefinite right to request contract renewal, it may violate legal fairness."

The Korea Economic Association pointed out that guaranteeing franchisees an indefinite right to request contract renewal could lead to a decline in consumer service quality. This is because franchisees would maintain vested interests through lifetime contracts, making it difficult for franchisors to prevent this.

The Korea Economic Association argued that legally forcing franchisors to negotiate with franchisee associations (business operator associations) is excessive. Under the current Franchise Business Act, if a business operator association requests negotiation on transaction conditions, the franchisor must respond sincerely. The amendments require mandatory compliance with such requests and impose sanctions such as corrective measures if violated.

The Korea Economic Association stated that interpreting business operator associations as employees under labor law and mandating franchisors to initiate negotiations is excessive. A Korea Economic Association official said, "There is a concern that franchisee business operator associations might abuse negotiation rights to unfairly interfere with franchisor management," adding, "Most franchisors are inferior to business operator associations in terms of scale, such as manpower, which could place them at a disadvantage in negotiations."

Furthermore, the Korea Economic Association raised concerns that codifying the right of agency business operators to form associations, as proposed in the Agency Act amendments, could reduce consumer welfare through collusion. The amendments include provisions to codify the right of agency business operators to form associations.

According to the Korea Economic Association, agencies independently set sales prices and conduct business activities. Unlike franchises, they do not maintain uniform pricing policies for goods and services. In this context, codifying the right of agency business operators to form associations could increase the possibility of collusion based on price-setting authority, the Korea Economic Association argued.

Lee Sang-ho, Head of the Economic and Industrial Headquarters at the Korea Economic Association, said, "It is somewhat regrettable that the voices of businesses are not reflected in the lawmakers' proposed amendments to the Franchise Business Act and the Agency Act," adding, "Considering that franchisors and agency headquarters are also parties to the contracts, it is necessary to improve the law to fairly guarantee the rights of both headquarters and business operators."

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