"Buried in Debt"... McDonald's Franchise Owner Loses Lawsuit Over Franchise Contract Renewal

McDonald's Korea won a lawsuit filed by some franchisees challenging the invalidity of the refusal to renew franchise contracts.

On the 10th, the Civil Division 2 of the Seoul Central District Court dismissed all claims of the plaintiffs in the final hearing of the lawsuit filed against McDonald's Korea to confirm the invalidity of the refusal to renew franchise contracts.

The court ruled in favor of McDonald's Korea, which judged that some stores did not meet the standards based on the owner review scores used to evaluate franchisees, making contract renewal impossible. The franchisees who filed the lawsuit claimed that McDonald's Korea refused to renew franchise contracts in order to convert high-performing stores with imminent contract renewals into company-operated stores, but the court did not accept this argument.

McDonald's image. Asia Economy DB

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Previously, three franchise stores operating McDonald's franchises in Daegu, Cheonan, and Gimpo filed a lawsuit against McDonald's Korea in April 2023, alleging that McDonald's Korea violated the Franchise Business Act by refusing to renew franchise contracts.

Article 13, Paragraph 2 of the current Franchise Business Act allows franchisees to exercise the right to request contract renewal within the total contract period not exceeding 10 years, including the initial franchise contract period. However, there are criticisms that this law, which limits franchise contracts to 10 years, has hindered the long-term operation of franchise stores.

In 2019, the Fair Trade Commission issued the "Guidelines for Stable Contract Renewal of Long-Term Franchise Stores," which stipulate that even if the contract period exceeds 10 years, the franchisor cannot refuse contract renewal unless there are significant breaches of contract or poor business evaluations. However, these guidelines have proven to be ineffective.

A representative of McDonald's Korea said, "McDonald's Korea meaningfully accepts the court's decision to rule in favor of the company in the 'lawsuit to confirm the invalidity of refusal to renew franchise contracts' and expresses gratitude for the court's rational judgment," adding, "We will continue efforts for win-win management based on the 'three-legged stool' philosophy that franchisees, suppliers, and headquarters must grow together."

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