Fair Trade Commission to Introduce “Franchisee Organization Registration System” to Strengthen Franchisee Bargaining Power

The Fair Trade Commission is moving to introduce a “Franchisee Organization Registration System” to enhance the bargaining power of franchise store owners. Currently, the Franchise Business Act stipulates the right of franchisees to form organizations and request consultations, but there have been many cases where franchisors have refused to negotiate, citing a lack of representation. In response, the Fair Trade Commission plans to manage organizations that meet certain requirements through a registration system, granting them official representation and establishing an institutional foundation for equal negotiations with franchisors.

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On September 23, the Fair Trade Commission announced a “Comprehensive Plan to Strengthen Franchisee Rights and Interests” containing these measures. On the same day, Fair Trade Commission Chairman Joo Byungki held the second session of a “Relay On-Site Meeting” at a fast-food franchise in Mapo-gu, Seoul, gathering opinions directly from industry stakeholders. The meeting was attended by five franchise store owners, as well as representatives from the National Franchisee Association, the Korea Franchise Association, the Korea Franchise Transaction Association, and academia.

The Fair Trade Commission will also strengthen the foundation for franchisees to negotiate on an equal footing with franchisors through franchisee organizations during the operation stage. To this end, it plans to establish grounds for sanctions against franchisors who refuse to engage in negotiations with franchisee organizations. However, to prevent excessive burdens on franchisors, the system will allow refusals for legitimate reasons, limit the number of negotiation requests, and introduce measures to enable collective negotiations with multiple organizations at once.

The information disclosure document system will also be completely overhauled to support safe business startups. The Fair Trade Commission plans to change the review process for information disclosure documents-an important source of information for prospective franchisees-from a pre-registration review system to a post-disclosure system, ensuring that the latest information is provided in a timely manner. In addition, the contents of the disclosure documents will be reorganized to focus on information that is practically helpful for starting a business, and will be arranged according to the franchise store’s life cycle to increase their effectiveness.

Policies to guarantee the “autonomy of closure” for struggling franchisees will also be pursued. The commission plans to explicitly stipulate the right to terminate contracts in the Franchise Business Act, so that franchisees can end contracts mid-term without bearing excessive penalties. While the current Commercial Act provides for the right of franchisees to terminate contracts, the provisions are considered ambiguous. The Fair Trade Commission will specify the reasons and procedures for contract termination and strengthen measures to prevent damages during contract renewal and termination processes for franchisees.

Chairman Joo emphasized, “Franchisees face structural difficulties, as they have weaker bargaining power than franchisors and limited access to necessary information. Addressing these issues will be the first step in substantially improving the rights and interests of franchisees.”

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