In South Korea, new kinds of industrial actions akin to franchising, factoring, and leasing have already unfold all through the business and change into commonplace. Particularly, greater than 5,000 franchise headquarters and over 250,000 franchisees do enterprise with franchises in Korea, which is consistent with the nation’s industrial construction, the place the self-employment charge is excessive (e.g. 25.1% in 2018). The authorized consultants at Pureum Regulation Workplace (PLO) are to assist with your entire wants regarding the nation’s franchise legal guidelines.
The Republic of Korea’s FAIR TRANSACTIONS IN FRANCHISE BUSINESS ACT (hereafter “Korean Franchise Regulation”), just like the USA and China, stipulates that an ‘info disclosure assertion’ have to be registered upfront with a nationwide establishment. The contents are related in that the overall standing of the franchise headquarters, the define of the franchise enterprise, and the bills of the franchisees.
Nonetheless, Korean franchise legal guidelines shield franchisees in a stronger method than different international locations’ legal guidelines. This may be seen in the identical context because the Korean Truthful Commerce Act being extra weighted on the facet of truthful commerce than on the facet of monopoly regulation.
We introduce beneath the legislative background and major content material on a few of Korea’s robust safety methods.
1. ‘Prohibition of unreasonable enterprise hours restraint’ stipulated in Korean Franchise Regulation Article 12-3 of the Franchise Enterprise Act.
The laws give franchisees the best to shorten enterprise hours. You possibly can request the franchisor to shorten enterprise hours, and on this case, the franchisor can’t truly refuse.
This regulation was enacted in 2013, and there’s a tragic occasion behind it. A franchisee who operated a comfort retailer franchise that had a 24-hour enterprise coverage dedicated suicide one after one other after affected by sluggish gross sales whereas affected by compelled late-night operation and an enormous penalty for arbitrarily closing enterprise. Subsequently, a protecting measure was created by way of laws that operation is just not required for the night time enterprise hours with low gross sales.
2. ‘Prohibition of unfair enterprise space infringement’ as stipulated in Korean Franchise Regulation Article 12-4 of the above ACT.
From the case of Coca-Cola, which is usually talked about as the primary case of franchising, in actual fact, evidently the character of regional patent rights was robust. Nonetheless, the Korean Franchise Regulation enacted in Korea in 2002 solely prohibited the act of limiting the enterprise space of particular franchisees, however there was no provision to ensure the enterprise space. It’s because, from the standpoint of ‘monopoly regulation’, intra-brand competitors restrictions can have a stronger monopoly impact than non-brand competitors restrictions for so-called high-profile manufacturers.
Nonetheless, after the enactment of the Korean Franchise Regulation in 2002, there have been frequent instances of franchise headquarters opening immediately managed shops close to present franchisees or opening extra franchisees. Despite the fact that these actions might strengthen the model energy, from the standpoint of franchisees, the gross sales instantly fell sharply, which turned an excuse for disputes.
In the long run, the Truthful-Commerce Fee made it unattainable to put in immediately managed shops or franchisees inside a number of hundred meters of present franchisees (this was decided in another way for every model sort) within the type of an autonomous self-discipline referred to as ‘finest follow requirements’. When signing a contract, it was compelled to specify a sure enterprise space upfront and specify it within the contract.
3. Korean Franchise Regulation Article 12-2 of the Franchise Enterprise Act ‘ prohibition of unfair drive for bettering the shop setting’
In different phrases, the franchisor can not request for environmental enchancment of the shop until the shop’s services are objectively out of date or regular operation is tough attributable to sanitation or security defects. Even when the franchisee shall enhance the setting underneath the Article, the Franchisor must be answerable for some charges of the signal and inside.
This regulation was first launched within the type of a ‘finest follow normal’, and like different laws, it was enacted in 2013. At the moment, there have been instances the place the franchisor took the environmental enchancment cycle shorter than crucial whereas serving to the franchisees’ environmental enchancment and it unexpectedly led the franchisors to change into richer with the cash from the franchisees’ pockets.
Accordingly, the regulatory authorities restricted the environmental enchancment itself greater than crucial and compelled the franchisors to share the fee as a lot because the anticipated revenue from the environmental enchancment.
Above, now we have reviewed a few of the franchisee safety methods carried out in South Korea. All of those laws had been legislated in 2013 and have now change into the primary system of the Franchise Enterprise Act in Korea. It’s true that there have been criticisms that the regulation is considerably extreme in comparison with international laws. Franchisees shouldn’t be handled unfairly, however from the long-term perspective of the event or progress of the model as a complete, I believe room stays for enchancment.
You probably have any authorized questions, please contact our Franchise Regulation specialist Legal professional Junghwan Park. and when you have any questions on establishing a franchise in Korea, contact the professionals at Korean Tax Knowledgeable.
