Poland: Franchising at the cross-roads – towards legislation or self-regulation?
For the last 30 years, the Polish free market economy has witnessed the blossoming of a franchised business model in various sectors (FMCG, pharmacy, fashion, automotive, etc.). Liaison with the holder of the recognisable brand created the opportunity to build a prosperous business. Some of the franchisee businesses have become so successful that they have created their sub-networks which were acquired by franchisors (For instance, acquisition of Ko-operator Bronikowski Górzyński sp.j. by Polskie Jadło S.A. in 2010 (restaurants), acquisition of FHC-2 sp. z o.o. and Madas sp. z o.o. by Eurocash S.A. in 2016 (FMCG retail), acquisition of Adler International sp. z o.o. sp.k. by CCC S.A. in 2018 (footwear retail) or acquisition of Partner sp. z o.o. by Eurocash S.A. in 2019 (FMCG retail)) .
Franchising has also become the shelter for SMEs against the expanding larger concepts (hypermarkets, supermarkets and discounters) and increasing market concentration. On the other hand, the franchisors usually enjoy a strong position in relation to smaller partners which may sometimes become a temptation for abusive practices. The issue of the franchising regulation is occasionally being revived in public discussion. The issue has been raised again in the Polish Parliament as a result of complaints of ex-franchisees who “lost their life savings” as a consequence of the fierce enforcement of promissory notes – signed before adhering to the franchising network – by the franchisors.
Contrary to other B2B agreements, such as agency or commission sales/purchase, the Polish civil code (Act of 23 April 1964 – Civil Code (consolidated text – Journal of Laws 2019 item 1145 as amended) [Ustawa z dnia 23 kwietnia 1964 r. – Kodeks cywilny (tekst jednolity – Dz.U. 2019 r. poz. 1145 z późn.zm.)].) does not contain franchise-specific provisions aimed at the increased protection of the franchisee against the franchisor. Being a non-codified type of agreement, franchising is subject to the general rules of contract law. Hence, such an agreement can be freely shaped by the parties (the boundaries of contractual freedom are the character (nature) of the legal relation, law and principles of social coexistence). In practice, the choice of the prospective franchisee is usually limited and, to be admitted to the network, one is obliged to adhere to the franchising contract model.
The situation is no different at the administrative law level, i.e. the franchisor-franchisee relationship is subject to the general antitrust limitations related to the vertical restraints (RPMs, territorial protection, customer allocation, non-competes, etc.). From June 2017 the abuse of relative market power (denominated as the unfair use of contractual advantage) in the supply chain is prohibited (Act of 15 December 2016 on Countaracting Unfair Use of Contractual Advantage in Trade in Agriculatural and Food Products (consolidated text – Journal of Laws 2020 item 1213) [Ustawa z dnia 15 grudnia 2016 r. o przeciwdziałaniu nieuczciwemu wykorzystywaniu przewagi kontraktowej w obrocie produktami rolnymi i spożywczymi (tekst jednolity – Dz.U. 2020 r. poz. 1213)].). Although, the enactment of the new law was justified by unfair business practices of grocery retailers against the suppliers (such as slotting fees), the law is applicable not only to purchasers but also to suppliers.
This legislation might be good, to some extent, at counteracting abusive practices against franchisees but is limited because it is applicable to the agricultural and food products (non-food franchisees are not protected). Moreover, many franchisors are only providers of the trademark and/or know-how, whereas the marketable products are procured from third parties (selected by the franchisor or at the free market). Therefore, the franchisor is rarely the supplier of products resold by the franchisee, which limits the application of the new law.
Since the parties of the franchising agreement are independent undertakings under competition law, the mergers involving franchisors or franchisees pose some challenges for the Polish NCA. Besides franchisor/franchisee mergers, a notable example is Eurcash/Eko Holding case of 2016 (Polish Competition Authority decision of 23 December 2016 No. DKK-191/2016.). The case related to the acquisition of the supermarket network by Eurocash which is an FMCG wholesaler and franchisor for many brands.
After a 9-month investigation the Authority concluded that besides the vertical aspect at the wholesale level, the transaction had significant horizontal impact between target outlets and Eurocash’s franchisees. Having examined the model contracts for particular brands, the NCA differentiated between franchising sensu stricto (hard franchising) and partnership (soft franchising). In respect of hard franchising, it was found that the franchisor’s influence on franchisee’s business conduct is so strong, that downstream market share should be attributed to Eurocash. This reasoning had impact on the remedies.
In 2018 the Ministry of Entrepreneurship and Technology (current Ministry of Development) declared that the draft legislation on franchising is not being prepared at the governmental level. Two years later, in February 2020, after the meeting with franchisees, the Deputy Minister of Justice declared the necessity to regulate the issue. Besides the governing Law and Justice party, the issue is simultaneously pushed by the leftist MEPs at the parliamentary level. In response to these interpellations, the Ministry of Finance declared that these issues had been analysed.
Besides the governing Law and Justice party, the issue is simultaneously pushed by the leftist MEPs at the parliamentary level. Two years later, in February 2020, after the meeting with franchisees, the Deputy Minister of Justice declared the necessity to regulate the issue. In 2018 the Ministry of Entrepreneurship and Technology (current Ministry of Development) declared that the draft legislation on franchising is not being prepared at the governmental level.
In July 2020, the Ombudsman for Small and Medium-Sized Enterprises appointed the franchising working group. The multi-sector group is composed of representatives of 15 business associations.
It appears that Polish franchising is heading towards the self-regulation in order to overtake any harsh legislative initiatives.