Major Provisions of Fair Transactions in Franchise Business Act
- Prohibition of imposition of store environment improvement on franchisees and obligation of cost sharing (Article 12-2): The Amendment added a new provision prohibiting a franchisor from imposing store environment improvement on its franchisees without justifiable reasons. Under the new provision, a franchisee will bear the cost of store environment improvement at a rate determined by Presidential Decree, to the extent such rate is less than 40%; provided, however, that if a franchisee has to improve its store environment due to sanitation or safety concerns resulting from works voluntarily performed by the franchisee or otherwise attributable to the franchisee, without the franchisor’s request, the franchisor is not required to bear the cost.
- Prohibition of restriction of business hours (Article 12-3): The Amendment prohibits the practice by certain franchisors of unfairly restricting the franchisee’s business hours. Thus, it shall be deemed as unfair restriction of business hours if the franchisor does not permit a franchisee to reduce its business hours, (i) even though such franchisee has suffered losses due to its operation during night hours, as the relevant sales are lower than the cost, or (ii) even though such franchisee requests a reduction in business hours due to unavoidable circumstances, such as disease or treatment of disease.
- Protection of business area (Article 12-4): Before the Amendment, there was no provision requiring the franchisor to define a business area. The amended Franchise Act now provides that, when executing an agreement, the franchisor is obligated to define and stipulate the business area for a franchisee in the agreement. Further, the franchisor is not permitted to set up another franchisee or any shop of the same trade or otherwise directly operated by the franchisor in the same business area without justifiable reasons; provided, however, that in the event of any cause stipulated by Presidential Decree, the business area may be reasonably adjusted through consultation between the franchisor and the franchisee at the time the relevant franchise agreement is renewed. This new provision is scheduled to become effective one (1) year after the proclamation of the Amendment as its implementation must in practice be preceded by a grace period to adapt to the new requirements.