Franchising in Thailand is about to get a lot more regulated, even if not specifically through implementation of the long awaited Franchise Act and establishment of a Franchise Commission Agency.
On 6 December 2019, the Office of Trade Competition Commission issued guidelines to regulate franchise businesses in Thailand pursuant to the Commission’s rights under Section 57 of the Trade Competition Act (2017). The guidelines come into effect on 4 February 2020, and are legally binding.
The purpose of the guidelines is to establish codes of practice for franchisors and provide certain minimum levels of protections for franchisees. This is done by detailing prohibited franchise activities, imposing disclosure obligations on franchisors and granting the right of first set-up to franchisees (if the franchisor is intending to expand the franchise business in the same geographical area).
Prohibited franchise activities under the guidelines include:
- Setting conditions on franchisees’ rights without valid business reasons;
- Setting additional conditions after contract execution without valid reasons;
- Prohibiting franchisees from purchasing products or services from manufacturers, distributors or other service providers (that offer the same standards and is cheaper than what is being offered by the franchisor) without valid reasons;
- Prohibiting franchisees from selling discounted perishable goods without valid reasons;
- Failing to treat all franchisees equally by setting different conditions for each franchisee; and
- Setting inappropriate contractual conditions on franchisees that don’t relate to maintaining the reputation, quality and standards of the franchisor.
Violators of the guidelines may be subject to an administrative fine of up to 10% of annual revenue in the year of violation. Violation of the guidelines are brought as claims by the franchisee under the franchise contract, with a one year statute of limitations to bring a claim. Notwithstanding, the Commission would have broad power to suspend, cease or amend a violator from continuing any franchise activities in Thailand pursuant to Section 60 of the Trade Competition Act (2017). It is still unclear whether the guidelines will have retroactive effect.
Given the guidelines’ broadness, franchisors are recommended to carefully implement their franchise systems going forward and to generally rely upon how the Commission rulings and Thai Supreme Court cases have set precedent in respect to “unfairness”. It also will be advisable for franchisors to limit their franchise activities and presence in Thailand to the extent possible.
In any event, despite some ongoing uncertainties surrounding the details of the guidelines and their implementation, one thing is certain: franchising in Thailand is under the microscope.