Eduplex franchisor sanctioned for first time over ad-cost consent violations

Nexcube Corporation, which collected advertising fees from franchisees without obtaining their lawful consent, has been sanctioned by the Korea Fair Trade Commission.

The Fair Trade Commission said Wednesday it issued a corrective order to Nexcube Corporation for violating the Franchise Business Act. Nexcube Corporation is the franchisor behind Eduplex, an education service offering learning consultations and customized tutoring.

According to the Fair Trade Commission, the company required franchisees to share advertising costs from November 2022 to April 2023 without meeting the legally required threshold of consent from at least 50 percent of franchisees.

To that end, the company conducted a survey in October 2022 on whether to introduce a "performance-based advertising cost-sharing" scheme. The survey presented two options: one in which franchisees would pay 110,000 won ($75) per newly enrolled student during the advertising period, and another in which they would pay 220,000 won only for students who enrolled through the franchisor's advertising.

However, the company did not assess the approval rate for each option separately. Instead, it combined the votes and concluded that overall consent had exceeded 50 percent. In fact, the first option received only a 47.0 percent approval rate and the second just 11.4 percent — both falling short of the legally required 50 percent threshold.

The Fair Trade Commission also found that the company violated the law by failing to adequately inform franchisees of key cost-related details during the survey process, including the cost breakdown by advertising type and the overall financial burden.

However, the commission stopped short of imposing a fine, issuing only a corrective order. It cited the absence of clear intent behind the violation, the lack of confirmed illicit gains, and a steady decline in franchisees' share of advertising costs as mitigating factors.

The action marks the first time the Fair Trade Commission has sanctioned a violation of the advertising pre-consent regime since the system took effect in January 2022. A commission official said the agency would "strictly enforce the law to ensure franchisees are fully informed of cost-sharing details and can participate meaningfully in advertising and promotional activities."