Franchisees can form registered groups if 10% join — and franchisors must negotiate

Franchisee associations that represent at least 10 percent — or 1,000 or more — of the owners operating under the same brand will be eligible to register with the Korea Fair Trade Commission. Once registered, franchisors will be legally required to negotiate trading conditions with such groups, and refusal to engage will be subject to a corrective order.

The Fair Trade Commission said Monday it will open a legislative and administrative notice period for a proposed amendment to the Franchise Business Act's enforcement decree and a related administrative notice — running until Sept. 14 and Sept. 24, respectively — to introduce the franchisee association registration regime and mandatory negotiation system.

The proposed amendments follow up on revisions to the Franchise Business Act passed in December last year, which take effect Dec. 31.

The draft sets out detailed operational standards for the franchisee association registration system and the mandatory negotiation obligation for registered groups. The aim is to formalize associations with legitimate public representation, ease the power imbalance between franchisors and franchisees, and improve the business conditions of franchise store owners.

To qualify for registration, an association must enroll at least 10 percent of franchisees using the same trade name, or at least 1,000 members — with a minimum of 30 members in any case, given the lowered 10 percent threshold. The commission said the criteria reflect current membership rates and operating conditions of franchisee groups, balancing the goal of strengthening franchisees' bargaining power against the burden on smaller franchisors.

Associations seeking registration must submit an application to the Fair Trade Commission. Changes to a group's name, purpose or representative must be reported within 30 days of the change; updates to the membership roster must be filed within 30 days of the end of the relevant quarter. The Korea Fair Trade Mediation Agency will handle registration and change-of-registration processing under a delegation arrangement.

Registration will be revoked if obtained through false or fraudulent means — including identity theft of franchisee names, submission of forged or altered documents, or cases where a franchisor improperly coerced or induced franchisees to join, thereby infringing on their right to form associations freely.

Registered associations may request negotiations with their franchisor on matters including items in the franchise agreement and issues related to advertising and promotional events.

Franchisors are in principle required to begin negotiations within 14 days of receiving a request and must hold at least two meetings. However, if both sides agree to conclude the negotiation process, the two-meeting requirement does not apply.

Franchisors must keep minutes of each meeting for three years and notify franchisees who did not participate in the negotiations of the outcome within 14 days of the process concluding. Other registered franchisee associations using the same trade name may also be invited to take part in the negotiations.

Registered associations whose membership covers less than 30 percent of all franchisees under the same brand must conduct an opinion-gathering process among non-member franchisees before requesting negotiations. Associations must publicize the topic of negotiations, the group's position and how to submit opinions, and may request the franchisor's cooperation if needed. The results of the opinion-gathering must be shared with the franchisor during negotiations.

To prevent repetitive negotiations, the draft introduces limits on re-requesting talks. The same negotiation topic may not be raised again for 180 days after negotiations conclude, and a separate topic may not be requested for 60 days. For franchisors with fewer than 100 outlets, the waiting period for a separate topic is extended to 90 days.

The administrative notice stipulates that a franchisee enrolled in more than one registered association will be counted as a member of only one. Those with duplicate memberships must choose one association within 14 days; if they fail to do so, they will be treated as a member of the association they joined first.

The commission said it expects the new system to give franchisees a path to negotiate directly and on equal footing with franchisors, helping prevent unfair trade practices in the field and improve trading conditions.

It added that by clearly regulating the registration requirements and negotiation procedures for franchisee associations, the rules should also substantially address franchisors' concerns about a proliferation of groups and indiscriminate negotiation requests.

The commission plans to review public comments submitted during the notice period and complete the enforcement decree amendment and administrative notice by the end of the year, ensuring the revised Franchise Business Act takes effect without disruption.