Starting at the end of this year, an amendment to the Fair Transactions in Franchise Business Act that grants "bargaining rights" against franchisors when franchisees form an association will take effect. Franchisee associations will also gain collective bargaining rights similar to those of labor unions. However, franchisors and franchisees are reportedly at odds over how many franchisees must gather to be recognized as an association.
Franchisors argue that if the threshold is too low, associations with weak representativeness could proliferate and demand negotiations, increasing management burdens. Franchisees, on the other hand, worry that if the threshold is too high, even forming a franchisee association becomes difficult, running counter to the purpose of the amendment.
◇ Franchisors: "It should be 40% of the total" vs. franchisees: "Lower it to below 10%"
According to ChosunBiz reporting compiled on the 14th, the Korea Fair Trade Commission (FTC) is preparing the enforcement decree for the amendment to the Fair Transactions in Franchise Business Act that passed the National Assembly last year. The core of the amendment is the "franchisee association registration system."
This system allows franchisees to form an association and negotiate with the franchisor over transaction terms such as prices of essential items and franchise operation policies. Franchisors must respond to consultations requested by a franchisee association. The aim is to enable franchisees to form associations and strengthen their bargaining power to curb unfair trading practices by franchisors.
The biggest sticking point in the enforcement decree is the "recognition ratio for franchisee associations." It concerns what percentage (%) of all franchisees must gather to be recognized as an association. At an industry roundtable the Korea Fair Trade Commission (FTC) held on the 9th, the Korea Franchise Association, representing franchisors, reportedly said an association should be recognized when 40% of franchisees gather. By contrast, the National Council of Franchisee Associations, representing franchisees, said the ratio should be lowered as much as possible to below 10%.
The Korea Fair Trade Commission (FTC) said, "The detailed plan has not yet been finalized."
◇ Overseas, left to franchisors and franchisees… bargaining rights also recognized if deemed "quasi-workers"
Major countries either leave the authority to form franchisee associations to the autonomy of franchisees, or grant bargaining rights only to franchisees whose dependence on the franchisor is so high that they are closer in nature to workers.
The United States regulates franchisors through Federal Trade Commission rules and state franchise laws. While franchisors are prohibited from interfering with the formation of franchisee associations or retaliating against franchisees (such as by terminating contracts) for joining such associations, there is no legal obligation for franchisors to negotiate with them.
In some European countries, including Germany and France, franchisees are granted limited rights to form associations and bargain if their economic dependence on the franchisor is so great that they are closer to workers than to independent businesses.
In Germany, even a franchisee is recognized as a "quasi-worker" and granted the right to form associations and bargain if the franchisor's operations manual regulates working hours, sales methods, and business territories in such excessive detail that there is no managerial discretion. France also recognizes such rights when the franchisor's control is strong, such as when the franchisee receives products exclusively from the franchisor or is required to operate only at establishments approved by the franchisor.
Kim Dae-jong, a professor in the Department of Business Administration at Sejong University, said, "If the threshold is too high, it is effectively the same as not granting bargaining rights; conversely, there is a persistent concern that nonrepresentative associations will proliferate or that franchisors will create company-backed associations," adding, "Rather than a uniform standard, careful consideration is needed, such as applying differentiated thresholds based on the size of the franchise."