Franchise headquarters are on edge after the Korea Fair Trade Commission unveiled an amendment to the Enforcement Decree of the Fair Transactions in Franchise Business Act that would significantly strengthen franchisee groups' bargaining power. With consultations with franchisee groups becoming mandatory in key decision-making processes such as price hikes, advertising and promotions, and changes to required items, some expect the headquarters' decision-making structure itself could change.
According to the related industry on the 5th, the Korea Fair Trade Commission (FTC) on the 3rd gave advance notice of legislation for an amendment to the Enforcement Decree of the Fair Transactions in Franchise Business Act that would require franchisors to respond when a registered franchisee group joined by at least 10% of all franchisees (or 1,000 people) requests consultations on changes to transaction terms. Refusing or delaying consultations could be subject to corrective orders. The scope of consultations includes major transaction terms such as pricing policy, advertising and promotions, required items, and operating policy.
The amendment was prepared after the Korea Fair Trade Commission (FTC) gathered opinions at a roundtable in June attended by franchisors, franchisee groups, and experts. At the time, the franchisor side argued the registration threshold should be raised to around 50% of franchisees, while franchisee groups demanded a 10% threshold. The decree in effect reflects the franchisee groups' demand. The amendment will apply starting Dec. 31, the date the law takes effect.
◇ Franchisors: "Concern about delays in decision-making amid representativeness disputes"
The industry expects the system will not merely expand franchisee authority but will change the headquarters' decision-making process itself. Until now, it was common for headquarters to decide internally on price increases, promotional events, or changes to required items and then notify franchisees, but going forward, formal consultation procedures must be followed.
An official in the franchise industry said, "We have consistently communicated with franchisees on important decisions, but now that legal procedures such as deadlines for responding to consultation requests, drafting minutes, and notifying outcomes are being added, we will have to overhaul our working systems," adding, "The administrative burden will inevitably grow compared with before."
In particular, the industry is worried that lowering the registration threshold to 10% could lead to the emergence of multiple franchisee groups. The official said, "Even within the same brand, several groups could make different demands, and it is unclear which view should be seen as the representative position," adding, "There could be groups that support a specific agenda and groups that oppose it at the same time, which could slow decision-making."
The Korea Franchise Association also said in a statement that "consultations with a 10% group without representativeness could damage brand operational uniformity and trigger constant disputes," calling for a full reconsideration of the decree. The association argued the registration requirement should be raised to at least 35%–50%, and that the headquarters' managerial judgment areas, such as advertising and promotions and required items, should be excluded from the scope of consultations.
◇ Franchisee groups: "Now substantive consultations are possible"
Franchisee groups, by contrast, expect the system to make consultations, which had remained formalities, substantive. A National Franchisee Council official said, "It is positive that the 10% registration threshold was reflected, but setting the minimum number of members at 30 is disappointing," adding, "For brands with few franchisees, registering a group itself is difficult, which could blunt the purpose of the system."
They drew a line regarding franchisors' concern about possible delays in decision-making. The official said, "In reality, headquarters had not properly accepted requests to consult on transaction terms," adding, "This system is not about consulting indefinitely but mandating a certain number of dialogues, so the claim that it would burden operations to the point of paralysis is excessive."
They pointed to the issue of required items as the biggest change. The official explained, "Previously, for a group to negotiate the prices of required items, it had to obtain delegations from 70% of all franchisees, which was virtually impossible," adding, "Through this system, we expect group-level substantive consultations to become possible for the first time."
However, franchisee groups said the rule restricting reconsultations on the same agenda item for 180 days needs to be supplemented. They said headquarters could first consult with individual franchisees and then use that as a reason to delay group consultations.
◇ Early-stage operation expected to determine success or failure
The industry sees significance in bringing communication between headquarters and franchisees into the institutional framework, but expects debates over the representativeness of multiple registered groups and the specific operating standards for the consultation procedures to continue until implementation.
In particular, depending on how consultations take root in managerial judgment areas such as price increases and advertising and promotions, the decision-making culture of the franchise industry is expected to undergo notable changes.
An official at franchise A said, "Brands that already run regular roundtables with franchisee councils and communicate may see little change," adding, "However, unless the operating method for multiple groups and the consultation procedures are clearly organized, considerable confusion will be unavoidable in the early stages of implementation."