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Newsletter | August 2015, Issue 2
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ANTITRUST & COMPETITION
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Korean Government Implements Amendment to the Fair Franchise Transactions Act
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On April 7, 2015, the Korean government implemented an amendment and an attendant Presidential Decree to the Fair Franchise Transactions Act (“Franchise Act”) regarding the permissibility of “immediate termination” provisions in franchise contracts (collectively, the “Amendment”).
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Prior to the amendment, the Franchise Act prohibited franchisors from immediately terminating franchise contracts with franchisees, even if the franchisees engaged in illegal conduct that resulted in severe harm to the franchisor’s reputation. As a result, franchisors found it difficult to effectively maintain consumer confidence, and to protect other franchisees who suffered as a result of harm to the franchisor’s reputation.
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The Amendment addresses situations where the franchisor wishes to make an immediate termination due to harm to brand image by a franchisee’s illegal conduct. According to the Amendment, if a franchisee violates a law related to the operation of the franchise business, the franchisor’s reputation is clearly harmed, the franchisee’s illegal conduct causes a severe hindrance to the operation of the franchise business, and the franchisees are either sanctioned or fined (i.e., through an administrative sanction designed to rectify the wrongdoing, a business suspension due to the wrongdoing, or a fine imposed as punishment for the wrongdoing), then the franchisor may immediately terminate its franchise contract with the wrongdoer franchisee.
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