Will Woods of Baker & McKenzie gave an update on the 14 February 2014 amendments to the Korean Fair Franchise Transactions Act. A few of the changes that took effect in February are retroactive and will apply to contracts already in place at the time of the amendments.
Retroactive amendments include:
• franchisors must have ‘just cause’ to require upgrades or improvements to franchised locations; • franchisors are required to share the cost of required upgrades: 20 per cent if relocation or expansion is not required, 40 per cent cost share if relocation or expansion is required; and
• franchisors are prohibited from requiring franchisees to operate their business during hours that are deemed ‘unreasonable’, and a franchisee may reduce their hours under certain circumstances, including illness that prevents the franchisee from operating the business during night time hours.
Contracts entered into on or after 14 August 2014 will require the franchise agreement adequately describe the franchisee’s ‘business territory’. The franchisor is also obligated to provide certain territorial protections by refraining from granting additional franchises or opening company locations within the described territory. This requirement applies to all franchisors regardless of whether they have provided any kind of protected territory in the past.
Will Woods also gave an update on the August 2012 Regulation issued by the Indonesia Ministry of Trade. The 2012 Regulation is intended to protect local businesses, promote the sale of locally made products, and close loopholes that allowed franchises to operate under improper business licences.
Key changes to the law include:
• prohibiting the franchisor from granting franchises to affiliates;
• requiring at least 80 per cent of the raw materials or inventory sold by franchisees be locally made;
• franchisors must include a description of sourcing materials when making an application to obtain its franchise business registration certificate;
• the primary operations of the franchised business must match the technical operating licence;
• the franchised business must display a special logo issued by the MOT to registered franchisors and franchisees to indicate the business is properly licensed; and
• franchisors are prohibited from appointing a new franchisee if the prior franchisee’s agreement was terminated prior to expiration unless the early termination was mutual or the franchisor receives a court order.