🚨 Franchise Owner Rights Protection Plan Announced
Today Korean Economic News for Beginners | 2025.09.24
0️⃣ Information Disclosure Expanded, Owner Group Registration System Introduced, But Effectiveness Questioned
📌 Franchise Owner Protection Plan: Mixed Reactions Between Hope and Disappointment
💬 The Fair Trade Commission announced a comprehensive plan to strengthen franchise owner rights. Information disclosure requirements were expanded and owner group registration system was introduced, but the expected sales information that owners wanted most was excluded. Also, the strict requirements for group registration and contract termination rights raised concerns about effectiveness. There are worries that conflicts between franchise headquarters and owners may lead to more legal disputes. While the plan aims to protect owners "from startup to closure," it may be insufficient to solve fundamental problems due to practical limitations.
1️⃣ Easy to Understand
The Fair Trade Commission announced new policies to better protect people who run franchise stores. While the policies have good intentions, many people question how much they will actually help franchise owners.
Let me first explain what a franchise is. It's a business system where a company (franchise headquarters) provides a brand name and business know-how, and individuals or companies (franchise owners) pay fees to operate stores. Think of McDonald's, Starbucks, or convenience stores. Korea has about 250,000 franchise stores, and many small business owners run their businesses this way.
The problem is that there's a big difference in information and power between franchise headquarters and store owners. When people start their businesses, headquarters often only talk about bright prospects. But in reality, sales are often lower than expected and costs are higher. Also, during operations, headquarters can change conditions or make unreasonable demands unilaterally, and individual store owners find it hard to fight back.
Let's look at the main points of this new plan. First, franchise headquarters must provide more information when people want to start a business. Previously, they only gave basic business information. Now they must provide detailed information about the company's financial situation, average operating period of franchise stores, and essential cost details. This helps potential business owners make decisions based on more information.
Second, a system is created for store owners to form groups and negotiate with headquarters. Until now, even if store owners formed groups, they had no legal status, so headquarters didn't have to deal with them. Now, owner groups that meet certain requirements can officially register, and headquarters must negotiate with them.
Third, store owners get a new right to cancel contracts without penalty if they lose money due to headquarters' mistakes. Previously, owners had to pay penalties if they quit during the contract period. Now, if headquarters break promises or commit fraud, owners will be protected.
However, there are many practical limitations. The biggest disappointment is that the information owners really want to know - "How much can this store earn monthly?" - is still not disclosed. Headquarters refused to provide this, saying "sales depend on the owner's effort."
Also, the requirements for owner group registration are strict. At least 30% of brand owners must join, which is very difficult to achieve in reality. Store owners often hesitate to openly oppose headquarters because they worry about getting disadvantages when renewing contracts or opening new stores.
The contract termination right will likely only increase disputes. It's not easy to prove "headquarters' fault," and there's much room for different interpretations between headquarters and owners.
In the end, this plan created a framework to protect store owners, but the actual effects will likely be limited.
2️⃣ Economic Terms
📕 Information Disclosure Document
An information disclosure document is a required document that franchise headquarters must provide to potential business owners.
- It includes the company's financial status, number of franchise stores, contract conditions, and cost structure.
- It's key material for startup decisions - more information allows better judgment.
- Providing false or exaggerated information can result in legal punishment.
📕 Franchise Owner Group Registration System
A system that gives official status to groups formed by franchise owners.
- Registered groups can demand official negotiations with franchise headquarters.
- Requirements include at least 30% owner participation and democratic operation.
- Groups can have stronger negotiating power than individual owners, but the high participation requirement is an obstacle.
📕 Contract Termination Right
The right to cancel contracts without penalty if losses occur due to headquarters' fault during the contract period.
- Reasons include headquarters' fraud, failure to provide important information, or breaking promises.
- However, proving "headquarters' fault" is often difficult in practice.
- Dispute resolution may go to court, raising questions about effectiveness.
📕 Information Asymmetry
A situation where there's a difference in the amount and quality of information between parties in a transaction.
- In franchise business, headquarters have much more information than store owners.
- This can lead to owners signing unfavorable contracts or suffering losses.
- Expanding information disclosure is a policy effort to reduce this asymmetry.
3️⃣ Principles and Economic Outlook
✅ Effects and Limitations of Expanded Information Disclosure
When more startup information is disclosed, potential business owners can make more rational decisions.
First, increased information transparency can improve market trust. There are cases where damage from false and exaggerated advertising significantly decreased after information disclosure requirements were introduced. When franchise headquarters' financial situation, average operating periods, and essential costs are disclosed, potential business owners can make startup decisions based on objective data rather than just relying on 'rosy prospects.' Information about headquarters' financial health is especially important for judging whether stable long-term business operations are possible.
Second, it's very disappointing that key sales information was excluded. What potential business owners are most curious about is "How much can I earn from this store?" but expected sales information was still excluded from disclosure requirements. Franchise headquarters opposed this, saying "sales depend on the owner's effort" and "there are big regional differences." However, at least average sales of existing stores in similar areas could be disclosed, but even this was excluded, which reduces the effectiveness of information disclosure.
Third, information disclosure alone has limitations in solving fundamental problems. No matter how much information is provided, it doesn't mean much if potential business owners lack the expertise to properly understand and use it. Also, disclosing information doesn't fundamentally solve the difference in negotiating power between franchise headquarters and store owners. In the end, complementary measures like startup education and consulting services will be needed along with information disclosure.
Increased information transparency has positive effects on improving market efficiency, but structural limitations still remain.
✅ Possibilities and Practical Constraints of Owner Group Registration System
When owner groups are officially recognized, they can have much stronger negotiating power than individual store owners.
First, the power of collective bargaining has been proven in labor union cases. When individual workers negotiate wages with employers, their bargaining power is weak, but they can exercise considerable negotiating power in collective bargaining through labor unions. Franchise owner groups can similarly achieve much more favorable conditions than individual owners negotiating separately with headquarters. They are expected to achieve real results especially in areas like fee reductions, raw material price adjustments, and business condition improvements.
Second, the 30% participation requirement is a very difficult condition to meet in reality. Most store owners hesitate to engage in open opposition activities because they're conscious of their relationship with franchise headquarters. They worry about receiving disadvantages in contract renewals and new store opening approvals. In fact, most existing owner groups show participation rates of only 10-15%, making 30% achievement a quite high barrier. Because of this, there are expected to be few owner groups that actually register.
Third, even groups that meet registration requirements will take time to secure real negotiating power. From franchise headquarters' perspective, they must legally enter negotiations, but they will likely only make formal responses. For owner groups to achieve results in actual negotiations, they need professional negotiating ability, legal knowledge, and financial foundation, but building such capabilities in a short time is difficult. In the end, big changes will be hard to expect in the early stages of system introduction.
The owner group registration system is meaningful in the long term, but short-term effectiveness is expected to be limited.
✅ Two Sides of Creating Contract Termination Rights
Contract termination rights are important institutional safeguards for protecting store owners, but they may also increase legal disputes.
First, setting clear standards for headquarters' fault is a key task. For new contract termination rights to be effective, "headquarters' fault" must be clearly defined. Currently, it's broadly defined as fraud, failure to provide important information, breaking promises, etc., but in actual disputes, there will likely be fierce battles over whether such reasons existed. Especially for "breaking promises," proving will be difficult due to differences between verbal promises and written contracts, and differences in interpretation.
Second, increased legal uncertainty may actually increase transaction costs. If contract termination right exercise requirements are vague, lawsuits between headquarters and store owners will likely increase. When lawsuit risks increase, franchise headquarters may design contracts more defensively and place more restrictions on store owners. For example, they might respond by making contracts more complex or increasing store owners' obligations. This could eventually create a more unfavorable environment for store owners.
Third, building practical dispute resolution mechanisms is necessary. For contract termination rights to function properly, quick and fair dispute resolution procedures must be established. If all disputes go to court as they do now, it takes a lot of time and money, making real relief difficult. A quick dispute resolution system through the Fair Trade Commission or separate mediation organizations must be introduced together for this system to be effective.
Contract termination rights are meaningful as a last resort for store owner protection, but dispute prevention and quick resolution mechanisms must be prepared together.
4️⃣ In Conclusion
This comprehensive plan to strengthen franchise owner rights is a policy that shows the government's will to protect store owners who have been neglected. The expansion of information disclosure, owner group registration system, and creation of contract termination rights are certainly meaningful progress.
However, practical limitations are also clear. The most disappointing part is that sales information that store owners really need is still not disclosed. When deciding to start a business, profitability is the most important judgment criterion, but if this part is missing, the effectiveness of information disclosure will inevitably drop significantly.
The owner group registration system is also expected to have few groups actually register due to the high barrier of 30% participation rate. Considering the reality that most store owners hesitate to engage in public activities because they're conscious of their relationship with headquarters, this condition is somewhat unrealistic.
Contract termination rights are important safeguards for store owner protection, but they will likely only increase legal disputes because proving "headquarters' fault" is not easy. When disputes go to court, they take a lot of time and money, so actual relief effects will be limited.
Nevertheless, this plan can be positively evaluated for improving franchise business transparency and institutionalizing store owner protection. While not perfect, it has certainly laid the foundation for creating a better environment than before.
For this system to be effective in the future, several supplements are needed. Expanding the scope of sales information disclosure, easing owner group registration requirements, and building quick dispute resolution mechanisms need to be additionally considered.
Also, strengthening store owners' capabilities is important along with system improvements. Even when information is provided, owners need the ability to properly analyze and use it, and it's also necessary to build negotiating power through group activities.
In the end, protecting franchise owner rights is not a problem that can be solved only by system improvements. Fundamental change can only be made when institutional supplements are combined with changes in market participants' consciousness and improvements in dispute resolution culture.
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