Gyeonggi Province Draws the Line Against 'Unfair Practices' by Renowned Chicken Franchise Brands

[Suwon Ilbo=Reporter Park No-hun] As retaliatory cases have occurred repeatedly in which some franchise headquarters terminate franchise agreements with shop owners in the province over collective activities, Gyeonggi Province decided to file a report with the Fair Trade Commission regarding unfair practices by franchise headquarters.

Kim Ji-ye, Director of the Fair Economy Division of Gyeonggi Province, held a press conference at the Gyeonggi Provincial Government office on the 23rd and stated, "Gyeonggi Province conducted mediation regarding recent unfair practices by renowned chicken brand Company B, but mediation failed as Company B rejected the mediation proposal." She announced plans to eliminate unfair termination of franchise agreements and retaliatory measures against collective activities.

Chicken brand Company B unilaterally notified Mr. A, chair of the franchise shop owners association, of franchise agreement termination last year without specifying the reason for termination. Moreover, Company B filed a criminal complaint against Mr. A on charges of defamation and filed a civil lawsuit demanding 500 million won in damages. Company B terminated franchise agreements or expelled executives from shop owners associations nationwide from 2018 to recently, not only for Mr. A but also for multiple franchise shop owners association executives.

Article 14-2, Section 5 of the Franchise Business Transaction Fairness Act (hereinafter referred to as the "Franchise Business Act") prohibits franchise headquarters from providing disadvantages to franchise shop owners on the grounds of their collective activities.

The province commenced mediation in January regarding this case and, after four interviews with Mr. A and two investigations into Company B, referred the matter to the Gyeonggi Province Franchise Business Transaction Dispute Mediation Committee. The dispute mediation committee, composed of external experts, judged that Company B's actions were potentially unfair practices and proposed a mediation plan requiring Company B to provide appropriate damages to Mr. A. However, Company B expressed refusal regarding the final mediation proposal, and mediation failed to be established.

As unfair termination practices related to collective activities continue to occur, the province plans to file a direct report with the Fair Trade Commission and urge investigation.

Furthermore, the province plans to request the National Assembly and the government to amend relevant legal provisions so that local governments can have investigation authority and sanctions authority to continuously monitor and supervise unfair practices.

Director Kim stated, "If local governments, which are well-versed in regional circumstances and characteristics, possess investigation authority and sanctions authority along with dispute mediation authority for franchise business, remedies for franchise shop owners' rights would be achieved more substantially and promptly."

Gyeonggi Province received delegation of mediation authority for disputes between headquarters and shop owners in the franchise and agency sectors from the Fair Trade Commission last year and has been mediating disputes through the Gyeonggi Province Fair Trade Support Center. Articles 16 and 21 of the Franchise Business Act allow regional authorities to establish franchise business transaction dispute mediation committees and provide that the committees mediate matters concerning franchise business transaction disputes. However, the role of local governments regarding investigation and sanctions to monitor and supervise other unfair trade practices is not explicitly specified.

Additionally, the province plans to conduct an unfair practices survey starting with the chicken industry sector by June to ascertain the actual conditions of terminations and obstruction of collective activities in the franchise sector within the province. The province also plans to pilot a collective activity support program in July that connects experts when shop owners need to establish and receive support for collective organizations, allowing them to receive consulting on procedures for organization establishment and organizational management.