Franchise Business Act Lawyer
Franchise Business Act Lawyer | What Counts as Franchisor Misconduct, and How to Respond
The Franchise Business Act (가맹사업거래의 공정화에 관한 법률, commonly '가맹사업법') exists because individual franchisees rarely have equal bargaining power against a franchisor's headquarters. It requires the franchisor to disclose key information before signing, restricts one-sided contract termination, and prohibits certain unfair trade practices such as forcing unnecessary purchases or opening a competing store too close to an existing one. When a franchisor breaks these rules, a franchisee can raise the issue through the Korea Fair Trade Commission (KFTC), mediation, or a civil lawsuit for damages.
Franchise Business Act | What Kinds of Franchisor Conduct Can Be Challenged
Not every disappointing outcome from a franchisor is a legal violation. The Franchise Business Act lists specific categories of misconduct, and identifying which one applies determines what remedy is available.
Before signing, the franchisor must give you the information disclosure document (정보공개서) and allow at least 14 days to review it before accepting any franchise fee (가맹사업법 제7조). If the franchisor skipped this, pressured you to sign immediately, or gave you a document with materially false information, the contract terms and any fees paid can be disputed.
Franchisors sometimes overstate expected sales, understate costs, or omit unfavorable facts to close the deal (가맹사업법 제9조). If you can show the actual figures diverged significantly from what was represented, this can support a claim for damages or contract rescission.
This includes forcing the franchisee to purchase supplies at inflated prices from designated vendors, imposing unreasonable remodeling ('interior renewal') obligations, or unilaterally changing contract terms mid-term (가맹사업법 제12조). These practices are prohibited even if a clause in the contract appears to permit them.
Excessive supervision, threats to terminate over minor issues, or retaliatory conduct after a franchisee raises a complaint can be treated as interference with business (가맹사업법 제12조 제1항, 제12조의5). Documentation of the pattern of conduct is usually decisive here.
If the franchisor or another franchisee opens a new outlet within your protected trade area without following the required procedure, this may violate territory protection rules (가맹사업법 제12조의4 관련 규정 및 정보공개서 기재사항). The scope of the protected area depends on what was disclosed and agreed in your specific contract.
The franchisor generally cannot terminate the contract without giving written notice of the grounds and a reasonable period (at least two months) to cure the breach (가맹사업법 제14조). Termination without this notice-and-cure process can be challenged as invalid.
Important Limitation Period
Claims for damages arising from unfair trade practices under the Franchise Business Act are generally subject to the statute of limitations under the Fair Trade Act framework, and complaints to the KFTC are also subject to time limits from when the violation occurred or was discovered. Waiting too long to act can foreclose certain remedies, so it helps to document the issue as soon as you notice it.
Franchise Business Act | Disclosure Document Violations and the Cooling-Off Period
Many franchise disputes actually trace back to what happened before the contract was even signed. If the disclosure process was rushed or misleading, that can undercut the validity of the whole agreement.
The 14-Day Rule
The franchisor must provide the disclosure document and give you at least 14 days (7 days if you used a franchise consultant registered with the relevant association) before it can receive any franchise fee or deposit (가맹사업법 제7조). If you paid a deposit before this period ran, that timing alone can be grounds to challenge the fee.
What Must Be in the Document
The disclosure document must include the franchisor's financial status, the number of terminated or non-renewed franchisees in recent years, and the actual basis for any sales or profit estimates presented. A pattern of franchisee turnover that was not disclosed is a factor courts and the KFTC look at closely.
Verifying Sales Projections
If you were shown an 'expected sales' figure for the location, the franchisor is required to keep supporting data for that estimate and provide it to you on request (가맹사업법 제9조 및 관련 시행령). A significant, unexplained gap between the estimate and actual performance is one of the more common bases for a damages claim.
Franchise Business Act | Responding to Contract Termination or Non-Renewal
Losing your franchise contract can mean losing the business you built. The law does not prevent all terminations, but it does require the franchisor to follow a fair process.
Notice and Cure Period
Before terminating, the franchisor must specify the grounds for termination in writing and give you a reasonable period, generally understood as at least two months, to correct the issue (가맹사업법 제14조). Termination that skips this step can be argued as procedurally invalid, regardless of whether the underlying complaint had merit.
Refusal to Renew at Contract Expiry
Separately from termination, a franchisee generally has the right to request renewal, and the franchisor's refusal is restricted once the franchisee has operated for a certain number of years under the contract (가맹사업법 제13조). Whether this protection applies depends on how many renewal cycles have already occurred and what the specific contract term says.
Recovering Deposits and Investment
If termination is found improper, the franchisee may be able to recover deposits, unamortized interior investment, or other costs tied specifically to the franchise relationship. The amount recoverable typically depends on how the original contract allocated these costs and how much time remained on the term.
Franchise Business Act | Territory Protection and Encroachment by New Stores
One of the most common complaints from existing franchisees is watching a new outlet of the same brand open just down the street. Whether that is actionable depends on what protection was actually written into the disclosure document and contract.
How the Protected Area Is Defined
The scope of your protected trade area is not set by statute as a fixed radius; it depends on what the franchisor disclosed and what the contract specifies for your brand and industry. Reviewing the original disclosure document is usually the starting point for determining whether a new store falls inside that area.
When a New Store Is a Violation
If a new store opens inside the disclosed protected area without the process the franchisor is supposed to follow (such as consultation or consent procedures set out in the disclosure document), this can be raised as a breach separate from any drop in your own sales. Sales decline is useful supporting evidence but is not itself the legal basis.
Franchise Business Act | Forced Purchases, Remodeling Demands, and Retaliation
Some of the most frequent complaints from franchisees involve day-to-day pressure rather than a single dramatic breach: being forced to buy overpriced supplies, being pushed into costly renovations, or facing retaliation after complaining.
Forced Purchase of Supplies ('Tying')
Requiring franchisees to purchase ingredients, packaging, or equipment exclusively from the franchisor or its designated vendor at unreasonable prices can be an unfair trade practice, particularly if cheaper equivalent goods are available and the requirement was not justified by legitimate quality or brand-consistency reasons (가맹사업법 제12조 제1항).
Interior Remodeling Cost-Sharing
When a franchisor requires store remodeling, the Act sets rules on how the costs must be shared between the franchisor and franchisee, and restricts how frequently mandatory remodeling can be required (가맹사업법 제12조의2 및 관련 시행령). A remodeling demand that ignores these cost-sharing rules can be challenged.
Documenting a Pattern for the KFTC
Because interference and retaliation often happen through informal pressure rather than a single written act, keeping a dated record of calls, texts, and visits from the franchisor's field managers matters a great deal when preparing a complaint to the Korea Fair Trade Commission.
Franchise Business Act | From Reviewing Your Contract to Resolution
The disclosure document, franchise contract, and any correspondence with the franchisor are reviewed together to identify which specific statutory violation applies to your facts.
Sales records, remodeling cost invoices, notice-of-termination letters, and communication logs are compiled to build a factual timeline supporting the claim.
A written demand letter to the franchisor's headquarters often precedes formal proceedings, and in some cases resolves the dispute without further escalation.
A complaint can be filed with the Korea Fair Trade Commission, or mediation can be requested through the Korea Fair Trade Mediation Agency, both of which are designed to be faster and lower-cost than litigation.
If mediation fails or the matter involves significant damages, a civil lawsuit for damages, injunction, or confirmation of contract invalidity may be filed in court.
Franchise Business Act | How Fees Are Typically Structured for Franchise Disputes
An initial review of the disclosure document and franchise contract is usually billed as a flat consultation fee, since the scope of the dispute needs to be identified before further work is scoped.
For representation in KFTC complaints, mediation, or litigation, a retainer fee is set based on the complexity of the case and the number of alleged violations involved.
In damages claims, a portion of the fee may be structured as a success fee tied to the amount recovered, in addition to the retainer, depending on the case.
KFTC complaints and mediation requests generally involve lower filing costs than civil litigation, which is one reason many franchisees start with the administrative route.
※ Costs vary depending on case complexity and specific circumstances; exact fees will be provided during consultation. No specific outcome is guaranteed.
Franchise Business Act | Self-Check Before You Contact a Lawyer
1️⃣ Disclosure and Signing Issues
- Did you receive the disclosure document at least 14 days before paying any fee?
- Were you shown a specific sales or profit projection for your location before signing?
- Did the franchisor provide data to support that projection when you asked?
- Does the actual disclosure document you received match what was orally promised?
2️⃣ Termination or Non-Renewal
- Did the franchisor give written notice of the specific grounds for termination?
- Were you given a cure period of about two months before termination took effect?
- Have you already gone through one or more renewal cycles under this contract?
- Have you calculated your unamortized investment and interior costs?
3️⃣ New Store / Territory Concerns
- Does your contract or disclosure document define a specific protected trade area?
- Has a new store of the same brand opened within that area?
- Did the franchisor follow any consultation or notice procedure before approving the new store?
- Can you show a measurable drop in your sales after the new store opened?
4️⃣ Forced Purchases and Remodeling
- Are you required to buy supplies exclusively from a franchisor-designated vendor?
- Have you compared those prices with market rates for equivalent products?
- Has the franchisor demanded remodeling, and if so, how are the costs being split?
- Have you kept invoices and written demands related to the remodeling?
5️⃣ Building Your Evidence File
- Do you have a dated log of calls, texts, and visits from franchisor staff?
- Have you saved all written notices, warnings, and contract amendments?
- Do you have your monthly sales and cost records for the relevant period?
- Have you kept copies of any prior complaints you raised with the franchisor?
