Gyeonggi Province: "Chicken Franchise Contracts Contain Too Many Unfair Terms"

[Suwon Ilbo=Park No-hoon Reporter] # Chicken shop owner A received a franchise termination warning citing poor hygiene inspections and operating hours violations after opposing the headquarters' policy of charging franchisees 300 won in advertising fees per chicken.

# Chicken shop owner B, serving as head of a franchisee association, gave a broadcast interview about transaction conditions with the franchise headquarters such as price displays and menu board displays in the store. The franchise headquarters filed a criminal complaint for defamation and terminated the franchise contract.

# Chicken shop owner C, when renewing the franchise contract, purchased a 9-basket fryer to replace the existing 3-basket fryer at the headquarters' request due to concerns that contract renewal would not proceed otherwise, despite the purchase being unnecessary.

Gyeonggi Province announced on the 1st that based on a 'Chicken Franchise Survey' conducted with the Korea Distribution Society from April to October, unfair contracts disadvantageous to franchisees are being made regarding contract termination reasons, advertising implementation, and supply product regulations.

The survey was conducted by analyzing disclosure documents from 438 domestic chicken franchise headquarters, contracts signed by 103 franchisees, and in-depth interviews with 52 franchisees.

Disclosure documents are a type of franchise guide used for recruiting franchise stores and contain explanations of company information, contract terms, termination conditions, and more.

First, analysis of 'chicken franchise termination reasons' through contracts showed that among 103 contracts, 101 (98%) included 'operational manual violations' (regulations, guidelines, etc.) as grounds for contract termination.

Operational manuals are essential management policies of the franchise headquarters for conducting standardized franchise business.

However, these manuals can be arbitrarily modified or changed by the franchise headquarters at any time, allowing potentially harmful content to be reflected without prior notice.

Abstract matters such as prior agreements and subjective evaluation criteria such as motorcycle cleanliness can also be included, which is disadvantageous to franchisees.

Additionally, among 103 contracts, 97 (94.2%) allowed the franchise headquarters to unilaterally decide whether to implement advertising, and some contracts explicitly stipulate that contract renewal can be rejected if franchisees do not comply with the headquarters' advertising implementation decisions.

Only 22 contracts (21.3%) included regulations to notify and allow franchisees to review implementation details. However, among 26 in-depth interviews, 65.4% (17 cases) responded that they did not receive notification of implementation details, revealing cases where contract terms were not fulfilled.

Analysis of disclosure documents showed that approximately 80% of main raw materials such as chicken and sauces supplied by the headquarters to franchisees must be forcibly purchased from the headquarters.

The forced purchase ratio for subsidiary materials such as parchment paper and cheese also accounted for approximately 50%.

According to the Franchise Business Act, franchisees can in principle autonomously purchase raw and subsidiary materials.

However, due to the nature of franchise business pursuing uniformity in taste and product quality, forced purchases from the headquarters are only permitted in exceptional cases.

However, due to the lack of clear criteria for what constitutes forced purchase items, continuous disputes between headquarters and franchisees persist.

Additionally, analysis of the chicken supply chain for 79 chicken brands showed that supply prices are higher than average prices in cases where relatives or special interest parties of headquarters are involved in distribution.

Therefore, unless laws and contract regulations become clearer, problems such as types of forced purchase items and purchasing materials at prices higher than wholesale market prices due to headquarters profit margins will inevitably continue.

The province plans to devise improvement measures based on the survey results to make contract termination reasons, advertising implementation decisions, and supply product regulations fairer and clearer, and will continue consultations with headquarters and franchisee organizations.

Kim Ji-ye, head of Gyeonggi Province's Fair Trade Division, said, "We conducted surveys focused on the chicken business, but unjust contract terminations, advertising fee burden transfers, and forced supply item disputes occur across all franchise sectors. First, through improvements to franchise contracts, we will correct transaction practices in the chicken sector and actively work to ensure positive effects extend to other sectors," he said.