Of 77 franchise headquarters that require franchisees to purchase designated "mandatory items" from the franchisor or its affiliates, 51 failed to properly fulfill their obligation to list and apply those items in their contracts, a government review has found.
Some franchisors incorrectly concluded they had no mandatory items, or were unaware of a legal amendment, and as a result left the required disclosures out of their contracts entirely.
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The Korea Fair Trade Commission announced Wednesday that a review of 100 major franchise headquarters in the retail and service sectors, conducted from June through July, revealed the shortcomings.
The review followed the January last year enforcement of an amended Franchise Business Act, which made it mandatory for franchisors to specify the types of mandatory items and their pricing methods in franchise contracts. The Fair Trade Commission had previously reviewed 75 food-service franchisors last year and expanded the scope this year to cover 100 major franchisors in the retail and service sectors.
Of the 100 franchisors reviewed, 77 had mandatory items. Among those, 10 had not reflected the required information in their contracts at all — either because they incorrectly determined they had no mandatory items or because they were unaware of the amended law.
The remaining 67 had included some relevant information in their contracts, but 12 of them omitted certain required details, such as the types of mandatory items or the pricing method. Only 55 had reflected both elements.
Of the franchisors that listed the types of mandatory items in their contracts, 65, or 97 percent, specified them by individual item, while two, or 3 percent, listed them only by category.
A total of 64 franchisors included pricing methods in their contracts. Of those, 55 — accounting for 85.9 percent — either specified the criteria for price determination or stated the cap on price increases in line with Fair Trade Commission guidelines.
Only 26 of the 77 franchisors with mandatory items had both fully reflected the required information and applied it across all their franchise contracts.
The Fair Trade Commission said it would give the 51 non-compliant franchisors — those that had omitted at least some required information or had not applied the rules to all franchisees — one month to self-correct. "We plan to collect and review records of contract changes during the self-correction period and continue to monitor the situation to ensure the improved regime takes hold on the ground," the commission said.
y2k@heraldcorp.com
