SOUTH KOREA Law and Practice Contributed by: Hongki Kim, Hwijin (HJ) Choi, Kee Won Shin and Jennifer Yein Kwon, Bae, Kim & Lee LLC
may only require store renovations in the circumstanc - es prescribed by the Franchise Act and must share costs in accordance with the statutory standards. Prohibition on unfair restrictions on operating hours Under Article 12-3 of the Franchise Act and Article 13-3 of the Enforcement Decree, the franchisor may not impose unfair restrictions on franchisees’ operat - ing hours contrary to normal business practices. The followings are considered unfair restrictions: • where, despite the franchisee’s request, the franchisor refuses to allow shortened operating hours even though late-night operations (between midnight and 6am or between 1am and 6am) have resulted in operating losses for three consecutive months due to the store’s location or other factors; and • where the franchisor refuses to allow a franchisee to shorten operating hours to the minimum extent necessary for unavoidable circumstances such as illness or medical treatment. Accordingly, even if the franchise agreement contains different provisions on operating hours, the franchisee may request a reduction in operating hours pursuant to the Franchise Act. Prohibition on infringement of business territory As discussed in 6.2 Exclusive Territories and Com- peting Businesses , the franchisor (i) must designate a business territory for the franchisee at the time of entering into the franchise agreement and specify it in the contract, and (ii) may not infringe on the fran - chisee’s territory during the term of the agreement without justifiable cause (Article 12-4 of the Franchise Act). Accordingly, even if the agreement provides oth - erwise, the franchisor must comply with the prohibi - tion on unjustified territorial infringement under the Franchise Act. Advertising and sales promotions Where the franchisor conducts advertising or promo - tional activities for which franchisees bear all or part of the costs, the franchisor must obtain the consent of at least 50% of the franchisees concerned (70% in the case of promotions). However, this consent
requirement does not apply where the parties enter into a separate agreement, apart from the franchise agreement, governing the advertising or promotional activity and the activity is carried out pursuant to that agreement. In addition, the franchisor must notify franchisees of the details of such activities and, upon request, allow them to review the records of execution (Article 12-6 of the Franchise Act; Articles 13-5 and 13-6 of the Enforcement Decree). Accordingly, even if the franchise agreement con - tains different provisions on advertising or promotions involving cost-sharing by franchisees, the franchisor must comply with the Franchise Act’s requirements As discussed in 5.2 Franchise Renewal , the Franchise Act prohibits a franchisor from refusing a franchisee’s request to renew the franchise agreement without justifiable cause and enumerates the exceptional circumstances under which renewal may be denied (Article 13). Therefore, even if the agreement provides otherwise, the franchisor must renew the franchise agreement in accordance with the Franchise Act. Termination of franchise agreements As discussed in 5.3 Termination of the Franchise Agreement , the Franchise Act generally requires that the franchisor allow a cure period of at least two months before terminating a franchise agreement and strictly limits immediate termination to the exception - al cases specified in the Franchise Act (Article 14). Therefore, even if the agreement provides different procedures or grounds for termination, the franchisor must comply with the Franchise Act and may immedi - ately terminate only on the statutory grounds. 7.4 Prohibited Provisions in Local Law The Franchise Act does not contain a statutory black - list of clauses that may not be included in franchise agreements. However, if a franchisor incorporates into a franchise agreement provisions that amount to con - duct prohibited under the Franchise Act, this may be considered a violation (ie, imposition or amendment of unfair contract terms). Care should therefore be taken when drafting agreements. For relevant statu - tory restrictions, see 6.2 Exclusive Territories and concerning consent and disclosure. Renewal of franchise agreements
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