Ce International Franchise Handbook 2021 VF PDF

International
Franchise
Handbook
2021
Brochure / report title goes here |
Section title goes here
02
International Franchise Handbook 2021
Contents
Prefaces 004
Country reports 008
Contacts 288
Contributors 298
How to navigate this document

Click on the section or country
report you want to go to or
navigate using bookmarks.
Country reports:
Argentina 010 New Zealand 148
Austria 016 Norway 154
Bangladesh 020 Paraguay 160
Belgium 024 Peru 164
Chile 034 Poland 168
China 038 Portugal 174
Colombia 046 Romania 182
Czech Republic 052 Russia 190
Denmark 058 Saudi Arabia 196
Finland 066 Serbia 202
France 072 Singapore 208
Germany 082 Slovenia 214
Greece 088 South Africa 222
Guatemala 094 Spain 232
India 100 Sweden 238
Indonesia 106 Switzerland 246
Italy 112 Taiwan 252
Japan 118 Thailand 258
Latvia 124 Turkey 264
Malaysia 130 United Arab Emirates 270
Mexico 136 United Kingdom 276
The Netherlands 142 Uruguay 280
03
Prefaces
04
01
Prefaces
Introduction
This is the third edition of the International consulting, tax, risk advisory, audit and fi-
Franchise Handbook under our watch, and nancial services, provides the ideal global
we are honored to present to you contribu- view with local expertise, as business part-
tions from the legal franchise experts of 44 ner to these global players.
countries around the world. We continue
Each Deloitte legal practice contributing to
to see the demand for international legal
this edition has in-depth knowledge of fran-
expertise in this field and thus are pleased
chise law in its home country and works
to give to you an in-depth view of the legal
closely with Deloitte Legal practitioners from
framework in those 44 countries.
other countries and professionals from oth-
Not only have three years passed since the er disciplines in a multi-disciplinary approach
last edition of the International Franchise to international matters. This international
Handbook, but the unprecedented COVID-19 legal franchise group can advise companies
pandemic and its impact on franchise systems from all industrial sectors in every aspect
around the world make it even more impor- of national and international franchise law
tant to update franchisors on the legal meas- when it comes to structuring and evaluating
urements that governments implemented in steps to expand into foreign countries.
order to support their economy and its citi-
Finally, we would like to thank the Deloitte
zens. These newly implemented regulations
Center of Excellence (CoE) for the organiza-
are in some parts temporary, but in other
tion and implementation of the handbook
parts are here to stay and need to be taken
and all Deloitte colleagues, global and do-
into account in the investment decisions of in-
mestic, who have supported or contributed
ternational acting franchise systems.
to this edition.
And though the world has changed so
dramatically in the last years, the initial
Dr. Mathias Reif
statement made in the first edition of the
International Franchise Handbook remains
unchanged: International players need a
global overview, alongside knowledge of the
local nuances. Deloitte Legal, with presence
in over 80 countries and closely interlinked Dr. Christine von Hauch
with Deloitte’s other practice areas such as
06
We are extremely proud to launch the

“International Franchising Handbook”, an in-
itiative of Deloitte Legal’s Global Service Line
“These newly implemented Commercial to which over 40 jurisdictions
from our network have participated.
regulations are in some The International Franchising Handbook
parts temporary, but in is intended to provide a wide-ranging and
other parts are here to cross-country view of the main legal issues
related to franchising which are illustrated fol-
stay and need to be lowing a multidisciplinary approach and with an
taken into account “ eye to the current situation we are facing.
International Franchising Handbook is a
useful tool to stimulate reflection and in-
sight into the current regulatory frame-
“International Franchising work and practice of this line of business,
also in the light of the evolution of the
Handbook is a useful tool world of distribution and the challeng-
to stimulate reflection and es and opportunities that will arise in the
immediate future.
insight into the current The result of this cross-country cooperation
regulatory framework” once again represents the strength, exper-
tise, multidisciplinary and territorial coverage
of the Deloitte Legal International Franchising
Handbook network. My thanks to the coordina-
tors and contributors for their incredible work.
Massimo Zamorani
07
reports
Country
08
02
Country
reports
Argentina
13
Legal professionals
Region Offices
AMERICAS Buenos Aires
Essentials
about Argentina’s franchising law
1 The franchisor must be the exclusive owner of all the intellectual

rights, trademarks, patents, trade names, copyrights, and other rights
included in the franchise system; or, when appropriate, must have the
right to its use and transmission to the franchisee under the terms of
the contract.
2 The franchisor cannot have a direct or indirect controlling sharehold-

ing in the franchisee’s business.
3 Franchises are exclusive for both parties unless otherwise agreed.
Authors Deloitte Legal Entity

Dr. Cynthia Paula Calligaro Legal y Fiscal S.A.
Dr. Paola Caballero
Find and reach out to local contacts in the Contacts section on page 288.
10
Relevant areas of law Specifics regarding foreign franchisors

In Argentina, franchises are regulated in the One of the obligations of the franchisor is to de-
Civil and Commercial Code (the “Code”) in which fend and protect the use by the franchisee of the
the bases of the franchise agreement are es- rights inherent to the franchise (mentioned in
tablished, such as: definition; obligations of the the definition of the franchise). Notwithstanding
franchisor and franchisee; types of franchise; this, it is established that in international fran-
term of the agreement; clauses accepted in the chises, this right must be exercised by the fran-
agreement and clauses that are not allowed; re- chisee without prejudice to the fact that the
sponsibility of the franchisor and franchisee and franchisor must help and collaborate with the
forms of termination of the contract. franchisee in defense of these rights.
Legal basis of Franchise Law Corporate Law

“There is a commercial franchise when one The Code establishes that a franchisor or fran-
party, called franchisor, grants another party, chisee can be a human person or a company.
called franchisee, the right to use a proven sys- Regarding companies, it does not establish any
tem, intended to trade certain goods or servic- recommended corporate type.
es under the trade name, emblem or brand of
the franchisor, who provides a set of technical Notwithstanding this, the most common corpo-
knowledge and the continuous provision of rate forms to set up business in Argentina are: (i)
technical or commercial assistance, against a Limited Liability Companies and (ii) Corporations.
direct or indirect provision of the franchisee.” The main characteristics of both corporate types
of entities are described in the chart below:
Corporation Limited liability company
Shareholders/ Minimum: 2 shareholders (unless Minimum: 2 partners.

partners single-shareholder corporations). Maximum: 50 partners.
Maximum: unlimited.
Corporate The minimum required capital is ARS There is no minimum capital required for
capital 100,000 and is represented by shares. this type of business company but it should
be adequate to the type of activity to be
developed by the company. It is represented
by quotas.
Shareholders/ The shareholders’ liability is limited, in The quota holders/partners liability is

Partners’ principle, to the total amount of contributed limited, in principle, to the total amount of
liability and paid-in capital. Shares carry voting capital stock. Capital quotas carry voting
and economic rights. There may be many and economic rights. There are no different
different classes of shares, granting different classes or types of capital quotas. The
rights among them value of each quota shall be ARS 10 each or
multiples of ten.
In the case of foreign entities participating in

the Argentine company, they must first be reg-
istered with the Public Registry.
11
Consumer Protection Law IP authority (Instituto Nacional de la Propiedad
Under Argentine law, individuals seeking to be- Industrial). It is also recommended to carry out
come franchisees are not qualified as consum- research beforehand in order to prevent the po-
ers as they intend to set up a business. tential loss of the trademark and corresponding
claims for disclosure and damages.
Antitrust/Competition Law
The Code established that the franchise agree- Selected aspects
ment, by itself, should not be considered an agree-
Precontractual disclosure
ment that limits, restricts, or distorts competition.
Prior to signing a franchise agreement, fran-
chisors and, in a sub-franchising structure,
Employment Law
master franchisees must provide economic
The Code expressly establishes that the par-
and financial information on the evolution of
ties to the franchise agreement are independ-
two years of franchise units/systems similar
ent and that there is no labor relationship be-
to the one offered in the franchise agreement,
tween them.
which has operated for a sufficient time, in the
country or abroad.
The same Code establishes as a general rule
that the franchisor is not liable for the fran-
The Code does not establish a statutory list of
chisee’s obligations and that the franchisee’s
which information has to be made available
dependents do not have an employment rela-
and in what form, nor is there a standard com-
tionship with the franchisor.
pliance procedure. Likewise, the Code does not
establish the obligation to continuously update
However, these characteristics would only ap-
the precontractual information.
ply to the extent that fraud to the law is not
corroborated through the execution of this
This obligation is very important since the fran-
type of contract with the purpose of hiding an
chisee will be able to use the witness cases to
employment relationship between the parties
project and forecast their own profitability and
or to intermediate in the hiring of personnel to
the convenience of the franchise. This obliga-
the detriment of the employee, otherwise, the
tion must be fulfilled in good faith; otherwise,
franchisor and franchisee could be jointly and
the franchisor will be liable for the damages
severally liable for the labor obligations.
caused to the franchisee by providing false, in-
complete, or distorted information in order to
Law on commercial agents
induce him to contract.
There are no provisions regarding commercial
agents and its relation to franchises in the Code.
For reasons of proof, we understand that the
precontractual information should be carried
IP Law
out in writing. In addition, franchisors need
Franchisors need to protect their IP against
to anonymize references and examples when
third parties´ attacks or imitations, especially
disclosing information to comply with the re-
by registering their trademarks with Argentina´s
quirements of the Personal Data Protection
12
Law. The Argentine Association of Brands and

Franchises (http://www.aamf.com.ar) and the
Argentine Chamber of Franchisees (https://
franquiciados.com.ar) provide advice and
guidelines regarding the minimum information
to be disclosed and all the doubts that both
franchisors and franchisees may have.
Franchise fees
There are no laws in Argentina regulating the
payment of franchise fees. Regarding payments
to a foreign franchisor in any currency different
from Argentine currency, Argentina has several
exchange restrictions for sending funds abroad.
Confidentiality
The Code expressly states that the franchisee
is obliged to maintain the confidentiality of the
reserved information that compose the set
of technical knowledge provided by the fran-
chisor. In addition, the franchise must ensure
confidentiality with respect to any person,
employees or not, to whom such information
must be provided for the development of ac-
tivities. This obligation subsists after the expi-
ration of the contract.
In case the franchisor must provide economic

and financial information on the evolution of 2
years of franchise units/systems to the possi-
ble franchisee, the references and examples
must be anonymized when disclosing informa-
tion in order to comply with the requirements
of the Personal Data Protection Law.
Amendments
In this case, both parties in the contract can agree
that in certain specific cases, the franchisor or
franchisee can make amendments to the agree-
ment unilaterally and that some amendments
13
must be made with the agreement of both par- the party that wants to terminate it at the ex-
ties. If the contract does not have any provision piration of the original term or of any of its
regarding amendments, the agreement of both extensions (if applicable), must send to the
parties will be necessary to make an amend- other party a notice in term of one month
ment to the franchise agreement. in advance for each year of duration, up to
a maximum of six months, counted from the
Termination beginning until the expiration of the agree-
The termination of the franchise agreement is ment term. In case of such agreements that
governed by the following rules: are agreed for an indefinite period, advance
notice must be given so that the termination
• the agreement is terminated by the death or
occurs, at least, at the end of the third year
incapacity of either party;
from its conclusion. It is not required the in-
• the agreement between the parties cannot vocation of a just cause in any case.
be terminated without cause within the term
The clause that prevents the franchisee from
of its original validity;
competing with the marketing of its own prod-
• the agreement with a term of less than 3 ucts or services or those of third parties after
years justified by special reasons, are fully the agreement has expired for any reason, is
terminated at the expiration of the term; valid for a maximum period of one year and
• whatever the term of the agreement may be, within a reasonable territory.
14
Renewal and transfer Within the National Judicial Power, there are dif-
The general rule states that the contract lasts ferent jurisdictions, which function separately
at least 4 years. However, a shorter term may from each other. These jurisdictions are given,
be agreed if it corresponds to special situations in general, by reason of the matter. Therefore,
such as fairs or congresses, activities carried there are civil jurisdiction, commercial juris-
out within the premises, or undertakings that diction, criminal jurisdiction, labor jurisdiction,
are scheduled for a shorter duration or similar. federal contentious-administrative jurisdic-
Upon expiration of the term, the contract is un- tion, etc. The Courts of First Instance and the
derstood to be tacitly extended for successive Chambers of Appeals act within each jurisdic-
terms of one year, except for an express notice tion. These chambers are courts that review
by one of the parties before each expiration the proceedings in First Instance, are divided
thirty days in advance. At the second renewal, into “chambers” and are multi-person courts.
it becomes a contract for an indefinite period.
The parties may agree that in the event of
Regarding the transfer of the contract, unless any conflict arising from the franchise agree-
there is an agreement of the parties to the ment, they are subject to the jurisdiction of
opposite, the franchisee cannot assign its con- the courts of specific jurisdiction and/or juris-
tractual position or the rights that emerge from diction or submit to arbitration by an impartial
the contract while it is in force, except those of third party.
monetary content. This provision does not ap-
ply to wholesale franchise contracts intended COVID-19
for the franchisee to grant sub-franchises for From early 2020 on, the COVID-19 pandemic
these purposes. In such cases, the sub-fran- has been having a huge impact on the fran-
chisee must have the prior authorization of the chise sector, as, under government measures,
franchisor to grant sub-franchises under the public life was shut down to contain the pan-
conditions agreed between the franchisor and demic. Therefore, the Argentine government
the main franchisee. arranged several measures to help the sec-
tors directly affected (including gastronomic
Dispute resolution and applicable law franchises) by the COVID-19 pandemic, among
The justice system of Argentina is composed which we can highlight: ATP “Assistance pro-
of the National Judicial Power and the Judicial gram for work and production” (consists of
Power of each of the provinces. The National reducing the payment of a percentage of the
Judicial Power is composed of the Supreme charges labor and employee salaries and some
Court of Justice (higher instance within the taxes) and the granting of credits to companies
Judicial Power), the National Council of Judger (it and individuals.
is in charge of the appointment of the judges and
the administration of the Judicial Power in con-
junction with the Supreme Court), the Courts of
First Instance and the Chambers of Appeals.
15
Austria
37
Legal professionals
Region Offices
EMEA Vienna
Essentials
about Austria’s franchising law
1 Franchisees may be entitled to indemnity after termination of the

franchise agreement in analogous application of the law of commercial
agents
2 Franchise agreements usually contain vertical restraints and should be

reviewed as to their compliance with antitrust law
3 In general, franchisees qualify as businesses but can – under certain

conditions – also qualify as employee-like

Marc Lager Jank Weiler Operenyi Rechtsanwälte GmbH
16
Relevant areas of law resale of goods and services within franchising

In Austria, there is neither a legal definition agreements—such as selective distribution,
of “franchise”, nor a codified franchise law. non-compete or exclusive distribution—if the
Austrian franchise law is set out by different market share of neither the franchisor nor of
areas of law, especially civil, commercial and the franchisee exceeds a 30% threshold on the
corporate law. relevant market(s). Hardcore restrictions within
the meaning of Art. 4 V-BER are not covered by
Corporate Law the block exemption and lead to the full agree-
The most common corporate form to set up ment being presumed to be anti-competitive.
business in Austria is the private limited liability Restraints within the meaning of Art. 5 V-BER are
company (“GmbH”). A GmbH can be set up by not exempted as well, although only the specific
one or more people and requires a minimum provisions lose extemption. If the market share
capital of – generally – EUR 35,000. Solely, the is higher than 30% on the relevant market(s), a
registered capital is liable to the company´s case-by-case analysis must take place. In gen-
creditors, not the shareholders personally. eral, the possible application of the commercial
The formation costs for a GmbH are moder- agent privilege on franchise agreements needs
ate. Notwithstanding foreign trade law regula- to be assessed. If franchisees bear the financial
tions regarding foreign investments in certain and commercial risks of their undertaking on
sectors (“Investitionskontrollgesetz”), Austrian their own and do not act on behalf and for the
corporate law does not impose any general re- account of the franchisor, the commercial agent
strictions on foreign operations in Austria, nor privilege does not apply (thus, the franchisee
on franchise systems in particular. must be free to determine resale prices).
Consumer Protection Law Employment Law

In general, franchisees are not qualified as In general, due to the legal independence and
consumers but as traders/entrepreneurs un- the entrepreneurial risk bearing, the franchisee
der Austrian law. However, it should be noted cannot be classified as an employee. However,
that the provisions of the Consumer Protection the Austrian Supreme Court has in some cases
Act (“Konsumentenschutzgesetz”) apply to the and under certain conditions qualified a fran-
franchisee if the conclusion of the franchise chisee as employee-like. The decisive criteria
agreement constitutes a founding transaction is especially the degree of personal depend-
for the franchisee. ency of the franchisee. Main consequence of
the qualification as employee-like is the estab-
Antitrust/Competition Law lishment of jurisdiction of the labor and social
In general, franchise agreements typically have courts. Contrary agreements regarding the
antitrust law implications as they usually con- place of jurisdiction are invalid. A franchisee is
tain vertical restraints. The EU-Vertical Block considered an entrepreneur if they can inde-
Exemption Regulation (“V-BER”) applies on pendently and freely determine their working
vertical restraints on the purchase, sale and hours, working place and working behavior.
17
Law on commercial agents However, there is neither a statutory compliance
Although the franchisee typically does not procedure for making precontractual disclosure
qualify as a commercial agent within the mean- in Austria nor a list of which information has to
ing of Section 1 of the Commercial Agents Act be made available. Furthermore, Austrian fran-
(“Handelsvertretergesetz”, “HVertrG”), case chise law does not know a general obligation to
law of the Austrian courts favors an analo- continuously update precontractual information.
gous application of individual provisions of the However, such an obligation may arise during the
HVertrG, provided that the franchisee is inte- term of the franchise agreement (or even prior to
grated into the sales organization of the entre- signing) if certain circumstances occur, or change,
preneur like a commercial agent. For example, being recognizably relevant to the franchisee.
franchisees may be entitled to an indemnity of
up to an average annual remuneration under Legal restrictions
very specific conditions always depending on Antitrust/Competition Law.
which franchise-type is concerned. This information is already provided for above.
IP Law Franchise Fees

Franchisors can protect their IP against There are no laws explicitly regulating franchise
third parties’ attacks or imitations, especial- fees in Austria. The consideration to be paid by the
ly by registering their trademarks—either as franchisee to the franchisor for entering the sys-
International Registration (“IR”) with the World tem or on an ongoing basis is to be determined in-
Intellectual Property Organisation (“WIPO”), as dividually. In many cases, the franchise agreement
EU Trademark (“CTM”) with the EU Intellectual provides that the franchisee shall pay a one-time
Property Office (“EUIPO”) in all 27 EU member entry fee to the franchisor. This entry fee repre-
countries, or as national trademark in Austria sents the payment for franchise rights as well as
only with the Austrian Patent Office. the payment for the transfer of know-how. The
ongoing franchise fees to be paid periodically by
Selected aspects the franchisee are usually based on the net sales
Precontractual disclosure generated by the franchisee. Payments to a for-
Prior to signing a franchise agreement, fran- eign franchisor may be made in the franchisor´s
chisors have the duty to inform each poten- domestic currency. The interest rate in Austria for
tial franchisee accurately and with reasonable default payments in B2B-transactions is currently
advance about all circumstances recognizably 9.2 percent above the base interest rate.
relevant for the conclusion of the franchise
agreement. The information provided in each Confidentiality
case must be correct and complete. Thus, the Franchise agreements very often contain en-
franchisor may be liable for sales forecasts if it forceable confidentiality clauses in Austria.
can be accused of at least gross negligence in The franchisor may file an interim injunction
preparing these forecasts. against an infringing franchisee, claim damag-
es occurred due to the breach, and possibly
terminate the franchise agreement for cause.
18
Amendments to franchise agreements Dispute resolution and applicable law

In general, amendments to franchise agree- The Austrian civil court system consists of a
ments must be agreed unanimously between fourtiered system with district courts (values
the franchisor and the franchisee. However, < EUR 15.000,-), regional courts (values > EUR
many franchise agreements contain change 15.000,-), higher regional courts (generally
reservation clauses that give the franchisor courts of appeal), and the Supreme Court. In
the possibility to unilaterally amend the agreed principle, it is admissible for the parties to a
terms, although taking into consideration the franchise agreement to agree on a choice of
franchisee’s interests. law to be applicable on their contractual rela-
tionship, and if the franchisee is a trader/entre-
Termination preneur, to agree on a venue clause. Moreover,
The franchisor and the franchisee are free to it is possible for the contracting parties to sub-
agree on the duration of the franchise agree- mit to arbitration.
ment. In general, the franchise agreement may
end by expiry of time, regular termination (if COVID-19
agreed upon), or termination for cause. The The COVID-19 pandemic has had a significant
franchisor and the franchisee are general- impact on the franchise sector. COVID-19 poses
ly free to agree on the circumstances under several questions in relation to franchising, e.g.,
which the parties may terminate. Good cause questions on existing agreements (rental agree-
will generally be deemed to exist if circum- ments, employment contracts, supplier and
stances are present which make it unreasona- customer agreements and the franchise agree-
ble for one of the contracting parties to contin- ments itself) labor law or financial state aid.
ue the contract until the expiry of the agreed
In general, COVID-19 can be considered an un-
contract term or the next regular termination
avoidable elementary event and may therefore
date. Unjustified terminations by a franchisor
exclude liability for possible damages. In the
might entitle the franchisee to claim damages.
context of rental agreements, there has been
a controversial discussion as to the obligation
Renewal and transfer
of the lessee to continue paying their rent if the
In general, franchisors are free to decide
business premise was closed by the authorities
whether or not to renew a franchise agree-
(or at least to reduce the rent). There are some
ment. It is admissible to contractually restrict
decisions of (lower) courts in Austria indicat-
a franchisee´s ability to transfer its franchise,
ing that a suspension of the obligation to pay
typically by requiring an explicit prior written
rent for the period of closure may be justified.
approval of the franchisor.
However, it remains to be seen whether the
Austrian Supreme Court shares that opinion.
19
Bangladesh
6
Legal professionals
Region
APAC
Essentials
about Bangladesh’s franchising law
1 In Bangladesh, there does not appear to be any specific dedicated

legislation that regulates franchising, and, instead English common
law derived principles of contract law that have been codified in the
Contract Act 1872 (“CA”) applies;
2 There do not appear to be any laws in Bangladesh which require

franchisors to disclose any matters to potential franchisees prior to
entering a franchising arrangement; and
3 Trademarks should generally be registered with the relevant authority

to be enforceable under Bangladesh law.

Rashed Idrees Deloitte Legal International Pte. Ltd.
(a licensed Foreign Law Practice)
20
Relevant areas of law • Shareholders/directors: Every company

must have a minimum of two (2) directors
Legal basis of Franchise Law
and two (2) shareholders, none of whom
In Bangladesh, there does not appear to be
need to be residents in Bangladesh.
either a legal definition of “franchise” or spe-
cific legislation addressing franchising ar- • Corporate information: Among others, the
rangements, which are generally governed names of the proposed directors/sharehold-
by contract law under the CA. The parties to ers of the company must be provided along
a franchise agreement are generally free to with the proposed local address of the com-
agree on the terms and conditions of franchise pany’s office.
arrangements so long as such arrangements • Charter documents: A company constitution
do not contravene the CA’s express provisions, must be prepared and submitted (along with
such as the illegality of consideration. the “Corporate information” above) to the
Registrar of Joint Stock Companies and Firms,
Specifics regarding foreign franchisors which is the national companies’ registry.
There do not appear to be any specific laws in Most required filings with and payments to
Bangladesh, which require a franchising agree- relevant authorities can be undertaken online,
ment prepared by a foreign entity or governed and a company can generally be incorporated
by foreign law to be adapted to a certain form within approximately six (6) weeks.
in order to be enforceable in Bangladesh.
It is, however, worth noting that payments / re- Consumer Protection Law
mittances made from Bangladesh to any oth- Franchisees do not appear to be covered by the
er country are tightly regulated by the Foreign definition of “consumer” under the Consumers’
Exchange Regulations Act 1947 and circulars Right Protection Act 2009 and are unlikely to
issued by Bangladesh Bank (the central bank be protected by its provisions.
of Bangladesh), which may require a franchisee
in Bangladesh to obtain approval from the Antitrust/Competition Law
Bangladesh Investment Development Authority We have noted earlier that while there do not
(“BIDA”) in respect of the payment of royalties appear to be any specific laws in Bangladesh
and technical fees to an overseas franchisor. addressing franchising arrangements, general
principles of contract law under the CA would
Corporate Law apply. In this regard, the provisions of the
The most common business structure in Competition Act 2012, which generally places
Bangladesh is a private limited company incorpo- restrictions on, among others, agreements
rated in accordance with the Companies Act 1994. that substantially reduce competition, territo-
rial restrictions and resale price maintenance
To incorporate a company in Bangladesh, we (e.g., a franchisor pressuring a franchisee not
understand that the following requirements to sell products below a certain price), may also
(among others) must be met: apply to such arrangements.
21
Employment Law supervise and impose conditions and limita-
Franchisees do not appear to be covered by tions on the exploitation and use of their IPRs
the definition of “worker” under the Labor Act by a franchisee.
2006 and are unlikely to be protected by its pro- While Bangladesh law does not appear to
visions, which provide a “worker” with, among require trademarks or licenses to be regis-
others, rights to minimum notice periods and tered in order to engage in franchising ac-
severance payments in circumstances where tivities, undertaking relevant registrations
their employment contract is terminated. with the Department of Patents, Designs and
To help mitigate the risk of characterization as Trademarks is advisable to help obtain statuto-
an employment relationship, a franchise agree- ry protection of such IPRs.
ment may also stipulate that the franchisee
will be acting in their capacity as an independ- Selected questions/aspects
ent contractor and nothing in the agreement Precontractual disclosure
should be construed as creating an employ- There do not appear to be any laws in
ment relationship between the franchisor and Bangladesh which require franchisors to dis-
the franchisee. close any matters to potential franchisees pri-
or to entering a franchising arrangement.
We understand that a franchisee is generally It would therefore be advisable for potential
not regarded as an “agent” under Bangladesh franchisees to undertake some due diligence
law as they would typically trade in their own on the franchisor and the proposed franchise
name, receive income on their own account arrangement before entering any franchising
and be ultimately and directly responsible for arrangement.
any liability arising in connection with goods or
services they supply. Legal restrictions
As discussed in “Legal Basis of Franchise Law”
To help mitigate the risk of characterization above, there does not appear to be any specif-
as an agency relationship, a franchise agree- ic legislation in Bangladesh that requires par-
ment may also stipulate that nothing in the ticular provisions to appear or prohibits par-
agreement should be construed as creating ticular provisions from appearing in franchise
an agency relationship between the franchisor agreements.
and the franchisee. Bangladesh law generally
upholds parties’ intentions based on their ex- Confidentiality
press agreements. Confidentiality clauses are generally enforcea-
ble under Bangladesh law.
IP Law
Franchise agreements may allow the licens- Franchise fees
ing and/or transfer of all forms of Intellectual
The parties to a franchise agreement are gen-
Property Rights (“IPRs”), depending on the
erally free to agree on any matters in connec-
nature of the intended activity or business
tion with franchise fees subject to the provi-
of the franchisee. A franchisor may control,
sions of the CA.
22
Amendments reflected in the agreement or otherwise agreed

Likewise, parties to a franchise agreement are by the parties, the parties may choose to com-
generally free to agree on terms that allow a mence proceedings in a Bangladesh court.
franchisor to unilaterally amend the terms of
The Judicial system of Bangladesh is broadly
the franchise agreement subject to the provi-
classified into two levels (in descending order
sions of the CA.
of superiority):
Termination • Supreme Court, comprising of (i) the Appellate

The parties to a franchise agreement are also Division (appellate jurisdiction only) and (ii) the
generally free to agree on the length of a fixed- High Court Division; and
term franchise agreement subject to the provi- • Subordinate courts and tribunals.
sions of the CA that would then automatically
terminate on the expiry of such fixed term. Applicable law
Bangladesh courts will generally defer to the
There do not appear to be any limitations on
law that parties have chosen to govern a fran-
the right of a franchisor to terminate a franchis-
chise agreement, subject to exceptions such as
ing agreement under Bangladesh law and par-
where the chosen governing law is contrary to
ties are generally free to agree on the grounds
“public policy” in Bangladesh.
for termination such as material breach, repu-
diation, and others – again, subject to the pro-
COVID-19
visions of the CA.
Businesses in Bangladesh have been badly hit
by the COVID-19 pandemic, and the Bangladesh
government has offered financial support for
There do not appear to be any laws in
businesses, including tax relief, moratoriums
Bangladesh which require franchisors to renew
on certain loan repayments, and extending
or transfer a franchise agreement, and parties
deadlines for tax and other filings. As of 4
are generally free to agree on such terms sub-
August 2021, there does not appear to be any
ject to the provisions of the CA.
COVID-19 related legislation in Bangladesh that
specifically relates to franchising matters.
Dispute resolution and applicable law
Dispute resolution, court system
Cross-border franchising arrangements may
be governed by foreign laws – and the parties
can opt for dispute resolution by arbitration in
a “neutral” location (rather than a Bangladesh
court or local arbitration)1. In the absence of
a binding arbitration agreement expressly
1 There is also a detailed arbitration regime in

Bangladesh under the Bangladesh Arbitration
Act 2001
23
Belgium
160
Legal professionals
Region Offices
EMEA Antwerp, Brussels,
Ghent, Kortrijk,
Zaventem
Essentials
about Belgium’s franchising law
1 Belgian law does not include a “franchise regulation”. As such, franchise agreements
are mainly subject to the general commercial laws and regulations.
2 Articles X.26-X.34 of the Belgian Code of Economic Law (the “CEL”) impose specific
information obligations on the franchisor in the precontractual phase, prior to closing
the franchise agreement. Failure to comply with these mandatory information obliga-
tions can result in the annulment of the franchise agreement.
3 Franchisees may be entitled to compensation payment upon termination of the

franchise agreement, in case the franchise agreement also constitutes an “exclusive
distribution agreement” having effect in (part of) Belgium (art. X.35-X.40 CEL).

Jasmijn Verraes Deloitte Legal – Lawyers BV
Jan Van Camp
24
Relevant areas of law Consumer Protection Law

Under Belgian law, individuals seeking to be-
come franchisees are not considered con-
Belgian law does not provide for a legal defini-
sumers as the intention of their conduct is
tion of a “franchise” or for a codified franchise
business-oriented. Hence, Belgian Consumer
regulation. In Belgium, franchise agreements
(Protection) Law is not applicable to such fran-
and franchise relationships are governed by
chise agreements or relationships.
general economic law that applies to all kinds
of commercial cooperation agreements includ-
Employment Law
ing civil, commercial, and corporate law.
The franchisor should verify that the self-em-
In addition to the principles of general eco- ployed nature of the franchisor is guaranteed,
nomic law, all franchise agreements are (in both contractually as in daily practice for la-
principle) subject to a specific regulation on bour courts have already recharacterized the
precontractual information obligations set cooperation with the franchisor into an em-
forth in article X.26-X.34 CEL (cf. infra section ployment contract if the framework (applied)
“Pre Contractual Disclosure”). Furthermore, is too strict.
termination of a franchise agreement may in
Such recharacterization should be avoided
some cases be subject to a specific regulation
as the social security status of the individual
on the termination of exclusive distribution
would have to be regularized and the fran-
agreements set forth in article X.35-X.40 CEL
chisor would be liable to pay (i) arrears of em-
(cf. infra section “termination”).
ployee social security contributions (13.07% of
gross remuneration, uncapped) and employer
Corporate Law
social security contributions (± 28% of gross re-
The most common corporate form to set up
muneration, uncapped); (ii) 10% surcharges of
a franchisee business in Belgium is a private
unpaid contributions; and (iii) 7% late payment
limited company (“BV”/”SRL”). The private lim-
interests. The status of limitations of claims of
ited company is not subject to a minimum
the NSSO is three (3) years (seven years in case
starting capital requirement (a BV/SRL can be
a fraudulent intention can be proven).
established with a starting capital of 1.00 EUR).
When setting up the company, the found- Furthermore, the franchisee could claim the
er(s) must file a financial plan for the first 24 payment of arrears of vacation pay, 13th month,
months of the company’s lifespan. The liability indexations, pension schemes, etc., and com-
of the BV/SRL’s founders is limited to the share pensation in lieu of notice in case the franchisor
capital, unless: has unilaterally terminated the collaboration.
• the company goes bankrupt within three (3) Mitigating such risk requires formal and factual
years after its establishment, and consistency as the Act of 27 December 2006
• it appears that, taking into account the finan- on Labour Relations provides specific guide-
cial plan, the starting capital was insufficient lines to assess the nature of the professional
to survive/bridge the first two (2) years (cu- relation: (i) the parties’ intention (chosen char-
mulative conditions). acter of the contract); (ii) the freedom (or not)
25
to organize their working time; (iii) the freedom IP Law
(or not) to organize the way in which the work is Franchisors need to protect and enforce their
done; (iv) the possibility (or not) to exercise any Intellectual Property (IP). Since a franchise is
hierarchic control. mostly built around a strong brand, the most
important intellectual property rights to con-
The basic principle of the Act of 27 December
sider are trademarks, although it remains im-
2006 is that parties are allowed to freely
portant for the franchisor to protect other IP
choose the nature of their professional relation
such as copyrights, design rights or patents.
when concluding an agreement on the condi-
tion that the chosen character of their relation/ In Belgium, trademarks can be protected at
contract corresponds to the way in which the Benelux level, EU level or international level. It is
contract is executed (substance should sup- not possible to register Belgian national trade-
port form). If not the case, the contract can be marks. The Benelux trademark is governed
“recharacterized” with the abovementioned fi- by the Benelux Convention on Intellectual
nancial consequences at risk. Property (“BCIP”) and offers unified trademark
protection in Belgium, the Netherlands and
Law on commercial agent Luxembourg. An EU trademark offers protec-
In general, a franchisee purchases and sells the tion in all 27 EU member states. An internation-
products/services concerned in its own name al trademark consists of a bundle of national
and for its own account. Hence, a franchisee trademarks and offers protection in all coun-
will in principle not be considered a commer- tries as indicated in the international trade-
cial agent. However, it cannot be excluded that mark application, which need to be members
under certain franchise concepts, the fran- of the Madrid Union.
chisee would sell the products/services in the
Know-how or confidential information are also
name and for the account of the franchisor.
an important aspect of a franchise but these
In such case, the Belgian Law on Commercial
cannot always be protected by intellectual
Agents (set forth in article X.1-X.25 CEL) may
property rights. Therefore, it could be impor-
apply, provided that the franchisee has “con-
tant for the franchisor to take the necessary
tinuing authority to negotiate the sale or the
measures in order to protect knowhow and
purchase of goods on behalf of the franchisor
confidential information as trade secrets. The
or to negotiate and conclude such transactions
Belgian Law of 30 July 2018 has implemented
on behalf of and in the name of the franchisor”
the EU Trade Secret Directive (Directive (EU)
(cf. legal definition of commercial agent).
2016/943) into Belgian law.
The rules set forth in the Belgian Law on
Commercial Agents basically correspond to Selected questions/aspects
those set forth in Council Directive 86/653/
EEC on the coordination of the laws of the
Articles X.26-X.34 of the CEL impose specific
Member States relating to self-employed
information obligations on the franchisor in
commercial agents.
the precontractual phase, prior to closing the
franchise agreement. In principle, this law on
26
precontractual information obligations applies – ‘Information that is deemed necessary’ in

to all ‘commercial collaboration agreements’ order to enable the franchisee to assess (the
(thus including franchise agreements). consequences of) the franchise agreement,
such as: the name and address of the
The abovementioned law on precontractual infor-
franchisor; the identity and capacity of the
mation obligations can be summarized as follows:
natural person representing the franchisor;
• At least one month prior to entering into a the nature of the commercial activities of the
franchise agreement, the franchisor must franchisor; the intellectual property rights in
provide the candidate franchisee with (i) relation to which certain rights will be granted
the draft franchise agreement and (ii) an in- by the franchisor; the annual accounts for the
formation memorandum (“Precontractual last three financial years of the franchisor; the
Information Document”/“PID”) containing all franchisor’s experience relating to commercial
essential commercial, corporate, financial collaborations and relating to the exploitation
and marketing information. of the commercial formula outside the
• The information to be included in the PID is franchise network; the history, condition and
set forth in article X.28 CEL and is divided perspectives of the relevant market (both
into two groups: on a general and local level); the history,
condition and perspectives of the (franchise)
– ‘Contractual clauses that are deemed to
network’s market share (both on a general
be crucial’ (if included in the agreement),
and local level); the number of franchisees
such as: the question whether or not the
(or other distributors) that were part of the
contract is concluded intuitu personae; the
network (on a national and international level)
relevant obligations and the consequences
during the last three years; the intentions to
of failure to comply with these obligations,
expand the network; the number of franchise
the fees (royalties or any other amounts)
(or commercial collaboration) agreements
that will be due by the franchisee as a
entered into during the last three years;
direct compensation for the granting of the
the number of franchise (or commercial
franchise rights (including the calculation
collaboration) agreements terminated during
method and manner of revision of such
the last three years; the number of franchise
fees in case of renewal); the duration and
(or commercial collaboration) agreements
terms of non-competition obligations, the
not renewed or extended during the last
duration of the franchise agreement and
three years; and the charges and investments
the conditions for renewal; the conditions
which the franchisee will have to pay at the
for termination of the agreement as to
start of the agreement and in the course of
the charges and investments made; the
the collaboration (including the amounts and
existence of a right of first refusal or a
their use, the amortization periods, the times
purchase option in respect of the franchisor
at which they will be implemented and their
to obtain the franchisee’s business (and the
disposal at the end of the contract).
rules for valuation of such business); and any
exclusive rights reserved to the franchisor; • The one-month period is considered a
period of reflection.
27
• If certain ‘contractual clauses that are absence of consent or quasi-intentional tort.
deemed crucial’ (cf. above sub a) are changed In such case, the franchisee will have to seek
during the one-month period, the franchisor nullification of the agreement or request
will have to provide the franchisee with a damages and interests.
new draft agreement and a simplified PID
(containing at least the changes), after which Legal Restrictions
a new one-month reflection period will start. Antitrust/Competition Law: As is the case for
• In case a franchise agreement is renewed, in every EU country, franchise agreements may
case a new franchise agreement is concluded contain restrictions that collide with art. 101
between the same parties or in case an exist- Treaty on the Functioning of the EU (“TFEU”).
ing franchise agreement is changed/amend- Exemptions from the prohibition in art. 101 of
ed, the franchisor must provide the franchisee the Treaty are possible under the EU-Vertical
at least one month prior to renewal, conclu- Block Exemption Rule (“V-BER”), provided that
sion or amendment with a simplified PID, con- the respective parties to a franchise agree-
taining the crucial clauses (mentioned above ment do not have a market share of more than
sub a) and the crucial information (mentioned 30% each. The V-BER contains black clauses
above sub b) to the extent such elements of (“hardcore restrictions”), rendering the entire
the franchise agreement have changed. agreement null and void, as well as grey claus-
es, rendering solely the specific provision in an
• The franchisee cannot be requested to as-
agreement null and void. Examples for black
sume any obligations (except for confidenti-
clauses are provisions dictating fixed prices
ality obligations) or to pay any fees before the
or prohibiting passive sale outside a designat-
one-month reflection period has lapsed.
ed territory (including sale via the Internet),
Art X.30 CEL provides for the sanctioning in whereas provisions prohibiting competition for
case of non-fulfilment of one of the precontrac- more than five years or for an unlimited time
tual disclosure obligations set out hereabove. In are grey clauses.
case the draft franchise agreement or the PID
is not provided to the franchisee one month Unfair contract terms in B2B agreements: On
prior to the conclusion of the actual contract, 1 December 2020, the “B2B law” prohibiting
the franchisee will be able to demand a court to unfair contract terms in B2B contracts en-
annul the franchise agreement up to two years tered into force (incorporated in article VI.91/1-
after conclusion of the contract. VI.91/10 of the CEL). These new rules only apply
to contracts entered into, renewed or amend-
In case a ‘contractual clause that is deemed ed after 1 December 2020.
crucial’ is not included in the PID, the fran-
chisee will be able to invoke the nullity of that The new rules on unfair contract terms provide
particular provision of the contract. In case for two general requirements:
the PID contains incorrect or incomplete in- • transparency: written terms must be trans-
formation (as to a ‘contractual clause that is parent and intelligible;
deemed crucial’ or as to ‘information that is
• balance: terms that—either on their own or
deemed essential’), the franchisee may invoke
in combination with other clauses—generate
28
a clear imbalance between the parties’ rights

and obligations are considered ‘unfair’.
The ‘balance test’ does not apply to (i) terms de-
fining the actual object of the agreement or (ii) the
link or equivalence between the price to be paid
and services or goods to be supplied. In addition
to the above, the new rules provide for a “black
list” of terms that are always deemed to be unfair
and a “grey list” of terms that are presumed to be
unfair (somewhat analogue to the rules on unfair
contract terms in consumer protection law).
The black list prohibits clauses:
• that provide for an irrevocable obligation

with respect to one party, while the execu-
tion of the other party’s obligations is subject
to a condition where the fulfilment depends
exclusively on that party’s will;
• granting a party the unilateral right to inter-
pret the (terms of the) agreement;
• resulting in a party a priori waiving any right
to seek legal recourse against the other party
in case of a dispute;
• stipulating that a party irrefutably acknowl-
edges having read and accepted certain
terms (e.g., general terms and conditions)
even though it was impossible for said party
to have knowledge of these terms.
The grey list of terms that are presumed to be
unfair relates to clauses that:
• grant a party the right to unilaterally change

the price, characteristics or terms of the agree-
ment without justification or reasonable cause;
• provide for an automatic renewal or ex-
tension of a fixed term agreement with-
out mentioning a reasonable notice term
(that should be complied with to prevent
renewal/extension);
29
• without compensation, place an economic agreed upon up front in the franchise contract
risk with one party while that risk would nor- (and must be mentioned in the PID).
mally be borne by the other/another party;
The franchise fee comes in different forms:
• inappropriately exclude or limit a party’s entrance fees, royalties, marketing fees, etc.
rights in case the other party fails to comply As the franchise fee is not regulated in Belgian
with its contractual obligations; law, the franchisor and franchisee are free
• bind parties without mentioning a reasona- to agree upon the nature and amount of the
ble notice period; franchise fees.
• exonerate a party for its (representatives’) In case of late or non-payment by the fran-
deliberate or gross errors in relation to non- chisee, the amount due will automatically and
compliance with its essential obligations that without prior notice be increased with the stat-
comprise the actual object of the agreement; utory annual interest that is referred to in the
• limit the means of evidence that may be used Act of 2 August 2002 on combating late pay-
by the other party in case of a dispute; ment in commercial transactions or with any
• provide for a fixed compensation in case of other late payment interest agreed upon in the
late or non-execution of a party’s obligations, franchise agreement.
if said fixed compensation is not proportion-
ate to the damage that could be incurred by Confidentiality
the other party. Confidentiality clauses in franchise agreements
(often in combination with a contractual penal-
Unfair contract terms can be declared null
ty) are generally common and enforceable in
and void by the courts. If the concerned stip-
Belgium. Confidentiality clauses are advisable
ulation relates to the agreement’s essence/
in order to adequately protect existing trade
core, the entire agreement can be annulled.
secrets (both in the contractual phase as in the
Furthermore, any interested party and the
pre-contractual phase). Although the informa-
Minister competent for Economy and Middle
tion relating to a franchise relationship that is
Class (“ministers bevoegd voor economie en
disclosed during the precontractual phase is
middenstand”/“ministères compétents pour
by law subject to a confidentiality obligation
l’économie et les classes moyennes”) can seek
(article X.31 CEL), it is advisable to sign a writ-
an injunction against the enterprise using un-
ten confidentiality and non-disclosure agree-
fair contract terms. The use of unfair contract
ment prior to disclosing any information to the
terms can even be criminally sanctioned, but
potential franchisee.
only in cases of breach in bad faith.
Amendments
Franchise fees
In principle, contracts are binding and thus
The franchisor can demand payment of fran-
cannot be unilaterally changed. Article VI.91/5,
chise fees; however, the granting of franchise
1° CEL states that unless counterproof is pro-
rights is not necessarily subject to payment of
vided, the company (franchisor) cannot be
franchise fees. The franchise fees (if any) and
granted the right to unilaterally change the
the amount of such franchise fees are to be
30
price, the characteristics or the terms of the Belgian territory (quasi-exclusivity) and c) dis-
agreement without giving a valid reason. It tribution contracts that impose important ob-
is thus important to provide specific and de- ligations on the distributor, as a consequence
tailed reasons (specific market developments of which the distributor would suffer a sub-
that could arise during the performance of the stantial prejudice in case of termination of the
franchise agreement) to make such unilateral agreement. In case the franchisee a) resells the
amendment contractually admissible and valid. franchisor’s products in its own name and for
If the amendment of the franchise agreement its own account (thus being a distributor) and
relates to an essential contract term or essen- b) has (quasi) exclusivity in (part of) Belgium
tial aspect of the franchise, the franchisor must or has important obligations (e.g. as to invest-
comply with the one-month reflection period ments to be made in light of the franchise)
(cf. section “Pre-contractual Disclosure”). under the franchise agreement, the franchise
agreement can (also) be considered an “exclu-
Termination sive distribution agreement” and will thus be
Franchise agreements can be entered into for a subject to the specific rules on termination set
fixed term of for an indefinite term. Fixed term forth in article X.35-X.40 CEL. The rules on the
contracts cannot be terminated by any party termination of “exclusive distribution agree-
before lapse of said fixed term, and automati- ments” set forth in article X.35-X.40 CEL are
cally expire when the fixed term has lapsed (un- only applicable to distributions having effect in
less parties (tacitly) continue the collaboration). the territory of Belgium or part thereof.
Contracts entered into for an indefinite term
The rules on termination of “exclusive distribu-
can be terminated at any moment and by each
tion agreements” can be summarized as follows:
party respecting a “reasonable notice period”.
The length of the “reasonable notice period” • An exclusive distribution agreement of indef-
is determined on a case-by-case basis, mainly inite term can only be terminated respecting
taking into account the duration of the contract/ a “reasonable notice period” (art. X.36 CEL).
collaboration and the importance of the con- The “reasonable notice period” is to be de-
tract for the franchisee (the basic idea being that termined on a case-by-case basis. In general,
the notice period should be sufficient to enable a notice period is considered “reasonable” by
the franchisee to reorganize itself). In principle, Belgian courts if (i) it allows the distributor
the length of the “reasonable notice period” can to comply with its obligations/commitments
also be agreed upon up front in the franchise towards third parties and (ii) it gives the dis-
contract (unless the franchise relationship also tributor sufficient time to find an alternative
qualifies as an “exclusive distribution”). and equivalent source of income. The follow-
ing elements are typically considered when
Belgian law provides for specific rules on the
determining the length of the “reasonable
termination of “exclusive distribution agree-
notice period”: duration of the agreement,
ments” (article X.35-X.40 CEL). Said rules are
evolution of the turnover, size of the territo-
applicable to: a) distributors that have exclusiv-
ry, notoriety of the brand and investments
ity in the Belgian territory, b) distributors that
made by the distributor.
virtually sell all the relevant products in the
31
• The distributor will be entitled to an in- • If an exclusive distribution agreement is
demnity in lieu if the exclusive distribution granted for a fixed term, parties are con-
agreement of indefinite term is terminated sidered to have agreed to a renewal of the
without respecting a “reasonable notice pe- agreement for an indefinite term or for the
riod”. The indemnity in lieu should be equal fixed term mentioned in the clause (if exist-
to the financial benefits/profits which the ent) regarding tacit extension, unless either
distributor could have obtained during the party sent a termination notice by registered
reasonable notice period (if such reasona- letter at least three months and not more
ble notice period would have been granted/ than six months before the contractual expi-
respected). The indemnity in lieu will thus, to ration date. An exclusive distribution agree-
a great extent, depend on the profitability of ment entered into for a fixed term automat-
the distribution. In general, the calculation of ically and by law becomes an agreement of
the indemnity in lieu is based on the average indefinite term as from the third extension
“semi-gross margin” of the three (3) years or renewal. An exclusive distribution agree-
preceding the distribution’s termination. ment of fixed term that is transferred into
• In addition to the “reasonable notice period” an agreement of indefinite term will auto-
or “indemnity in lieu”, the distributor will be matically become subject to the rules of
entitled to a “fair additional compensation” termination set forth.
(art. X.37 CEL) if the exclusive distribution • The franchisee that is protected under the
of indefinite term is terminated by the fran- abovementioned rules can start legal pro-
chisor. The franchisee will be unable to claim ceedings before a Belgian judge, who will
such “fair additional compensation” if the dis- be obliged to apply article X.35-X.40 CEL
tribution is terminated for gross negligence in (if applicable).
respect of the franchisee or if the franchisee The rules on the termination of “exclusive dis-
itself terminates the distribution. The “fair ad- tribution agreements” are considered a “loi de
ditional compensation” is determined based police” and are therefore applicable irrespec-
on the following elements: (i) the known add- tive of any choice of law provided for in the
ed value in terms of clientele created by the franchise agreement.
franchisee and residing with the franchisor
after the termination of the contract; (ii) the In case the franchisee sells the products in the
costs incurred by the franchisee in light of name and for the account of the franchisor
the exploitation of the sales concession/fran- and the franchisee has “continuing authority
chise concept and which may bring benefits to negotiate the sale or purchase of goods on
to the franchisor after the contract’s end; (iii) behalf of the franchisor or to negotiate and
the compensation owed by the franchisee to conclude such transactions on behalf of and in
the staff, which they are obliged to dismiss as the name of the franchisor” (cf. legal definition
a result of the termination of the sales conces- of commercial agent), the rules set forth in the
sion/franchise agreement. Belgian Law on Commercial Agents will apply to
the termination of the franchise agreement (cf.
above section “Law on Commercial Agents”).
32
Renewal and transfer Dispute resolution and applicable law

Franchisors are generally free to decide wheth- In principle, the commercial courts (“on-
er or not to renew a franchise agreement, as in dernemingsrechtbanken”/“tribunaux de l’en-
every commercial contract. It is possible and treprise”) are competent to rule on disputes
advisable to explicitly stipulate the (absence of between the franchisor and franchisee, irre-
a) right to renewal in the agreement. In certain spective of the monetary amount of the claim.
(exceptional) circumstances, the non-renewal of
In principle, the franchisor and franchisee can
the franchise agreement could constitute abuse
agree upon the competent courts and appli-
of law, e.g. in case the franchisor recently obliged
cable law in the franchise agreement and thus
the franchisee to make significant investments.
opt for the laws and courts of the franchisor’s
It is recalled that the rules on precontractual jurisdiction. However, as mentioned above (cf.
disclosure set forth in article X.26-X.34 CEL section “termination”), if the franchise agree-
apply to renewals of the franchise agreement ment can be considered an “exclusive distri-
(cf. above one-month reflection period, draft bution agreement” (having effect in part of
agreement and simplified PID). Belgium), termination of the franchise agree-
ment shall in principle be governed by article
Although franchise agreements are usually
X.35-X.40 CEL and the franchisee shall be able
considered to be entered into intuitu perso-
to start legal proceedings in Belgium (irrespec-
nae, art. X.28 CEL stipulates that the intuitu
tive of any clause regarding forum choice or
personae nature of the franchise agreement
choice of law) as the Belgian law on the termi-
must be explicitly stipulated in the contract
nation of exclusive distribution agreements is
and must be mentioned in the PID. Hence, it
considered a “loi de police”.
is advisable to explicitly stipulate the (absence
of a) right to transfer the franchise in the It is also admissible to agree on arbitration
franchise agreement. as the exclusive way of resolving disputes
between the parties, thus waiving the due
process of law.
33
Chile
43
Legal professionals
Region Offices
AMERICAS Santiago de Chile
Essentials
about Chile’s franchising law
1 There is no specific regulation for franchises in Chile, being such activities

regulated under general business and commercial law.
2 In general, the terms of the franchise agreement will govern the relationship
between franchisee and franchisor, provided that general good faith and
other public policy considerations are observed.
3 Foreign companies and investors are given national treatment in Chile under
the foreign investment law and numerous bilateral investment treaties.

Ignacio Concha Deloitte Legal
34
Relevant areas of law The law provides that a foreign investor who
feels that it is receiving discriminatory treat-
ment may ask Chilean authorities (including
There is no specific regulation in Chile for fran-
courts) to correct any discrimination. This is
chises, and Chilean law does not define the
enforced in practice.
term “franchise”. Such activity does not fall
under the jurisdiction of any specific authority. In addition, Chile has entered into a wide net-
The courts have not recognized the relation- work of Bilateral Investment Treaties, including
ship between franchisors and franchisees as 55 Bilateral Investment Treaties (BIT) and 33
deserving special regulation. treaties with Investment protection provisions
(TIP). These treaties provide protections for
Consequently, contracts between the fran-
foreign investors, including:
chisor and franchisee are governed by gener-
al contract law established in Chile in the Civil • “Most favorable nation” clause
Code. The parties will be generally free to set • No expropriation without compensation
forth the terms of their relationship. There are based upon “real value”
no special disclosure requirements or protec-
• Right to compensation for losses in case of
tions for franchisees.
discrimination or expropriation
However, pursuant to general principles of • Right to transfer funds abroad (initial invest-
contract law, parties are required to fulfill their ment and profits)
obligations under the franchise contract in
• The right to initiate arbitration against the
good faith. It means that the franchisor must
Republic of Chile before the Centre for the
exercise its rights under the contract without
Settlement of Investment Disputes (ICSID) in
discrimination and upon a rational basis.
case of infringement in their rights.
Specifics regarding foreign franchisors Corporate Law

The Chilean foreign investment law establishes The most common corporate form to set up
the principle of non-discrimination to foreign business in Chile is the stock company (socie-
investors. It means that they cannot be dis- dad por acciones), the limited liability company
criminated and must receive “national treat- (sociedad de responsablidad limitada), or the
ment”; i.e., they must be treated as Chilean incorporation (sociedad anónima). They are easy
vestors. There is no need for prior approval for to set up, do not require minimum capital, and
foreign investment. establish limited liability for their shareholders
The law also provides the right to access the or members. The formation costs for a compa-
Chilean foreign exchange market to con- ny are very moderate and there are no license
vert Chilean currency into foreign curren- fees to be paid to maintain the company in
cy and remit the initial investment and any good standing.
profits abroad.
35
Chilean corporate law does not impose any
general restrictions neither on foreign opera-
tions in the country nor on franchise systems.
Also, company may appoint foreign individuals
as directors and officers without restrictions,
although at least one person with domicile in
Chile must be appointed to represent the com-
pany before tax and labor authorities.
Consumer Protection Law

Under Chilean law, individuals seeking to become
franchisees are not qualified as consumers, as the
intention of their conduct is business oriented.
In the event of franchisors with many fran-
chisees, or who have a dominant market posi-
tion, there is a risk that franchisees could argue
that the relationship is subject to the scrutiny
of competition authorities. This would allow
the franchisee to demand that the franchisor
not abuse its dominant position when enforc-
ing the terms of the franchise agreement, and
demand that certain unconscionable provi-
sions not be enforced.
Employment Law
It is unlikely that a Franchisee will be deemed
an employee, although some care should be
applied on this matter.
The main criterion to determine if an individu-

al rendering personal services to another may
be qualified as an employee will depend on the
grade of personal dependency with the em-
ployer, based on the instructions and supervi-
sion given to the employee. Pursuant to Chilean
law, someone is an independent businessper-
son if they are – contractually as well as factu-
ally – free to design their own activities and set
36
their own working hours, and who assumes an Termination

own entrepreneurial risk. Franchisees that are Franchise agreements are entered into for a
companies cannot be deemed employees. certain time and terminate with the lapse of
that time. A regular termination by one of the
IP Law parties before that is not admissible unless
Franchisors need to protect their IP against third both parties unanimously agree on it, or in
parties´ attacks or imitations, especially by reg- case of a serious uncured breach by the other
istering their trademarks. It is recommended to party. Unjustified terminations by a franchisor
also carry out research beforehand to prevent might entitle the franchisee to claim damages.
the potential loss of the trademark and corre-
sponding claims for disclosure and damages. Renewal and transfer
Franchisors are, very generally speaking, free
Selected questions/aspects to decide whether or not to renew a franchise
agreement; if so, renewals should be done
explicitly and in writing. It is admissible to
There is no legal precontractual disclosure be-
contractually restrict a franchisee´s ability to
yond the normal duty of good faith established
transfer its franchise, typically by requiring an
under contract law.
explicit prior written approval of the franchisor.
Confidentiality
Confidentiality clauses in franchise agree-
ments (often in combination with a contractual
penalty) are very common and enforceable in
Chile. The franchisor may file an interim in-
junction against an infringing franchisee, claim
damages occurred due to the breach, and
possibly terminate the franchise agreement
extraordinarily. Nevertheless, it is important to
keep in mind that the breach of confidentiality
obligations is difficult to prove in court.
Amendments
Amendments will need to be agreed upon
by all parties unless otherwise regulated.
However, even if the contract allows for unilat-
eral changes, such right to unilaterally change
the agreement must be exercised in good faith,
with a rational basis, and without discrimina-
tion, especially if the franchisor is deemed to
hold a dominant market position.
37
China
80+
Legal professionals
Region Offices
APAC Beijing , Chongqing,
Guangzhou,
Hong Kong,
Shanghai
Essentials
about China’s franchising law
1 The legal framework in respect of the franchise in China consists of three major rules,
the Franchise Regulations, the Measures, and the Information Disclosure Measures,
which stipulate specific obligations of franchisors and franchisees. And therefore, we
do have precontractual disclosure obligations in accordance with the law.
2 Both franchisees and franchisors are entitled to revoke the franchise agreement
either contractual or in accordance with the law and therefore, both of them could be
entitled to compensation payment upon termination of the franchise agreement.

Alexander Fischer Shanghai Qin Li Law Firm
Jolin Song
Eleanor Liu
38
Relevant areas of law the business according to a uniform business

model stipulated under the contract and pay
the franchisor franchising fees.”
Different as in Germany, we do have in China
a legal definition of “franchise”. The franchise MOFCOM is responsible for the nationwide su-
operation must be in compliance with three pervision and administration of franchise oper-
specific franchise regulations: The Commercial ations. The relevant approval procedure for the
Franchise Administration regulations (in franchising under the Franchise Regulations as
Chinese: 商业特许经营管理条例 hereinafter stipulated in Article 7 is as follows: “Franchisors
referred to as “the Franchise Regulations”), must possess a matured business model and
the Commercial Franchise Registration the ability to provide continual operational guid-
Administrative Measures (in Chinese: 商业特 ance, technical support, business training, and
许经营备案管理办法 hereinafter referred to as other service support when engaging in fran-
“the Measures”) and the Commercial Franchise chise operations. A franchisor must own at least
Information Disclosure Administrative two direct sales stores that have been operating
Measures (in Chinese: 商业特许经营信息披 for more than one year when engaging in fran-
露管理办法 hereinafter referred to as “the chise operations.” (the so called “2+1” Rule)
Information Disclosure Measures”). Besides
Article 8 of the Franchise Regulations: “A fran-
these administrative regulations and depart-
chisor shall file records with the commerce ad-
ment rules, Franchise Agreements must also
ministration authorities within 15 days upon
comply with the general rules of civil juristic
conclusion of the first franchise contract pur-
acts and contractual principles regulated by
suant to the provisions of these regulations.
the Civil Code (previously known in Art. 133-
Franchisors engaging in franchise operations
160 of the General Rules of the Civil Law and
within a province, autonomous region or cen-
Art.1-129 of the Contract Law, which has been
trally administered municipality shall file records
revised by the new Civil Code coming into force
with the commerce administration authorities
on January 1, 2021).
of the People’s Government of the province,
Definition of franchise: Franchise Regulations, autonomous region or centrally administered
which have come into force on May 1, 2007 as municipality at where the franchisor is located.
Ordinance No.485 (in Chinese: 国务院第四百 Franchisors engaging in franchise operations
八十五号令) defines in Art.3 commercial fran- across provinces, autonomous regions and
chise operations as the followings: “a grant by centrally-administered municipalities shall file
an enterprise owner of registered trademarks, records with the commerce administration au-
enterprise logos, patents, proprietary technol- thorities of the State Council.”
ogies or other business resources (hereinafter
In accordance with the Laws, franchisors
referred to as the ‘franchisor’) to another busi-
shall submit the following documents and
ness operator (hereinafter referred to as the
materials to the commerce administration
‘franchisee’) to use such business resources
authorities when filing records: (1) a photo-
owned by the franchisor through a contractual
copy of the business license or enterprise
arrangement, where the franchisee operates
registration (incorporation) certificate; (2) a
39
sample of the franchise contract; (3) the op- Consumer Protection Law
erating manual of the franchise operation; Pursuant to the Franchise Regulations, indi-
(4) a market proposal; (5) a letter of under- viduals seeking to become franchisees are
taking and the relevant evidentiary materials not qualified as consumers in China but as
on compliance with the provisions of Article business operators and the right of revocation
7; and (6) any other document or material within 14 days is not applicable. Article 12 of
stipulated by the commerce administration the Franchise Regulations only formulates as
authorities of the State Council. The approv- follows: “The franchisor and franchisee shall
al of the products or services under a fran- include as a term of the franchise contract, the
chise operation must be obtained prior to right of the franchisee to terminate the con-
the commencement of operations pursuant tract unilaterally upon the lapse of a fixed term
to law, and the franchisor shall provide the after the franchise contract is concluded.”
relevant approval documents.
Employment Law
Implications under other relevant laws and
A franchisee is not qualified as an employee
regulations: Same as in Germany, implications
of the franchisor according to the Labor Law.
also result from many different areas of law, es-
Nevertheless, if disputes arise from an employ-
pecially the new Civil Code, the Company Law
ment relationship involving franchisee often
and the Unfair Competition/Antitrust Law, the
draw public attention which could negatively
Trademark Law, and the Foreign Investment
influence the related franchise companies’ im-
Law in China.
age and impact the brand.
Corporate Law
IP Law
In China, we have a “first-to-file” jurisdiction,
a business in China under the Company Law
and trademarks registered outside of the PRC
is the Limited Liability Company, Partnership
are usually not protected in China without
or a Company Limited by shares. As to the
a local registration with the corresponding
capital and investment amount, there is
State Trademark Office (Principle of Territory).
no such obligation of minimum capital en-
Pursuant to Art.25 and Art.26 of the Trademark
forced by law like in Germany, however,
Law, the applicant may exceptionally enjoy un-
foreign investors need to keep in mind the
der certain circumstances preemptive rights,
strict regime of the State Administration for
even the trademark is not yet registered in
Foreign Exchange. In addition, the Foreign
China: “1. An applicant submitted the appli-
Investment Law in China set forth a filing sys-
cation for the same trademark for identical
tem that replaces the previous approval sys-
commodities with the Trademark Office within
tem and removes general restrictions on for-
six months from the date of submission of the
eign operations in China as to the franchise
said trademark in a foreign country; 2. where
operation, when its business scope falling
a trademark is firstly used on commodities ex-
outside the Negative List.
hibited at an international exhibition organized
or recognized by the Chinese government, an
40
applicant may have preemptive rights within

six months from the date of the exhibition of
the said commodities.” And regarding the ex-
perience, we highly recommend franchisors/
franchisees to register their trademarks in
China as early as possible and all relevant cat-
alog pictures to avoid malicious registration
from a third party. Such Infringements often
occur, where business partners are aware of
the said trademark through a previous busi-
ness relation or when attending events or ex-
hibitions. Registering concerning trademarks
in all relevant classes is critical because, for
example, if an FMCG (Fast Moving Consumer
Goods) Company only registers its trademark
in Class 29 but not in Classes 30 and 32 and still
put the Circle R® on its soft drink cups, it might
trigger a penalty according to Art.52 of the
Trademark Law and with the consequence that
they have to remove the circle R logo from all
the cups. And even worse, if a third party regis-
ters the same or identical trademark in a Class
which not has been registered by an FMCG, the
FMCG will have to file the cancelation against
the third party first, because Article 52 stipu-
lates: “Persons who falsely represent an un-
registered trademark as a registered one or
whose use of an unregistered trademark in
violation of the provisions of Article 10 of this
Law shall be curbed by the local administra-
tion for industry and commerce and ordered
to make correction within a specified period.
The punishment decision may be circulat-
ed, a fine of not more than 20% of the illegal
turnover may be imposed on persons whose
illegal turnover is RMB50,000 or more; where
there is no illegal turnover or the illegal turn-
over is below RMB50,000, a fine of not more
than RMB10,000 may be imposed.” Having said
that, we note that the cancelation procedure
41
is a lengthy process, and the FMCG may only Selected questions/aspects
propose cancelation on limited grounds pur-
suant to law. As for the application procedure
In connection with Art. 21 to 23 of the Franchise
for trademarks, if there are no oppositions and
Regulations Article 4 of the Information
the application procedure could run smooth-
Disclosure Measures stipulates the following:
ly, it will take about 12 months going through
“Franchisors shall disclose information stipu-
the registration procedure (Art.35 of the
lated in Article 5 of these Measures in writing
Trademark Law) and the validity of a registered
to a franchisee pursuant to the provisions of
trademark is for 10 years with a renewal option.
the Regulations at least 30 days prior to the
date of execution of the commercial franchise
Real Estate/Tenancy Law
contract, except where the franchisor and the
Same as in Germany and also because of the
franchisee renew the former franchise con-
specific design of the franchise system, legal
tract under the same terms.”
implications may arise from real estate or ten-
ancy law, and in the practice in China, the fran- In respect of Art 500 of the General Principle
chisees shall normally obtain approval from of the Chinese Civil Code which requires par-
the authorities before starting their business, ties to act in good faith during negotiation,
such as the land use permission or the fire pre- Art. 23 of the Franchise Regulation provides
vention certification. Doing business without that: “The information provided by a fran-
such mandatory approvals, for example, lack- chisor to a franchisee must be truthful, ac-
ing the fire certification, often causes serious curate and complete, with no concealment of
consequences such as getting the business li- any relevant information or any falsehoods”,
cense of a relevant business entity revoked or which shall mean that even such relevant in-
business operation suspended. It is therefore formation is not specifically listed by laws, the
suggested to conclude such obligations as pre- franchisor shall not intentionally conceal any
conditions in the franchise agreement since related material facts.
some franchisees are not able to obtain the fire
prevention certification due to certain reasons. Legal restrictions
Under the laws in China, a foreign legal enti- Foreign Investment Law
ty cannot serve as a tenant for the purpose Foreign investment in China is restricted
of business operation without registering or prohibited in some industry sectors by
with the authority first and without success- Administrative Measures for Access of Foreign
fully obtaining the MOFCOM approval prior Investments (Negative List), which has been
and the necessary approval could only be updated by MOFCOM in June 2019. The Law
obtained in cooperation with a local Chinese came into force on January 1, 2020 and further
company. In accordance with Chinese Laws, opened and liberalized the Chinese market for
foreign entities are not permitted here in pur- foreign investors.
chasing, leasing, or subleasing real estate for
any business purpose.
42
Anti-trust/Anti-Unfair Competition Law the major rights of the other party; or (III) the
There are two existing PRC’s competition laws, party providing the standard terms excludes
the Anti-Unfair Competition Law (In Chinese: 反 the main rights of the other party.”
不正当竞争法) and the Anti-Monopoly Law (In
Article 498 of the Civil Code: “If a dispute over
Chinese: 反垄断法) both laws could apply to the
the understanding of a standard term occurs,
franchising activities. Same as TFEU, the Chinese
the term shall be interpreted based on the
Anti-Monopoly Law prohibits monopoly agree-
usual understanding. Where there are two or
ments in horizontal and in vertical relationships.
more interpretations for such term, the inter-
Law on general Terms and Conditions (“T&Cs”) pretation unfavorable to the party providing
In China, we have a similar definition of T&C in such term shall prevail. Where a standard term
Article 496 of the Civil Code: “Standard terms is inconsistent with a non- standard term, the
are clauses which are prepared by one party non-standard term shall prevail.”
in advance for repeated use and which are not
the subject of negotiation with the other party Franchise fees
when concluding a contract.” Pursuant to the law: Art. 11 of the Franchise Regulations stipulates the
“Where standard terms are used in a contract, followings: “A franchisor and a franchisee shall en-
the party providing the standard terms shall be ter into a written contract when engaging in fran-
in accordance with the principle of fairness when chise operation and the franchise contract shall
determining the rights and obligations of the par- include the following key contents: “Sec.3, Types,
ties, alert the other party in a reasonable way of amounts and methods of payment of franchise
the provisions that materially affect the other operation fee.” Art. 22 of the Franchise Regulation
party, such as those that exclude or mitigate the provides: “The franchisor shall provide the follow-
liability of the party providing the standard terms, ing information to a franchisee... Sec. 3, Types,
and explain the standard terms at the request of amounts and methods of payment of franchise
the other party. If the party providing the standard fees (including whether a security deposit is col-
terms fails to perform the obligation of alert or ex- lected and its terms and methods of refund).”
planation, causing the other party to fail to notice
or understand the terms in which it has a material Confidentiality
interest, the other party may claim that the terms Trade secrets are protected in China under the
do not form the contents of the contract.” Anti-Unfair Competition Law and depending
on the circumstances by the Criminal Law. A
Under any of the following circumstances, the non-disclosure agreement between the par-
standard terms shall be null and void pursuant ties shall define the scope of information to
to Art.497 of the Civil Code: “(I)Invalid circum- be disclosed and should be contracted in ad-
stances under Section 3 of Chapter VI of Part vance. In practice, very often, lacking evidence
I hereof and under Article 506 hereof occur; causes the failure of trade secret infringement
(II) The party providing the standard terms un- lawsuits, so that taking tracking records as evi-
reasonably exempts or reduces its liability, in- dence could be helpful in due regard.
creases the liability of the other party or limits
43
Amendments Renewal and transfer
Amendments of the franchise agreement may In accordance with the Information Disclosure
only be agreed unanimously between the fran- Measures, the franchisor shall provide dis-
chisor and franchisee. closure at least 30 days before signing the
renewal of its franchise agreement on the
Termination same terms and conditions. The Franchise
As mentioned above, franchisors and fran- Regulation in China does not automatically
chisees shall pursuant to Art 12 of the Franchise award the franchisee a renewal or extension
Regulation include as a term in the franchise option at the end of the initial term stipulated
agreements the ability of the franchisees to ter- in the franchise agreement. They might freely
minate the contract unilaterally upon the lapse decide then as to whether to renew or extend
of a fixed term after the franchise agreement is its franchise agreement.
concluded. And when the fixed term is not ex-
pired yet, or in favor of the franchisors, termina- Dispute resolution and applicable law
tion could be agreed upon between the parties. In China, we also have one court system, con-
Unilaterally termination by a franchisee usually sisting of the people’s courts, the intermediate
requires written consent from the franchisor. and high people’s courts (generally courts of ap-
Closing stores without the written consent of peal), and the Supreme People’s Court. Usually,
the franchisor shall be deemed as a termination high courts in China also act as the supervision
in the form of behavior. Such unjustified unilat- body at the same time when they find a deci-
erally termination by a franchisee might entitle sion from a lower court misleading. The parties
the franchisor to claim damages. may agree freely on the choice of languages
and jurisdictions, whether or arbitration shall
44
be agreed upon among the parties. Same as As in compliance with the Guiding Opinions
in Germany, stipulating an arbitration clause released by the highest Court in China, the
means waiving the court procedures later on. Supreme People’s Court, 100% of the court de-
Also, arbitration proceedings are, same as in cisions reflected that the government control
Germany, usually not held in public. But courts measures due to COVID-19 shall be deemed
in China may decide upon the choice of parties as Force Majeure. But whether or not bearing
whether the case shall be held in public or not, liability and how the compensation payment,
provided no public interests are being involved. therefore, differed by the court decisions, mainly
depends on the balancing of interests by bear-
COVID-19 ing in mind all circumstances of the respective
Though the COVID-19 outbreak has occurred individual case. Four elements shall be followed
now for more than one and half years globally, respectively: 1. Timing, whether COVID-19 and
the situation in China is under control. However, the governments’ control measures overlap-
COVID-19 has impacted the performances of ping with the contract performance period; 2.
the contracts relating to both inbound and out- The burden of proof; 3. The causal relationship
bound businesses in China, majority of the dis- between COVID-19 and the non-performance of
putes are arising from the leasing contracts that the contract while taking into account the nature
impacted the franchising area to a large extend. of the contract sought to be excused for what
There are two relevant provisions in the currents kind of purpose. For example, a leasing contract
Civil Code regulating such cases. Art. 180 of the shall serve for business purposes or only for res-
Civil Code defines Force Majeure as “unforesee- idential purposes. 4. Whether a contract could
able, unavoidable and insurmountable objective be adjusted, or the performance period could
events.” and Art. 533 provides the following: be extended within a reasonable time. We there-
“After a contract has been concluded, if the ba- fore strongly recommend companies to review
sic conditions of the contract have undergone a their force majeure liability provisions in their
significant change which is unforeseeable by the franchise agreements carefully since the Chinese
parties at the time it was concluded and which Judges tend to persuade the parties to negoti-
does not belong to commercial risks, and it is un- ate during the court procedures. Nevertheless,
fair for the party concerned to continue to per- since more than one year the governments’ con-
form the contract, the party adversely affected trol measures have yet become daily preventing
may renegotiate with the other party. If negotia- measures, the court will more likely reject the
tion fails within a reasonable period, the parties force majeure objection (Art.180 in respect of Art.
may file with a people’s court or an arbitration 590 of the Civil Code). Regarding several courts’
tribunal the motion to modify or rescind the con- decisions, when there were no government con-
tract.” To sum up, if it’s only difficult for the par- trol measures and only the suffering of operation
ties to fulfill their obligations due to COVID-19 but losses during the pandemic shall not be deemed
not entirely impossible for them to perform the as a proper reason which enables the breaching
contract, Art.533 (the Law on significant changes) parties to terminate their contract or to reduce
shall prevail in these cases. the rent. The court may only decide in such
cases by the Principle of Fairness.
45
Colombia
11
Legal professionals
Region Offices
AMERICAS Bogotá
Essentials
about Colombia’s franchising law
1 Franchise agreement is classified as an atypical contract under Colombian law.
2 It is an agreement in which the autonomy of the will plays a relevant role.
3 The franchise consists of taking advantage of the experience of an already positioned

company that has achieved an advantage and great recognition in the marketvv

Juan German Osorio Deloitte Asesores y Consultores LTDA.
Esteban Jimenez Mejía
46
Relevant areas of law commercial, administrative, and criminal lia-

bility. As per the know-how in Colombia, the
Superintendence of Industry and Commerce
Although the franchise agreement is atypical,
has established that it is considered informa-
it does frame a series of relationships that are
tion subject to reservation, therefore, is pro-
widely regulated in Colombian law and that
tected with the secret reserve regulations.
must be taken into account when operating
under this agreement.
IP Law
Therefore, even though in Colombia we do In order to protect the IP rights within a fran-
not have a special regulation for the franchise chise contract, the franchisor should register
agreement, the legal relationships that arise the trademarks before the Superintendence of
from this contract are widely regulated. Among Industry and Commerce, to have the exclusive
other relationships that are displayed in the right over the trademarks. Once it has been
franchise agreement, are the following: registered, it is necessary to include in the con-
tract a clause for the license of the trademarks
Trademark license agreement that states the usage that the franchisee can
This kind of agreement is ruled by Decision give to the trademark.
486 of 2000 of the Andean Community. Under
As per the protection of the know-how and the
Colombian regulation, the transfer of the trade-
other IP elements that are temporarily transferred
mark does not constitute a transmission of the
by the franchise contract, the best way to protect
property and the rights over it, but it is a license
them is with the clauses of the agreement. It
given by the franchisor for the usage and eco-
means that the parties must establish fines and a
nomic exploitation of the trademark in favor of
strict liability regime to ensure that the franchisee
the franchisee. This license agreement must
respects the IP rights of the franchisor.
be registered before the Superintendence of
Industry and Commerce.
Supply contract
This contract is widely regulated in articles 968
Know-how transference and trade secret
and followings of the Colombian Commercial
The know-how and the trade secret are wide-
Code. By this contract, one of the parties is
ly regulated in Colombia with IP rights con-
compelled to supply products periodically or
templated in the Decision 486 of the Andean
services in exchange for a payment.
Community.
The Commercial Code also has the rules to stab-
The decision protects the information that is
lish the quantity of the product or services that
not shared by the entrepreneurs and is related
must be supplied within the frame of the con-
to its commercial activity. Therefore, within a
tract, the payment, and the way of payment if
contract, unauthorized disclosure of the infor-
the parties have not agreed on those aspects.
mation is a violation of the secret reserve, and
Besides, the Code also contemplates some of
it may constitute an anti-competitive practice
the conditions under which it is understood that
as the rights of the owner of the information
the parties have breached the contract.
are violated. That practice may arise criminal,
47
Technical assistance and technical
services contract
In order to develop the object of the franchise
business the parties may celebrate between
them technical assistance and technical ser-
vices contracts. These kinds of contracts are
not specifically regulated in any law, however,
under the interpretation of the Colombia Tax
Authority, technical assistance services consti-
tute the advice given through a contract for the
provision of intangible services, for the use of
technological knowledge applied through the
exercise of an art or technique, without imply-
ing the transfer of knowledge.Regarding the
above, some elements of this contract apply to
the franchise contract therefore, it is important
to conclude that the legal relation that derives
from the contract is commercial as it is a ser-
vice provision.
Labor Law
Labor regulation plays a fundamental role in
the franchise agreement. The above taking into
account that the employees of the franchisee
are not the employees of the franchisor as the
legal relation that bonds the franchisee and the
franchisor is commercial. However, it is impor-
tant to establish in the franchise contract that
the agreement itself does not constitute a labor
contract between the parties or between the
employees of one party related to the other.
However, it is important to mention that in

Colombia a de facto labor relationship can be
declared by the labor judge if the following items
are met in a commercial relationship: (i) person-
al service from a natural person, (ii) subordina-
tion expressed as the continued dependence
and following of orders and instructions to per-
form the service (the how, when and where), (iii)
remuneration for the services.
48
Therefore, to avoid any labor risks in this type of Under some kind of franchise contracts and
agreement, the franchise contract must (i) estab- special occasions, for example, in the mer-
lish clear conditions regarding the independency chandising franchise, it can be possible that a
of the franchisee to develop the business, and de facto agency will be set up. Therefore, upon
(ii) avoid the configuration in the practice of the the termination of the contract, the franchisor
three (03) aforementioned elements to avoid the will have to recognize an economic provision
declaration of a de facto labor relationship. to the franchisee equivalent to one-twelfth of
the average commission, royalty or profit re-
Data protection ceived in the last three years; for each one of
In Colombia, the data protection regime is very the terms of the contract, or the average of all
strict, in that order, in the franchise agree- the profits received, if the contract time is less.
ments, it is applicable the rules stated in Law
In order to avoid this payment it may be useful to:
1581 of 2012. In particular, the parties should
bear in mind that the franchisee could not share • Celebrate a franchise contract in markets
the data collected from costumers to the fran- where already exists a consumer group for
chisor without the authorization of the infor- the brand and products that are going to
mation holder. As well, if the franchisee or the be franchised.
franchisor wants to collect data from costum- •
Avoid the activities of promotion done by
ers they must request authorization from the the franchisee.
holders and establish a privacy policy that com-
• State the franchisee is the one in charge of
plies with the rules of the mentioned law and its
providing services to the final consumer, in-
regulatory decrees.
stead of the franchisor.
Commercial lease agreement • Avoid transferring financial risks that arise

This contract is regulated in Colombia in the from the final customer to the franchisee.
Commercial Code. The most important as-
pects of this contract are related to the prefer-
According to Consumer regulation, Law 1480
ence and renovation rights that the lessee has.
of 2011, the producer and the supplier of the
In order to perform the contract, the agree- products are jointly responsible before the
ment must be in a private or a public deed doc- consumer. It means that both have to offer
ument, and it has to be registered before the the guarantee of the products to the consum-
local chamber of commerce. ers and are jointly liable if any damages are
caused to the consumers when they are relat-
Commercial agency agreement ed to the usage of the product. Regarding the
In some cases, the franchise contract may be franchise contract, as it is not a widely regulated,
considered as a de facto agency contract. In when the franchisor provides goods or products
those cases, the franchisor must pay to the to the franchisee in order to develop the business
franchisee an economic provision at the end of and the latter sell those products to consumers in
the agreement and the parties are not allowed Colombia, the consumer rules above mentioned
to stipulate something different. apply to both parties.
49
Antitrust/Competition Law In that order, there may be a coordination be-
Under Colombian competition law, it is not tween the franchisee and the franchisor and
allowed to enter any agreements or coordi- it will be considered legal only when it can be
nate actions or strategies between a suppli- demonstrated that (i) its purpose is to protect
er and its provider. However, the Colombian the investment that the franchisor has made
Superintendence of Industry and Commerce, for the development of the system franchise
which is the authority that regulates the an- and the franchisee’s ability to distribute the re-
ti-trust regime in Colombia, states that regard- spective good or service; (ii) the parties of the
ing the franchise contract, there are some ex- contract do not have a dominant position or
ceptions to the rule. significant participation in the relevant market,
so none of them are in a position to determine
supply or demand conditions regardless of
the reaction of their competitors and (iii) it is
an agreement which, individually considered,
does not distort the market conditions.
Exclusivity
Additionally, principles such as exclusivity are widely
developed in Colombian law and have a transcen-
dental impact on the franchise agreement.
In particular, Law 256 of 1996 states that is an

anti-competitive practice, the inclusion of ex-
clusivity clauses in supply contracts, when the
clauses intend or as an effect, restrict the ac-
cess for competitors to the market or monop-
olizes the distribution of products or services.
Contracts Law
The franchise contract as all contracts, must
comply with general principles of Civil Law. It
means that even though there are no specific
requirements to celebrate a franchise agree-
ment, the contract must include:
• Clear identification of the parties.

• Determination of the purpose of the agreement.
• The object of the contract must be legal.
• The contract must include a clause that stip-
ulates the duration of the agreement.
50
• Identification of the goods and assets that Termination

are involved in the transaction. Franchise agreements may include specifically
• Determination of the price/fees. the grounds for termination of the contract ac-
cording to the will of the contractors. Despite,
However, recently in Colombia, in December
if it is not regulated between the parties, the
of 2020, Law 2069 was issued. In the terms
contract may be terminated because the time
of article 11 of this Law, it was stated that the
of the agreement is completed; when one
Government has the faculty to regulate the fol-
of the parties breaches its obligations in the
lowing aspects of the franchise:
terms of the contract; or by mutual agreement.
• The technical conditions that define the fig-
ure of the franchise in Colombia. Renewal and transfer
• The obligations of the parties. As the franchise contract is not regulated, the
contractors can decide if they want to renew or
• Liability regime of the franchisor and the
not the franchise agreement.
franchisee.
Therefore, it is expected for the government Dispute resolution and applicable law
to regulate these aspects of the franchise As this contract is not regulated under
contract soon. Colombian legislation, if controversies arise
between the franchisee and the franchisor,
Selected questions/aspects regarding the compliance of the obligations of
Franchise fees each party, or because of the interpretation of
Franchisor and franchisee are free to deter- the contract and its clauses, as general princi-
mine the fees and the way that they are paid. ple the parties may try to solve directly their
differences.
Nevertheless, attending to Colombian strong
foreign exchange regulation is important to In case it is not possible to solve the contro-
consider that between two Colombian resi- versies directly, the parties must follow the
dents there cannot be payments in foreign guideline established in the contract to deem
currency, in order to extinct obligation. the dispute. It means that if the parties agreed
on a compromising clause, they must present
As well, bear in mind that despite the payment their differences before an arbitration tribunal.
of the fees derives from a provision of services,
and those operations belong to the free market, However, if the parties did not state a path in
in order to comply with the foreign exchange the contract in order to solve the disputes the
regulation the payments in foreign currency local judges may have the competence to de-
can only be performed or collected throughout termine the applicable law to the contract and
a settlement account or a commercial bank. based on that they will deem the controversy.
51
Czech Republic
80+
Legal professionals
Region Offices
EMEA Brno, Hradec Kralove,
Ostrava, Plzen, Prague,
Essentials
about Czech Republic’s franchising law
1 There is no legal definition of “franchise agreement“ in the Czech

Republic. The franchise agreement, as an innominate contract, may
include elements from various types of contracts. For example, the pro-
visions of the purchase contract, commercial agency resp. commission
contract or license agreement can be partially used.
2 The provisions of the Czech Civil Code may apply.
3 The franchisee acts as a separate business entity in its own name and on
its own account and has complete legal and partial business autonomy.

Ivan Telecký Deloitte Legal s.r.o., advokátní kancelář
Matěj Konečný
52
Relevant areas of law Corporate Law

According to the principle of private autonomy,
there are no specific restrictions regarding the
Since there is no legal definition of “franchise
corporate form and, therefore, various types of
agreement“ in the Czech Republic, nor a defi-
legal entities are sustainable for both a franchisor
nition of the word “franchise“ itself, the terms
and a franchisee. The most common corporate
have been formed by court rulings and author-
form to set up a business in the Czech Republic
ity´s decisions, namely by the Czech Office for
is the private limited liability company. A Private
the Protection of Competition. When conclud-
Limited Liability Company can be easily set up by
ing contracts between a franchisor and fran-
one or more persons and requires a minimum
chisees, it is necessary to proceed only from
capital of CZK 1. However, there are several oth-
the general legal regulation, covered particu-
er options. A sole trader represents the simplest
larly in the Civil Code. The Czech private law
business form available in the Czech Republic,
is generally based on the relatively wide con-
which might be a suitable option for smaller
tractual freedom of the parties, and therefore
businesses. Other than that, joint-stock compa-
it is possible to adjust mutual rights and obli-
ny, general partnership, limited partnership or
gations to reflect individual needs (taking into
European joint-stock company present different
account, in particular, the restrictions arising
possibilities, which can be chosen. Czech law also
from the competition law). However, the gen-
recognises other forms of legal entities, such as
eral statutory regulation does not consider the
trust and associations, which can also perform
specifics of franchising, and thus creates room
business activity, but this should not be the main
for legal uncertainty.
purpose of their existence.
The Czech Office for the Protection of
Competition described a franchise agreement Consumer Protection Law
as an agreement, by which one entrepreneur - Under Czech law, franchisees are not qualified
the franchisor - grants the other entrepreneur as consumers and, thus, consumer protec-
- the franchisee - the right to use the franchise tion regulations should not apply. In order to
- a body of knowledge, experience, know-how, be qualified as a consumer, one must fit into
and established trade name or trademark - for the definition obtained in the Civil Code, which
the purpose of sales of certain types of goods describes a consumer as any person who, out-
or services. A franchisee acts as a separate side the scope of their business activity or out-
business entity in its own name and on its own side the scope of independent performance
account and has complete legal and partial of their profession, enters into a contract with
business autonomy. an entrepreneur or otherwise deals with him.
The relationship between a franchisor and a
Specifics regarding foreign franchisors franchisee is rather business-oriented and,
Czech law does not contain any differences therefore, the franchisee cannot be seen as
regarding foreign franchisors. The same con- a consumer. However, the franchisee could
ditions as for domestic franchisors shall apply. be considered a weaker contracting party.
This might have a significant impact on the
53
franchise relationship. An example might be the employee’s subordination, on behalf of
the inability to agree on a different from stat- the employer, according to the employer’s in-
utory limitation period to the detriment of a structions, and the employee performs it for
weaker party or to agree on a provision, which the employer in person. The only possibility
precludes or restricts the weaker party’s right the franchisees could be treated as employ-
to compensation for damage in advance. ees would be if they were sole traders and the
characteristics of an employment relationship
Antitrust/Competition Law were met. More likely, the franchisees are qual-
The joint interest in the unification of the fran- ified as entrepreneurs since an entrepreneur is
chise network forces the franchisor and the a person who independently carries out gain-
franchisee to cooperate very closely, which ful activity on his own account and responsi-
may have the potential to distort competition. bility under a trade license or similar manner
As a result, franchise agreements are highly with the intention of doing so systematically in
affected by competition law. This area of law order to make a profit.
is fully harmonized with EU regulations. The
core provisions of EU competition law on fran- Law on commercial agents
chising can be found in art. 101 and art. 103 of A franchise agreement and a commercial
Treaty on the Functioning of the EU (“TFUE”). agency contract have several identical fea-
The purpose is to avoid distortions of competi- tures, namely the independence of the parties
tion in the internal market. Exceptionally, fran- between which it is concluded, the long-term
chise agreements may also be affected by art. duration of the legal relationship, and the ob-
102 TFUE, which prohibits abuse of a dominant jective of ensuring the sale of goods or services
position. In the Czech Republic, therefore, the of the represented person. However, the com-
same rules, as in other EU countries, governing mercial agency contract differs from the fran-
exclusivity, protection of contractual territory, chise agreement in its basic feature - the agent
resale price maintenance, and competitive re- under the commercial agency contract acts in
strictions, apply. the name and on behalf of the represented
person. On the other hand, franchisees enter
Employment Law legal negotiations on their own behalf and on
The leading role of the franchisor in the fran- their account, although this may not always be
chise network may raise the question of wheth- apparent to the customer. For this reason, the
er franchising does not show elements of em- franchisee is not paid commission and, con-
ployment relations. In accordance with Czech versely, the franchisee usually pays the fran-
employment law, franchisees are not generally chisor a franchise fee.
qualified as employees of the franchisor. Under
Czech law, an employee is a natural person IP Law
who commits to perform dependent work in An essential part of franchise agreements is the
a basic employment relationship. Dependent franchisor’s obligation to grant the franchisee a
work is work that is performed in a relation- license to use the franchisor’s intellectual prop-
ship between the employer’s superiority and erty. The franchise agreements thus contain
54
a number of provisions typical for the license Legal restrictions

agreements. Franchisors should protect their Apart from the regulations governing IPR as-
intellectual property rights from third parties’ pects of a franchise agreement and restrictions
attacks, abuse, or imitation by registering their arising from competition law, it is also data pro-
IPR as trademarks, designs, utility models or tection law, which has to be taken into account.
patents. Concerning the IPR’s protection, fran-
chisors have several options. Apart from inter- Franchise fees
national protection by WIPO or EUIPO, IPR also There is no regulation affecting franchise fees
might be protected on a national level. specifically. However, the Act on the Restriction
of Cash Payments prohibits making cash pay-
Selected questions/aspects ments in excess of CZK 270,000. This amount
is a daily limit that must not be exceeded by
either a natural or a legal entity in a business
The regulation of the precontractual informa-
transaction. Other than that, there are no laws
tion/disclosure obligation, which in some coun-
regarding the nature, amount or payment of
tries is subject to detailed legislation even if the
franchise fees, nor are there any restrictions
franchise agreement itself is not regulated as a
on a franchisee’s ability to make payments to a
special type of contract, remains neglected in
foreign franchisor in the franchisor’s domestic
the Czech Republic. However, the Czech Civil
currency in the Czech Republic.
Code covers general precontractual obligations.
It stipulates that when negotiating a contract,
Confidentiality
the parties shall communicate to each other the
factual and legal circumstances, which they are
ments are not only very common and enforce-
aware of or must know, so that the parties are
able under Czech law, but they are also highly
not affected by misleading information or by a
recommended. In the case of a breach, the
failure to provide sufficient information.
franchisor may bring legal action against an
Moreover, the Czech Franchise Association em- infringing franchisee, claim damages occurred
phasizes the Code of Ethics, which stipulates due to the breach, and possibly terminate the
that the prospective franchisor must provide franchise agreement extraordinarily.
truthful and honest information about his expe-
The Civil Code lays down that if a party violates
rience, financial possibilities, training, education
the contract substantially, the other party may
and other communications regarding the fran-
withdraw from the contract without undue de-
chise relationship. However, as a non-binding
lay. Since it may not always be easy to assess
regulation, the non-compliance can be sanc-
the damages caused by a breach of confiden-
tioned only at the level of the association.
tiality clause, setting a contractual penalty for
For the reasons of proof, it is highly recom- clearly defined breaches of confidentiality is
mended to carry out the precontractual infor- highly recommended. The contractual penalty
mation in writing. In the case of a breach, the should however be proportionate. Besides, a
franchisee has the right to claim damages, gen- confidentiality clause is recommendable as a
erally in the form of pecuniary damages. way to protect existing trade secrets. According
55
to the Civil Code, a trade secret is only protect- Renewal and transfer
ed if the owner of the secret has taken appro- Simply put, it is at the franchisor’s discretion
priate measures to maintain its secrecy. whether they renew a franchise agreement or
not. If they decide to do so, renewals should be
Amendments done explicitly and in writing. The transfer may
The contracting parties are free to agree to consist in the transfer of contractual rights and
change their rights and obligations. However, obligations or assignment of the entire fran-
the commitment may also be changed unilat- chise agreement. It is also possible to transfer
erally if certain requirements are met. If the a business shares to a new shareholder or to
franchise agreement contains a precise and transfer a business enterprise or a part there-
reasonable change reservation clause, which of to which the franchise agreement belongs.
considers the franchisee’s interest, the fran- However, the franchisor may contractually re-
chisor may be entitled to change a franchise strict the franchisee’s right to such transfers,
agreement unilaterally in order to meet their typically by requiring an explicit prior written
obligation to continuously develop their fran- approval of the franchisor.
chise system according to changing marketing
conditions. When such a reservation clause Dispute resolution and applicable law
is missing, amendments of the franchise
agreement may only be agreed unanimously
If a conflict between a franchisor and a fran-
between the franchisor and the franchisee.
chisee arises, there are various types of possi-
Therefore, it is advisable to at least consider
ble dispute resolutions in the Czech Republic,
the application of such change reservation
namely civil procedure, arbitration, or media-
clause in the franchise agreement.
tion. The judicial system in the Czech Republic
consists of the Constitutional Court of the
Termination
Czech Republic and the “ordinary” court sys-
Franchise agreements are either entered into
tem. The “ordinary” court system consists
for a certain period and terminate with the
of district courts at the lowest level, regional
lapse of that time or are concluded for an indef-
courts, high courts, and the Supreme Court
inite period and can be terminated by the end
and the Supreme Administrative Court at the
of the calendar quarter with a three-month
highest level. In the Czech Republic, there is a
notice period. The duration of a franchise con-
two-instance system, which is a determining
tract usually varies from 2 years to 20 years;
factor in the hierarchical organization of the
the most common contracts are medium-term
system of remedies.
contracts of 5 years, generally concluded with
the possibility of their renewal or option. It is Arbitration presents an alternative to civil proce-
highly recommended to expressly agree on the dure, which is often used in commercial matters.
terminating reasons, conditions, and manner The parties trying to find a solution may choose
of terminating an agreement so that both par- either a permanent arbitration court or an ad
ties are certain about the possible termination hoc arbitrator or panel of arbitrators. An advan-
of their contractual relationship. tage of arbitration is that such procedures enable
56
disputes to be settled promptly and cost-effec- The government has taken a number of meas-
tively. Moreover, arbitration proceedings are, un- ures to support particular sectors of the econ-
like proceeding before ordinary courts, not held omy, entrepreneurs and business owners, as
in public. Another option of dispute resolution is well as workers who have been affected by
mediation. Mediation is a way of peacefully re- the consequences of COVID-19 in combination
solving disputes and conflicts, the aim of which is with the relevant anti-epidemic measures, and
an agreement. However, there is no enforceable launched a number of subsidy schemes under
judgement as a result of mediation. the auspices of the relevant departments.
If a substantial change in circumstances result-

Applicable law
ing from the COVID-19 pandemic would create
Under Czech law, the parties to the contract
a gross disparity in the rights and obligations of
are free to choose foreign law to govern the
the contractual parties, the affected party may
contract. Generally, it is recommended to
request the resumption of negotiations on an
choose the law closest to the contractual re-
already concluded agreement. In the event that
lationship. Making such a choice of applicable
the parties do not agree on new conditions, the
law is, however, advisable if, at the same time,
contract may even be terminated by a court at
the jurisdiction of the courts of the same for-
the request of one of the parties. However, it will
eign country or an arbitration court, arbitra-
depend on the specific contractual relationship
tor(s) or mediator(s) is agreed on.
and its conditions, which may exclude respec-
tive provision of the Civil Code regarding a sub-
COVID-19
stantial change in circumstances.
Since COVID-19 entered the Czech Republic in
early spring 2020, the impact on the franchise The so-called Lex Covid newly introduced the
sector has been enormous, significantly due to institution of extraordinary moratorium into
the strict government measures in order to con- the Czech legal system implementing meas-
tain the pandemic. Public life has been shut down ures, including, for instance, the impossibility
to the bare minimum and almost everything, ex- to declare insolvency, suspension of enforce-
cept for groceries, pharmacies, and drugstores, ment proceedings, or reversal of the sale of se-
had to be closed pretty much for almost an cured assets. The protection provided by vir-
entire year – except for summer months and tue of the extraordinary moratorium should be
pre-Christmas shopping. Restaurants, bars, and effective until 30 June 2021 (if not prolonged).
stores could only have takeout.
57
Denmark
10
Legal professionals
Region Offices
EMEA Aarhus, Copenhagen
Essentials
about Denmark’s franchising law
1 No specific form or procedure prescribed by law regarding

Franchisor’s precontractual disclosure obligation.
2 Specific laws concerning agents and employment law are

not relevant when traditional franchise.
3 Irrespective of an agreement to the contrary, the lessor of a

business lease may only terminate a lease in certain cases.

Helle Vestergaard Rasmussen Deloitte Statsautoriseret Revisionspartnerselskab
Lars Krog
58
Relevant areas of law a private limited liability company must have a

minimum share capital of DKK 40,000 (approx-
imately EUR 5,379.30).
In Denmark, there is no legal definition of “fran-
chise”, nor a codified general franchise law. A A public limited liability company
franchise agreement is regulated through the A public limited liability company must have a
general rules of law, except the Petrol Dealers two-level management structure, consisting
Act, which has very limited scope of regulating of either a board of directors or a supervisory
the relationship between petrol wholesalers board (both must have at least three members),
and petrol retailers. and at least one managing director. In both sit-
An overarching principle of Danish contract uations, the management is appointed by the
law is the principle of freedom of contract. This board of directors or the supervisory board.
means that, as a general rule, with only minor,
A private limited liability company
although important, exceptions, the parties
Contrary to public limited liability companies,
to a contract are free to draw up their agree-
the management of private limited liability
ment so that it reflects their particular needs
companies may consist of i) a sole managing
and preferences. Over time, a number of re-
director and no board of directors or supervi-
strictions and exceptions in this starting point
sory board, ii) a board of directors and a man-
have found their way into Danish law. The rules
aging director, or iii) a supervisory board and a
setting out restrictions of particular impor-
managing director. Hence, the Companies Act
tance to franchise agreements are contained
does not require two-level management, as is
in the Competition Act, the Marketing Act, the
required for public limited liability companies.
Business Lease Act, and others.
The main difference between the public limited
Corporate Law liability company and the private limited liabili-
In Denmark, the most common businesses are ty company (despite the difference in required
the sole tradership, the partnership, and the share capital) is that private limited liability
subject in this section, the public limited liabil- companies to a wide extent are more flexible
ity companies (in Danish “Aktieselskaber”) and and not subject to all mandatory regulations
private limited liability companies (in Danish imposed on public limited liability companies.
“Anpartsselskaber”). Public limited liability
companies and private limited liability compa- Consumer Protection Law
nies are governed by the Companies Act. Under Danish law, individuals seeking to be-
come franchisees are not qualified as con-
The rules that govern public limited liability and
sumers, as the intention of their conduct is
private limited liability companies are some-
business-oriented.
what similar, even though some of the rules
differ. One of the most commonly known dif-
Employment Law
ferences is that a public limited liability compa-
Even though the traditional franchisee is char-
ny must have a minimum share capital of DKK
acterized as being independent of the fran-
400,000 (approximately EUR 53,793), whereas
chisor and acting in their own names and for
59
their own accounts, some franchise arrange- franchisees’ actions in their own names and
ments may be considered an employment re- for their own accounts. Therefore, neither the
lationship rather than a collaboration between Commercial Agents Act nor the Commissions
two independent parties. Act is applicable to the traditional franchisees.
Whether the franchise relationship is to be

IP Law
considered a camouflaged employment rela-
Typically, the franchisor will provide the fran-
tionship depends on an overall assessment of
chisee with a trademark license and with any
the circumstances of the case, hereunder the
other licenses for intellectual property rights
wording of the franchise agreement and the
that are used for the franchise concept in ques-
parties’ execution thereof. Among the factors to
tion. The granting of such rights is an essential
be considered is the extent to which the fran-
element of a franchise project and therefore
chisee may manage its own hours, the extent
such rights should be considered when draft-
to which the franchisee is taking on a financial
ing the franchise agreement. The franchise
risk by paying for the business premises and
agreement should therefore contain detailed
any employees, whether the remuneration to
and sanctioned provisions regarding intellectu-
the franchisee is determined by the franchisee’s
al property, not only when the agreement is in
performance or the time spent, etc.
force, but also to secure the intellectual proper-
If the collaboration is viewed as an employment ty after the termination of the agreement.
relationship, it will be subject to a number of
unintended rules, including employment law Trademarks
principles, collective agreements, and manda- Franchisors need to protect their IP against
tory legislation such as tax legislation and the third parties’ infringements or imitations
Salaried Employees Act. by registering their trademarks – either as
International Registration (“IR”) with the World
Law on commercial agents Intellectual Property Organization (“WIPO”), as
The main regulations in Denmark regarding EU Trademark (“CTM”) with the EU Intellectual
agents are the Commercial Agents Act and the Property Office, (“EUIPO”) in all EU member
Commissions Act. countries, or as a national trademark in Denmark
only with Patent and Trade Mark Office.
According to the Commercial Agents Act, a com-
mercial agent is defined as a person acting in Domains
the name of and for the account of the principal. The right to a certain domain name is obtained
through the Danish company DK Hostmaster
In the Commissions Act, a commission agent is
A/S that administers the rules regarding the
defined as being independent of the principal
top-level domain. The right to a domain name
and by the fact that it acts in its own name, but
is acquired on a first-come, first-served basis
for the account of the principal.
and only through a written application via a
Franchisees are normally characterized as be- registrar. The domain holder can be any indi-
ing independent of the franchisor and by the vidual or legal entity.
60
Know-how the lessor may only terminate a lease in certain

Know-how is not defined but can be protected cases, such as when the lessor wishes to make
by the provisions of the Marketing Act and the use of the rental property, in which case a one-
Trade Secrets Act. When drafting a franchise year notice period applies.
agreement, the franchisor’s know-how is usual-
The freedom of contract leads to the effect
ly protected by detailed provisions of confiden-
that the rent and subsequent adjustments are
tiality, both during the term of the agreement
to be agreed upon between the lessor and the
and after the expiration of the agreement.
lessee. Further, payment of a deposit is nor-
mal. If the amount is substantial, an extract of
the lease agreement ought to be registered in
Depending on the specific design of the fran-
the Land Register.
chise system, legal implications may arise from
real estate and tenancy law. Certain possibilities exist to demand the rent
adjusted to market rate, unless otherwise
The main principle in Danish legislation is that
agreed, or to agree, as part of the lease agree-
the right to acquire real estate in Denmark is
ment, that the lessor may demand a change of
limited. However, exceptions apply if the buyer
terms for the lease to the effect that the lessor
is not resident in Denmark and if the buyer has
can terminate the lease agreement if the par-
not previously been a resident of Denmark for
ties, after negotiations, fail to reach a settlement
a total period of 5 years.
regarding lease agreement on new terms.
A business lease agreement entered into be-
Further, the Business Lease Act contains spe-
tween a franchisor, a franchisee, and/or a third
cial provisions regarding termination of a lease
party is regulated by the Business Lease Act.
agreement when the location of the premises
Irrespective of an agreement to the contrary,
is significant for the lessee. When terminating
61
such lease agreements, the lessor may also be not exceed 15% on any relevant market that is
liable for damages and compensation. affected by the agreement. However, this does
not apply to certain hard-core restrictions, e.g.,
Finally, lease agreements normally regulate the
fixed retail prices.
right to subletting and assignment.
Further, the European Commission’s Block
Selected questions/aspects Exemption Regulation for vertical agreements
has been incorporated into Danish law.
In Denmark, there is no specific form or pro- If there is no provision in the franchise agree-
cedure prescribed by law regarding the fran- ment about exclusivity, the franchisor is free to
chisor´s precontractual disclosure obliga- appoint other franchisees in the same territory
tion. However, the former Danish Franchise and to sell the products or services in compe-
Association issued a set of ethical rules com- tition with the franchisee. The franchisor, must
prising provisions on disclosure. however, observe the contractual duty of loyal-
ty meaning that the franchisor also has to look
Further, in general, commercial standards of
after the franchisee’s interests and may not act
fair dealing require that particular circumstanc-
contrary to the prerequisite of the franchise
es should be disclosed when entering into an
relationship.
agreement. The franchisor’s misrepresenta-
tion or mis-selling of the franchise concept Law on general Terms and Conditions (“T&Cs”)
prior to entering into the franchise agreement Franchise agreements can be pre-formulated
may therefore give rise to an action for breach agreements with limited contractual freedom
of the agreement allowing the franchisee the for the franchisee.
ordinary remedies for breach.
The general clause of the Contracts Act states
Legal restrictions that agreements may be changed or set aside
if they are either unfair or contrary to honest
Antitrust/ Competition Law
conduct. This clause is to be interpreted by the
The Danish competition rules are found in the
courts, and it is for the courts to set out the
Competition Act and are to be interpreted in
contents of the legal standards “unfair” and
accordance with the EC Treaty.
“contrary to honest conduct”. In addition, it is
In franchise agreements, the franchisor most ultimately for the courts to decide what the
often wants to restrict the franchisee’s free- consequences of an infringement of the legal
dom of operation. Although such restrictions standards are to be, in terms of setting aside
do not necessarily imply a restriction to com- the agreement, either entirely or in part, or
petition, this may be the case. even changing the agreement.
The Danish rules differ from the EU provisions Even though the general clause is rarely ap-
on a few points, such as the de minimis reg- plied between business partners, the possibil-
ulations. Pursuant to the Competition Act, the ity of such an application cannot be ruled out.
Danish prohibition does not apply if the individ-
ual participating companies’ market shares do
62
63
Franchise fees Amendments
No specific restrictions apply. However, If the franchise agreement contains a precise
charging royalties pursuant to the franchise and reasonable change reservation clause,
agreement must in general be fair and with- considering the franchisees’ interests, uni-
in the scope of the general clause in the lateral amendments of the agreed terms by
Contracts Act. the franchisor are admissible. Without such a
provision, amendments to the franchise agree-
The interest rate in Denmark for default pay-
ment may only be agreed unanimously be-
ments in b2b-transactions is currently 8.05%
tween the parties.
per annum unless otherwise agreed. In addi-
tion, franchisors may claim a lump sum of DKK
Termination
100 per reminder (total of 3 reminders with 10
Danish law does not require a minimum no-
days apart).
tice period for the parties to terminate a fran-
chise agreement and the parties are therefore
Confidentiality
free to agree on a notice period with respect
Confidentiality clauses in franchise agreements
to the general clause. If the agreement does
(normally in combination with a contractual
not include provisions on termination, either
party is entitled to terminate the agreement
Denmark. The franchisor may file an injunction
without cause. Such termination may be done
against an infringing franchisee, claim damages
with the ordinary notice, which will typically be
occurred due to the breach, and possibly termi-
three months.`
nate the franchise agreement extraordinarily.
64
Renewal and transfer governing the agreement). Further, the pro-

The franchisor has no duty to renew the fran- cess is subject to confidentiality, and in some
chise agreement upon expiration of the initial cases, the dispute will be settled faster.
term unless such extension right has been
Further, the parties are free to agree on the
agreed between the parties. The franchisee
law that shall govern their agreement, whether
may request a renewal upon expiration of the
it is the law of the country in which the fran-
initial term; however, the franchisor is entitled
chisor is established, the country in which the
to refuse such a request from the franchisee.
franchisee is established, or a third country. To
If nothing is agreed in the franchise agree- the extent that no valid choice of law has been
ment, Danish law predicts that neither party made by the parties, the matter is be deter-
may transfer any obligations under the agree- mined by either the Rome Convention or the
ment. However, if either the franchisor or a Hague Convention.
franchisee is a limited liability company, the
owner of the shares can transfer the shares to Covid-19
a third party, thereby effectively transferring Many franchisors have realized that they have
the franchise. Both situations are, however, not expended the energy necessary to ensure
subject to the agreement between the parties that their contracts offer sufficient protection
and, hence, it is possible to either allow one or when a crisis like COVID-19 strikes.
both of the parties to transfer their obligations
Some important clauses to consider as part
to a third party, or to introduce a provision for
of a review of the franchisors’ contract port-
change of control that prevents the owner of a
folio include:
limited liability company from transferring the
shares to a third party without prior approval • Termination; is the termination notice rea-
of the other party to the franchise agreement. sonable and can it be shortened if the basis
for the conclusion of the contract has disap-
Dispute resolution and applicable law peared in whole or in part?;
The parties are free to agree on the choice • Force majeure; does the force majeure clause
of forum when entering into the agreement. list relevant and an adequate number of spe-
Many franchise agreements prefer disputes to cific events to be considered as “force ma-
be settled by arbitration and not by the ordi- jeure”? Has the franchisor ensured that the
nary courts. The advantages of agreeing on ar- franchisee cannot claim force majeure due to
bitration include more freedom for the parties general liquidity shortage or failure to pay?;
to structure the process with regard to seat,
• Liability; is the liability sufficiently regulated in
place, and number of judges and qualification
the contract in cases where the situation is
of judges (including knowledge about the law
not considered force majeure?.
65
Finland
12
Legal professionals
Region Offices
EMEA Helsinki,
Turku,
Tampere
Essentials
about Finland’s franchising law
1 No specific form or procedure prescribed by law regarding franchisor´s

precontractual disclosure obligation.
2 The right to assign or transfer lease agreements or to allow subleases is

not prescribed by law and can be restricted in the lease agreement.
3 The franchisor may unilaterally change franchise terms if they are forced
to do so because of circumstances beyond the franchisor’s control.

Antti Kiuru Deloitte Oy
66
Relevant areas of law by a limited liability company and a foundation.

Most franchisors will however decide on the
private limited liability company due to its sim-
In Finland, there is no statutory definition
ple way of incorporation, well-regulated admin-
for a franchise nor a codified franchise law.
istration, low capital requirements, and easily
Franchising is not easily defined, however, the
transferable shares. A limited liability company
Finnish Franchising Association (FFA), defines a
is a legal person separate from its sharehold-
franchise arrangement as a right conveyed by
ers; the shareholders have no personal liabil-
one undertaking to another.
ity for the obligations of the company. There
In Finland, the material content of franchise is no requirement for a private limited liability
agreements is regulated by various laws. The company to have share capital and there is no
most important statutory regulations regard- minimum share capital requirement to set up
ing franchise law are the Contracts Act, the a private limited liability company in Finland.
Unfair Business Practices Act, the Trademarks In case the company has specified an amount
Act, and the Competition Restrictions Act. of share capital in its Articles of Association,
Further, the FFA, an organization that encour- the said share amount shall be paid to the
ages good franchising behavior and fair and limited liability company’s bank account prior
ethical business practices in the franchise to the filing of the formation documents. The
business, has concluded a Code of Ethics required documents when establishing a limit-
that provides a good framework for franchise ed liability company include the Memorandum
agreements. The Code of Ethics has been con- of Association, the Articles of Association, and
sidered as trade custom with regards to fran- the Start-Up Notification provided by the regis-
chising in Finland. tration authority.
Finland adheres to the principle of free move-

Specifics regarding foreign franchisors
ment of capital, goods, services, and labor and
There are no specific regulations related to for-
is committed to non-discrimination. Thus, facil-
eign franchisors in Finland. The foreign fran-
ities and incentives that are made available to
chisors are not obliged to obtain any special
local businesses shall also be available to for-
approvals or licenses unless their operating busi-
eign entrepreneurs on equal terms. There are
ness requires such specific approvals or licenses.
no restrictions imposed on foreign ownership
These regulated lines of businesses include the
except for an acquisition that may put at risk
security, medical or financial sectors as well as
an important national security interest. In such
the food and alcoholic beverages industry.
cases, formal approval is required in accord-
ance with the Monitoring Act.
Corporate Law
The most common business entity in Finland
and the most preferable form for franchisors
Under Finnish law, franchisees are not consid-
is a limited liability company (private or public).
ered as consumers. However, in connection
Other corporation forms used by franchisors
with a legal dispute, the franchisee may refer
include a partnership subject to it being owned
to the principle that an unclear and ambiguous
67
agreement can be interpreted against the au- Registry’s office as a national trademark in
thor of the agreement. According to section 36 Finland. If the Franchiser’s IP is registered ac-
of the Contracts Act, unreasonable clauses can cordingly, the trademarks can be protected
be adjusted. by surveillance and immediate action against
possible infringements.
Employment Law
Special care should be taken into considera- Real Estate/Tenancy Law
tion regarding the risk that a franchisee might Customarily, when the franchisor is the owner
be deemed as an employee of the franchisor. of the premises where the franchisee resides
The franchising agreement shall clearly state its business, a provision is included in the lease
that the franchisee constitutes an independ- agreement stating that the lease will terminate
ent party that bears its own financial risk and at the time of termination of the franchising
is responsible for its employees. Even though agreement. The right to assign or transfer
an explicit provision is included in the fran- lease agreements or to allow subleases is not
chising agreement, stating that the franchisee prescribed by law and can be restricted in the
is not an employee of the franchisor does not lease agreement. Thus, in order for the lease
alone exclude the possibility that the actual agreement to be transferred to the franchisor
relationship can be considered as an employ- or a party appointed by the franchisor, a pre-
ment relationship. It is recommended, that the condition may be invoked.
franchisee is a registered company such as a
limited liability company. If the franchisee has Selected questions/aspects
its own employees, makes payments to the
franchisor and for premises and equipment,
In Finland, there are no legal requirements
the franchisee will not be considered as an em-
regarding general or formal precontractual
ployee of the franchisor.
disclosure. However, according to the FFA’s
Additionally, an employment relationship re- Code of Ethics article 3.3, the Franchisor has a
quires the direction and supervision of the precontractual information duty. Prior to sign-
employer, which normally is not the case in the ing the franchising agreement, the Franchisor
relationship between the franchisor and the is obliged to disclose complete and accurate
franchisee. information that is relevant for the franchise
relationship and provide the franchisee with a
IP Law copy of the Code of Ethics in due time, in order
In order to ensure that the franchisor’s trade- to ensure that the franchisee has all the nec-
marks and know-how are protected against in- essary data before concluding the franchise
fringements from third parties, the Franchisors agreement. The requirement to disclose com-
shall register their trademarks. The trademark plete and accurate information regarding the
can be registered with the World Intellectual franchise relationship is based on the principle
Property Organization (WIPO), with the EU of good faith and fair dealing. The principle in-
Intellectual Property Office (EUIPO) as an EU cludes a continuous obligation to disclose up-
trademark, or with the Finnish Patent and dated information if circumstances change.
68
The franchisee shall, on the other hand, with agreement; prohibitions on cross-deliveries
careful consideration, analyze the received infor- within the dealer network, vertical resale price
mation. Also, the franchisee is obliged to be truth- maintenance agreements, except those set-
ful and transparent regarding their experience, ting a maximum price or giving non-binding
financial capacities, and other information that recommendations and prohibitions on pas-
might be relevant for the franchising agreement. sive distribution beyond the contract territory.
There are also certain online and e-commerce
Further, according to the Unfair Trade Practices
restrictions that are applicable for franchisors.
Act, a party may not use false or misleading ex-
The franchisee may have its own website and
pressions regarding their business operations
the franchisor cannot prevent the franchisee
that could affect the supply or demand for a
from having a website. The franchisor may,
certain commodity. The franchisor is obliged
however, set binding instructions on the web-
to provide accurate information on its oper-
site, and how the intellectual property of the
ations. If a franchisor provides the franchisee
franchisor may be used online. The franchisee
with information that is untrue or too favorable
can promote and sell products online, as this is
it might provide the franchisee with grounds
a form of passive selling the franchisor cannot
for termination of the franchising agreement.
prohibit the franchisee from such activities.
Thus, the franchiser shall ensure to provide
accurate information regarding its operations. Contract Law
As there is no official authority liable for en- According to section 38 of the Contracts Act,
forcing the aforementioned disclosure re- non-competition clauses are binding in franchis-
quirements, the franchisee is responsible for ing agreements as long as the clause does not un-
ensuring that their rights are not violated. If a reasonably restrict the party’s freedom or action.
violation regarding the obligation to provide
true and sufficient is made an action based Franchise fees
on a charge of unfair business practice may be Normally, the franchisee may be obliged to
brought before the Market Court. pay two kinds of fees; a non-refundable initial
fee that covers the access to intellectual prop-
Legal restrictions erty rights, training of the franchisee and its
employees as well as the franchisor’s trans-
action costs. In addition to the initial fee, the
According to Finnish competition law and the EU
franchisee is charged a continuous fee – called
competition rules, the vertical restraints block
a franchising fee or co-operation fee. The fee
exemption applies to franchising. According to
normally composes of a percentage of the
the Vertical Restraints Block Exemption rules,
franchisee’s turnover. The franchisee may also
companies may carry out vertical agreements
be obliged to pay an advertising or marketing
according to the following market share limits;
fee or an additional IT fee. According to the
the franchisee at least 10% and both parties up
Finnish Interest Act, interest can be charged
to 30%. The following provisions according to
on overdue payments.
the Vertical Restraints Block Exemption rules
might result in complete nullity of a franchise
69
Confidentiality Amendments
Generally, confidentiality clauses are enforce- The franchise agreement may be changed unan-
able in Finland. The information and material imously by the franchisor and the franchisee.
that is subject to confidentiality shall accurately Thus, the franchisor may not unilaterally change
and in detail be defined in the franchise agree- the terms of the agreements, such as opera-
ment. It is recommended to agree upon the tional terms or standards. The franchisor may,
material content of confidentiality obligations however, change such terms if they are forced
in the case of a potential dispute as the Finnish to do so because of circumstances beyond the
legislation does not define the concepts of franchisor’s control as an example where leg-
trade and business secrets. As the damag- islation has resulted in the need for change in
es resulting from breaches of confidentiality provisions. It is important that the franchisor’s
might be hard to prove, the parties normally right to unilaterally change the terms of the fran-
agree upon a contractual penalty. If a breach is chise agreement and to what extent is drafted
made, the party will automatically be obliged to in detail in the franchise agreement.
pay the contractual penalty.
Termination
The franchise agreements are usually entered
into for a fixed-term period and it is not admis-
sible to terminate the agreement before the
fixed-term period has ended. However, such
fixed-term agreements may be terminated
by both the franchiser and franchisee under
certain preconditions. The franchisor may
terminate the franchise agreement if a good
cause exists, such as if the franchisee proves
not to be loyal to the network. The franchisor
may also terminate the franchise agreement if
the franchisee at the signing of the agreement
has provided untrue information on essential
issues such as their skills, education, and fi-
nancial resources. Other grounds that entitle
the franchisor to terminate the agreement are
if the franchisee has breached material pro-
visions of the contract, have continuously or
severely violated the franchisor’s interests, or
if the franchisee becomes unable to perform
expected duties. The bankruptcy of the fran-
chisee also constitutes a ground for termina-
tion of the franchise agreement. The franchisee
may also terminate the franchise agreement if
70
a good cause exists, such as the franchisor has exercising their jurisdiction. There are several
neglected core duties like guidance or training. types of dispute resolution methods availa-
If the franchisor has neglected such duties the ble to the parties of a franchise agreement in
agreement may be terminated with notice. The Finland. However, the most commonly used
franchisee may terminate the agreement if the and also the most favorable dispute resolu-
franchisor has deceived the franchisee regard- tion method regarding franchise agreements
ing essential issues, has breached material is arbitration. Even though arbitration is the
provisions of the agreement, or has severely preferable means of settling a dispute, other
violated the interests of the franchisee which alternative dispute resolution methods such
has resulted in justified loss or trust. as mediation have become more common.
Agreements on applicable law and jurisdic-

tion are admissible in Finland. The parties may
The franchisor is entitled to refuse the renew-
choose to have certain or all disputes resolved
al of the franchising agreement if it has been
under a specific law or in some other jurisdic-
entered into for a fixed term and no provision
tion or by a certain court, in Finland or abroad.
stating the right of renewal of the franchisee.
According to the Finnish Procedural Code, the
Usually, if such an option clause regarding the
court applies the law ex officio. A party may
renewal is included in the agreement, there
also submit to the court a written statement
are certain conditions that must be met for the
on how the law should be applied. Mandatory
renewal to take effect. If the said conditions
laws in Finland must, however, be applied.
are not met, the franchisor is entitled to re-
fuse renewal of the franchise agreement. The
COVID-19
Franchisor may also restrict the franchisee’s
The COVID-19 pandemic has had a consid-
ability to transfer its franchise to a third party.
erable financial impact on businesses in
Generally, the restriction is enforceable.
Finland, including the franchising business
due to lockdown measures and limitations
implemented by the government to contain
The Finnish court system constitutes one fed-
the pandemic. However, the government has
eral system. The Finnish court system consists
through various measures tried to ensure that
of general courts that include district courts,
businesses will be able to continue operating
courts of appeal, and the Supreme Court as
on a viable basis after the coronavirus crisis
the final instance. Further, Administrative
is over. Amendments to the Act on Support
courts are the Administrative Courts and the
for Business Costs have been made to make
Supreme Administrative Court as the final
granting aid to sole entrepreneurs and small
instance in administrative judicial procedur-
companies more flexible and have created a
al matters. Special courts in Finland include
new form of aid closure compensation closed
the Market Court, the Labor Court, and the
due to the coronavirus epidemic.
Insurance Court. All courts are independent in
71
France
111
Legal professionals
Region Offices
EMEA Bordeaux, Lille, Lyon,
Paris - La Défense,
Marseille, Montpellier,
Toulouse,
Essentials
about France’s franchising law
1 According to Article L.330-3 of the French Commercial Code, in case of a franchise

agreement with a commitment of exclusivity or quasi-exclusivity from the fran-
chisee, specific precontractual information must be given by the franchisor to the
franchisee (including notable information about the franchisor, the market, the
network, and the upcoming franchise contract);
2 The franchisor undertakes to make available to the franchisee its distinctive signs
and original, tested and constantly improved know-how, in return for remuner-
ation and the commitment of the franchisee to use them according to a uniform
commercial technique, with the assistance of the franchisor and under his control.

Muriel Féraud-Courtin Gisèle-Aimée Milandou Taj, Société d’Avocats
Jennifer Methamem Fabrice Labatut
72

Under French law, franchisees are not quali-
fied as consumers under the French Consumer
The notion of “franchise” has not been codified in
Code. Indeed, the introductory Article of the
French law. However, such notion has been spec-
French Consumer Code defines:
ified by European and French court decisions as
an agreement under which “an undertaking that • consumers as “natural persons who act for
has established itself as a distributor on a given purposes that are not part of their commer-
market, and thus, developed certain business cial, industrial, craft, liberal or agricultural
methods grants independent traders, for a fee, activity” , or to non-professional persons de-
the right to establish themselves in other mar- fined as any legal person who is not acting
kets using its business name and the business for its business“(introductory article of the
methods that have made it successful. Rather French Consumer Code).
than a method of distribution, it is a way for an • professionals as “any natural or legal person,
undertaking to derive financial benefit from its public or private, acting for purposes within
expertise without investing its own capital”. CJEC, the scope of its commercial, industrial, arti-
Pronuptia, 28 January 1986, n°161/84). sanal, liberal or agricultural activity, including
when it acts in the name or on behalf of an-
Different law areas affect the regulation of the other professional”.
franchise agreements, notably the French Civil
If it acts within the scope of its professional
Code (contract law) and the French Commercial
activity, a franchisee is on the contrary consid-
Code (commercial law, competition law, etc.).
ered as a professional.

In addition, the French Commercial Code spec-
French law does not provide any specific re-
ifies that the franchisee acts as an “independ-
striction on foreign companies contemplating
ent enterprise” (Article A441-1 of the French
the creation of a franchise in France. However,
Commercial Code).
foreign franchisors must comply with the ap-
plicable French regulations if considered as
public order rules
The European and French Competition laws
apply to the franchise contract. It shall respect
Corporate Law
European regulations on anti-competitive prac-
Under French Corporate law, no specific corpo-
tices such as the provisions of Article 101 of the
rate form is required to operate as a franchisee.
Treaty on the Functioning of the European Union
In France, the majority of the franchisees are reg-
(“TFEU”) and the French regulations, that also pro-
istered as commercial companies in the Trade
hibit anti-competitive practices such as concerted
and Company Register. A foreign entity may
actions, agreements, and abuse of dominant po-
also create a branch or a subsidiary in France.
sition (Articles L. 420-1 et seq. of the Commercial
However, in sectors considered as “sensitive” un-
Code) and restrictive competition practices
der French law, foreign investments are subject
(Articles L. 442-1 et seq. of the Commercial Code).
to prior approval of the French administration.
73
They may be considered as exempted con- IP Law
tracts under Commission Regulation (EU) The franchisor needs to protect its IP rights to
n°330/2010 of 20 April 2010 on the application protect and maintain the singularity and the
of Article 101(3) of the TFEU to categories of success of its business model. Depending on
vertical agreements and concerted practices if the protection needed, its IP rights and espe-
they meet the conditions of such exemptions. cially its trademarks can be registered by the
World Intellectual Property Organization (the
Employment Law “WIPO”) as international trademarks, by the
The franchise agreement can be requalified as European Union Intellectual Property Office
an employment contract if the franchisee can (the “EUIPO”) as European trademarks, and/
demonstrate the existence of a subordination or by the French registration office named the
link with the franchisor. The French judge ap- Institut National de la Propriété Industrielle
plies the method of the bundle of evidence to (the “INPI”) as national trademarks.
make his decision.
In addition, the trademark of the franchisor
For example, may constitute evidence of the may be also protected by the possibility to ex-
existence of a subordination link in the fran- ercise legal actions against third parties (e.g.,
chise agreements the following elements: action for trademark infringement “action en
contrefaçon”, action for unfair competition “ac-
• the absence of freedom in fixing prices
tion en concurrence déloyale », etc.).
by the franchisee (Cass. soc., 8 June 2010,
n°08-44.965);
Selected questions/aspects
• the absence of autonomy in the follow up
of the client relationship for the franchisee Precontractual disclosure
(Cass. soc., 18 January. 2012, n°10-16.341); In the relationship master-franchise-franchise, the
master franchisee is obliged to provide to the fran-
• Imposing working conditions on the fran-
chisee the precontractual information. He must
chisee, including working hours (Cass. soc.,
communicate the relevant information communi-
22 March 2007, n°05-45.434).
cated by the franchisor to the franchisee.
To reduce the risk of requalification of the fran-
chise agreement as an employment contract, Articles L.330-3 and R.L330-3 of the French
the independence of the franchisee with re- Commercial Code provide a statutory list of
spect to the franchisor must be preserved. the information that has to be made available
to the franchisee before signing a franchise
Law on commercial agents agreement with a commitment of exclusivity or
Under French law, franchisees are not con- quasi-exclusivity from the franchisee.
sidered as commercial agents. Therefore, the
specific regulations applicable to commercial This precontractual information document
agents do not apply to franchisees. (“DIP”) must contain the following:
74
• Information about the company: • Other information:

– registered office, nature of the activities, – the duration of the proposed contract, the
legal form, share capital, Trade and Companies conditions of renewal, of termination and
Register number; transfer, and the scope of exclusivity;
– the identity of the person leading the company – the nature and amount of the expenses
of the franchisor; and specific investments to be undertaken
– trademark registration number, date of the by the franchisee to use the brand before
registration, date and number registration if beginning the exploitation;
the license has been transferred; – if the payment of a sum is required, the
– bank domiciliation; services to be achieved in return shall be
written down.
– annual accounts of the last 2 financial years;
The above -mentioned documents/informa-
– date of incorporation of the company, its main
tion must be provided to the franchisee in a
steps of development and the indications to
language the latter is able to understand.
determine the professional experience of the
franchisor.
In addition, Article L.330-3 of the French
• information about the distribution network: Commercial Code provides a standard compli-
– the list of the companies included in the ance procedure that requires the Franchisor
network with the indication of the mode of to submit the DIP at least 20 days before the
distribution chosen; signing of the franchise agreement or before
– a general and local presentation of the market the payment of a sum required prior to the
and the perspective of the development of signing of the agreement to obtain the reser-
the market; vation option.
– the addresses of the companies established

The delivery of the precontractual disclosure
in France linked to the franchisor by similar
is required “prior to the signature of any con-
contracts as the one proposed and the date
tract” so that it must also be delivered on the
of conclusion or renewal of these contracts;
occasion of the renewal of the distribution con-
– the number of companies that ceased to be tract that has been the subject of a precontrac-
part of the network the year preceding the tual disclosure, even if it is implied (Cass. Com.
issuance of the precontractual information 9 October 2007, n°05-14.118). If the precon-
and indication related to the way the contract tractual information is not provided, several
ended (expiry, termination, cancellation); legal actions are possible. The franchisee may,
– the presence in the area of the proposed notably, sue the franchisor for damages or the
location of the activity of any establishment nullity of the franchise agreement for defect
that offers the products or services (if any). of consent (more specifically for fraud (“dol”)
provided in Article 1137 of the French Civil
Code, if the franchisor intentionally concealed
information that he knew was relevant to the
75
76
franchisee). In addition, failure to comply with In addition, the employer (franchisor or fran-
this obligation is subject to a criminal fine of chisee) is liable for its employees when the latter
up to 1,500 euros and up to 3,000 euros in the commits a fault within the limits of the mission
event of a repeated offense (Article. R. 330-2 of assigned by their employer. When employees
the French Commercial Code and Article 131- have acted within the limits of their mission,
13, 5° of the French Criminal Code). The dam- employees may not be held liable (Plenary as-
ages awarded are calculated on the tort liability sembly, February 25, 2000, Costedoat).
(Article 1240 of the French Civil Code). For this
purpose, the franchisee must demonstrate Legal restrictions
the existence of (i) a fault of the franchisor ( in Please find below a non-exhaustive list of specif-
this case the lack of precontractual informa- ic laws that may apply to franchise agreements:
tion provided by Article L.330-3 of the French
Commercial Code), (ii) a reparable prejudice French Civil Code
(i.e. a direct, certain and legitime prejudice) and The general law of contracts remains applicable
(iii) a causal link between the fault and the prej- to franchise agreements (conditions of validity
udice. In a sub-franchise, the franchisor is liable of consent, good faith in the precontractual
towards the master franchisee and the latter is and contractual phases, theory of unforeseen
liable towards the franchisees. However, if the events (“théorie de l’imprévision”), etc.).
damage arises out of a Franchisor’s fault, the
French Commercial Code
master franchisee may involve the liability of
A franchise agreement may contain clauses
the Franchisor.
that may be sanctioned or that may result in
the franchisor being held liable under Article
In general, in the event of misconduct commit-
L.442-1 of the French Commercial Code, as
ted by the managers in the context of their pro-
such contracts can be unbalanced or might
fessional activities, French courts subordinate
provide benefits without consideration.
their personal liability with respect to third par-
ties to the existence of a “separable fault”: “the
A postcontractual non-competition clause pro-
personal liability of a director with respect to
vided by a franchise agreement may be deemed
third parties can only be retained if he has com-
as null and void by French courts if after the
mitted a fault separable from his functions” and
term or termination of the franchise agreement,
“this is the case when the director intentionally
it limits the freedom of the franchisee to oper-
commits a fault of particular gravity, incompat-
ate its commercial activity (Article L.341-2 of the
ible with the normal exercise of the company’s
French Commercial Code).
functions” (Cass. com., May 20, 2003, n°99-
17.092). For example, the franchised manager Franchise fees
is personally liable based on a detachable fault In practice, in return for the advantages provid-
when he creates a company competing with the ed by the contract the franchisee is generally re-
franchised company (CA Paris, Pôle 5 - chamber quired to pay an entrance fee to the franchisor.
4, November 13, 2019, n°19/00499). Entrance fees cannot be requested before the
signature of the franchise agreement because
77
the franchisee must be aware of the precon- Such clauses may be enforceable, notably in
tractual information provided by the franchisor case of breach by the way of:
before committing. Fees are negotiated be-
• a penalty clause or;
tween the franchisor and the franchisee. French
courts require these fees to be balanced. • damages/termination of the agreement.
Amendments
According to Article L.441-10 II of the French
The principle of the binding nature of the con-
Commercial Code, “unless otherwise provided,
tracts also applies to franchise agreements
the Parties may not set a rate lower than three
(Article 1103 of the French Civil Code). Thus, the
times the legal interest rate, this rate is equal
parties may modify the franchise agreement
to the interest rate applied by the European
by mutual agreement.
Central Bank to its most recent refinancing op-
eration plus 10 percentage points […].”
Termination
Furthermore, Article L.441-10 II of the French Distinction between fixed-term agree-

Commercial Code provides that a fixed comments/open-ended agreements
pensation of €40 is due to the creditor for col- A distinction must be made between fixed-
lection costs, upon any delay in payment. term and open-ended franchise agreements.
Regarding the currency of the transactions, The parties to an open-ended franchise

Article 1343-3 of the French Civil Code speci- agreement have the right to unilaterally termi-
fies that: « The payment, in France, of a mon- nate the agreement by giving the prior notice
etary obligation, is made in euros. However, provided in the agreement or a reasonable
payment may be made in another currency if prior notice if there is no notice specified in
the obligation thus denominated arises out of the agreement (Articles 1210 and 1211 of the
an international transaction or a foreign judg- French Civil Code).
ment. The parties may agree that the payment
will be made in a foreign currency if it is made The parties to a fixed-term franchise agreement
between professionals, when the use of a for- must perform it until the end of its term (Article
eign currency is commonly accepted for the 1212 of the French Civil Code). For example,
transaction concerned ». under a fixed-term franchise agreement, the
terminating party will be liable to compensate
Confidentiality the other party for the damage caused. For the
Confidentiality clauses in franchise agreements franchisor, this prejudice generally consists of
are likely to help protecting the franchisor’s the gross margin of which he was deprived while
know-how made available to the franchisee. he had to find a replacement solution (CA Paris,
They are very commonly used in franchise con- March 27, 2019, no. 17/05107), except if the fran-
tracts and their breach can lead to the termina- chise agreement provides a fixed amount (pen-
tion of the contract. alty clause) as compensation.
78
Cases of unilateral termination provided will comply with the modalities described in the
by the French Civil Code termination clause of the agreement (events of
According to Article 1224 of the French Civil termination, prior notice required, etc.).
Code, the termination of an agreement “results
either from the application of a termination In addition, the termination of the agreement
clause or, in the event of sufficiently substantial is subject to an unsuccessful notice of breach,
non-performance, from a notification by the if it has not been agreed that this is due to the
creditor to the debtor or from a court decision”. sole fact of non-performance. (e.g., in case of
breach by the franchisor of its supply exclusivity,
• Termination by applying a termination clause
no payment of the fee by the franchisee to the
Agreements usually include termination claus- franchisor, etc.). The notice of breach is only ef-
es notably in case of non-payment of the fee fective if it expressly mentions the termination
by the franchisee or breach by the franchisor clause (Article 1225 of the French Civil Code).
of its supply exclusivity. The terminating party
79
• Termination by notification (without applying of abrupt termination. A reasonable notice is
a termination clause) required. Therefore, professionals take these
Without applying a termination clause, in the requirements into account, by stipulating var-
event of a substantial breach, the parties may iable notice periods, indexed to the duration of
also terminate the agreement at their own risks their established commercial relationships.
(“à leurs risques et périls”) by sending a formal
notice to the other party (except in case of Renewal and transfer
emergency) . If the substantial breach persists, Renewal
the terminating party may notify the other par- There is no right of renewal of a franchise agree-
ty of the termination of the agreement and the ment in favor of the franchisee (Cass. Com., 4
reasons. The other party may go to court to September 2018, n°17-17891). The franchise
challenge the termination, and the terminating agreement is usually a fixed-term contract.
party will have to prove the significance of the
alleged non-performance (Article 1226 of the Thus, it expires on the date agreed upon by the
French Civil Code). parties. If provided in the agreement, it can be
tacitly renewed. A contrario, if the parties wish
• Termination by a court decision
to renew the agreement, a new franchise agree-
The parties may request the judge to termi- ment will have to be signed by both parties.
nate the agreement. Furthermore, it should
be noted that Article L. 442-1, II of the French According to Article L.442-6-I-5° of the French
Commercial Code sanctions the abrupt ter- Commercial Code, any merchant may be liable
mination of established commercial relation- if he abruptly terminates, even partially, an es-
ships. The determined or indetermined nature tablished commercial relationship without a
of the duration of the franchise agreement prior written notice considering the duration
has no impact on the risk of the qualification of the commercial relationship. Therefore, in
80
franchise agreements, the terminating party Applicable law

must inform the other party of the termination The applicable law may be freely chosen by the
sufficiently in advance to avoid any liability. parties to the franchise agreement in the case
of an international agreement.
Transfer
Concerning the transfer of the franchise agree- If there is no applicable law clause and in case
ment, generally, a change of control clause or an of conflict of laws with French law, the franchise
assignment clause is provided in the contract to contract must be governed by the law of the
govern these kinds of situations. If not, French country where the franchisee has his habitual
courts usually consider that the franchise con- residence (Article 4 e) of the Regulation (EC) No
tract is an intuitu personae contract that may 593/2008 of the European Parliament and of
not be automatically transferred to the new the Council of 17 June 2008 on the law applica-
structure and that the validity of such transfer ble to contractual obligations).
requires the consent of the other party.
In any case, in the event of a connection with
Dispute resolution and applicable law France (e.g., a French franchisee), although
Dispute resolution, court system companies may choose the law applicable to
In case of litigation relating to a franchise their international contracts, they must be
agreement governed by French law and includ- scrupulous in ensuring that this choice does
ing a franchisee who is a merchant, the dispute not conflict with internal and international pub-
will be brought before the French commercial lic order rules and public policy laws.
courts (a jurisdiction clause may be provided to
determine a specific commercial court). In case COVID-19
of appeal, it will be brought before the French In France, there was no specific text for fran-
Court of Appeals and in case of appeal to the chise contracts but general measures applica-
Supreme Court, the case will be brought be- ble to all contracts.
fore the French Supreme Court.
Due to the Covid-19 crisis, many public facilities,
The Fédération Française de la Franchise pro- which may include franchises, have been forced
poses to settle disputes through arbitration to curtail operations and close their premises
before the Chambre Arbitrale Internationale de due to a health emergency. However, the French
Paris. Arbitration is a confidential procedure but Government has put in place subventions (e.g., a
may be very expensive.The parties may also use solidarity fund, freezing of penalty clauses for a
an alternative dispute resolution, notably the certain period, etc.) to support businesses under
“médiation” (contractual or judicial), the “concilia- certain conditions. In addition, some small com-
tion” (contractual or judicial). At the request of the panies (with less than 10 employees) have been
parties, the judge may approve the agreement able to benefit from a temporary deferral of com-
resulting from the conciliation or mediation. mercial rents under certain conditions provided
in Order n° 2020-316 of 25 March 2020.
81
Germany
176
Law professionals
Region Offices
EMEA Berlin, Cologne,
Dusseldorf, Frankfurt,
Hamburg, Hanover,
Munich, Stuttgart
Essentials
about Germany’s franchising law
1 No specific form or procedure is prescribed by law

regarding franchisor´s pre-contractual disclosure obligation
2 As a “business founder”, a franchisee may be entitled to

revoke the franchise agreement.
3 Franchisees may be entitled to compensation payment

upon termination of the franchise agreement.

Dr. Mathias Reif Deloitte Legal Rechtsanwaltsgesellschaft mbH
Dr. Christine von Hauch
82
Relevant areas of law Law on commercial agents

Only single provisions of the statutory law on
commercial agents are analogously applicable
In Germany, there is neither a legal definition
to franchising. Like a commercial agent, the
of “franchise” nor a codified franchise law.
franchisee may be entitled to a compensation
German franchise law has been developed by
payment of up to an average annual remuner-
court decisions; its implications result from
ation upon the termination of the franchise
many different areas of law, especially civil,
agreement if (i) the franchisee is incorporated
commercial, and corporate law.
into the franchisor´s sales organization like a
commercial agent and (ii) is obliged to transfer
Corporate Law
its customer base so that the franchisor can
immediately and easily take advantage of it
business in Germany is the private limited liabili-
at the end of the agreement. Accordingly, the
ty company (as a “GmbH”, or as a “UG”). It is easy
franchisor´s risk of a possible compensation
to set up by one or more persons and requires a
payment can be mitigated by not imposing on
minimum capital of EUR 25,000 (GmbH) or less
the franchisee an obligation to transfer its cus-
(UG). Solely the registered capital is liable to the
tomer base. However, according to a landmark
company´s creditors, not the shareholders per-
ruling by the German Federal Supreme Court,
sonally. The formation costs for a GmbH/UG are
there is no such entitlement in franchises
very moderate. Notwithstanding foreign trade
mainly comprising anonymous mass business.
law regulations regarding foreign investments
in certain sectors, German corporate law does
Employment Law
not impose any general restrictions on foreign
Care needs to be taken that a franchisee is
operations in Germany, nor on franchise sys-
not qualified as an employee of the franchisor
tems in particular.
according to German employment law and
German social law. To that end, the decisive
criterion is the degree of personal depend-
Under German law, individuals seeking to
ency of the franchisee. Pursuant to German
become franchisees are not qualified as con-
jurisdiction, someone is an independent busi-
nessperson who is – contractually as well as
business oriented. However, at the stage of
factually – free to design his activities and set
setting-up business, a franchisee may be qual-
his working hours, and who assumes an own
ified as “business founder”, and as such may
entrepreneurial risk. In case the franchisee is
be entitled to revoke the franchise agreement
an entity such as a GmbH, however, it cannot
within 14 days following the signing, provided
be an employee.
that the franchisee has been informed accord-
ingly by the franchisor – otherwise, the right
IP Law
of revocation does not expire until 12 months
Franchisors need to protect their IP against third
and 14 days following the signing. If the fran-
parties´ attacks or imitations, especially by regis-
chisee is an entity such as a GmbH or a UG,
tering their trademarks – either as International
there is no right of revocation.
83
Registration (“IR”) with the World Intellectual each potential franchisee accurately and with
Property Organisation (“WIPO”), as EU Trademark reasonable advance about all circumstances
(“CTM”) with the EU Intellectual Property Office recognizably relevant for the conclusion of the
(“EUIPO”) in all 27 EU member countries, or as franchise agreement.
a national trademark in Germany only with the
Having said that, there is neither a statutory
German Patent and Trademark Office (“DPMA”).
list of which information must be made avail-
It is recommended to also carry out research be-
able and in what form, nor is there a standard
forehand in order to prevent the potential later
compliance procedure. Likewise, German fran-
loss of the trademark and corresponding claims
chise law does not know a general obligation to
for disclosure and damages.
continuously update the precontractual infor-
mation. However, such an obligation may arise
during the term of the franchise agreement (or
even prior to signing) if certain circumstances
chise system, legal implications may arise
occur, or change, being recognizably relevant
from real estate and tenancy law. In a struc-
to the franchisee.
ture where the franchisor (sub-) leases the
locations to the franchisees, harmonizing the The German Franchise Association (Deutscher
termination rights of the (sub-) leasing and Franchiseverband e.V.) provides – next to a
the franchise is of the essence. In contrast to Code of Ethics – guidelines regarding the min-
that, some franchisors use “investor models”, imum information to be disclosed (www.fran-
in which third parties own the locations and chiseverband.com). The obligation affects all
directly lease them to the franchisees. While data available (only) to the franchisor and is
this model eliminates the risk of lost rent for necessary to enable the potential franchisee to
the franchisor, it prevents the franchisor from generate own calculations of profitability and to
imposing on the franchisee a non-compete draw own conclusions about the prospects of
obligation for more than five years according success regarding the franchise. Furthermore,
to EU antitrust law. Further, in order to secure it also comprises general information about
locations of strategic interest for the franchise the franchise system as well as the basic con-
systems, in an “investor model” the franchisor tent of the (master-, sub-, or) franchise agree-
must ensure to reach an agreement with the ment. Notwithstanding the foregoing, the fran-
lessor according to which the franchisor au- chisor is not obliged to disclose trade secrets.
tomatically enters into the lease agreement in
For reasons of proof, precontractual informa-
lieu of the franchisee in the event of termina-
tion should be carried out in writing. In addi-
tion of the franchise agreement.
tion, franchisors need to anonymize references
and examples when disclosing information to
comply with the requirements of the General
Precontractual disclosure Data Protection Regulation (“GDPR”).
A violation of the pre-contractual duty to in-
chisors and, in a sub-franchising structure,
form may entitle the franchisee to terminate
master franchisees have the duty to inform
84
the franchise agreement for good cause as well

as lead to damage claims by the franchisee. To
that end, the franchisee may choose to rescind
the franchise agreement and claim back all
paid franchise fees (earned income deducted)
and all expenses incurred in connection with
the franchise business.
Legal restrictions
Franchise agreements may contain restric-
tions that collide with art. 101 Treaty on the
Functioning of the EU (“TFEU”). Exemptions
from the prohibition in art. 101 TFEU are pos-
sible under the EU-Vertical Block Exemption
Rule (“V-BER”), provided that the respective
parties to a franchise agreement do not have
a market share of more than 30 % each. The
V-BER contains so-called black clauses (“core
restrictions”), rendering the entire agreement
null and void. It also contains so-called grey
clauses, rendering solely the specific provision
in an agreement null and void. Examples for
black clauses are provisions dictating fix pric-
es or prohibiting passive sale outside a desig-
nated territory (including sale via the internet),
whereas provisions prohibiting competition for
more than five years or for unlimited time are
grey clauses.
Law on general Terms and Conditions (“T&Cs”)

Franchise agreements as pre-formulated
agreements significantly limit the other par-
ty´s contractual freedom, which is why their
T&Cs are subject to judicial effectiveness con-
trol. This is lessened in b2b-only agreements
such as franchisor-franchisee-relationships.
However, still such T&C-clauses are ineffec-
tive that unreasonably disadvantage the
other party.
85
Franchise fees franchise agreement may only be agreed unani-
Besides the prohibition of usury, there are no mously between franchisor and franchisee – an
laws in Germany regulating the payment of almost impossible task in terms of uniform reg-
franchise fees. However, case law sets require- ulations once a franchise system has reached a
ments for fee adjustment clauses, which – in a size with a large number of franchisees.
nutshell – must be transparent and verifiable
for the franchisee. Payments to a foreign fran- Termination
chisor may be made in the franchisor´s domes- Franchise agreements are entered into for a
tic currency. The interest rate in Germany for certain time and terminate with the lapse of
default payments in b2b-transactions is nine that time. A regular termination by one of the
percent above the base interest rate (currently: parties before that is not admissible unless
- 0.88 % = 8.12 %). In addition, franchisors may both parties unanimously agree on it. However,
claim a lump sum of EUR 40 if a franchisee is in franchise agreements may be terminated by
default with payments. each party without notice if it is unreasonable
for the terminating party to continue the con-
Confidentiality tractual relationship until the agreed time of
Confidentiality clauses in franchise agreements termination (good cause). If the cause for the
(often in combination with a contractual penalty) termination is a breach of a contractual obli-
are very common and enforceable in Germany. gation by the other party, e.g., non-payment of
The franchisor may file an interim injunction franchise fees, the termination for good cause
against an infringing franchisee, claim damages is only admissible after having issued a fruit-
occurred due to the breach, and possibly termi- less warning (advisably in writing), and within
nate the franchise agreement extraordinarily. a reasonable period after learning about the
Furthermore, a confidentiality clause is advisa- circumstances for the termination. Unjustified
ble to adequately protect existing trade secrets: terminations by a franchisor might entitle the
According to the German Trade Secrets Act, a franchisee to claim damages.
trade secret is only protected if the (alleged)
owner of the secret has taken appropriate Renewal and transfer
measures to maintain secrecy. Generally, franchisors are free to decide wheth-
er or not to renew a franchise agreement; if
Amendments so, renewals should be done explicitly and in
Simply put, if the franchise agreement contains writing. It is admissible to contractually restrict
a precise and reasonable change reservation a franchisee´s ability to transfer its franchise,
clause, taking into account the franchisees’ in- typically by requiring an explicit prior written
terests, unilateral amendments of the agreed approval of the franchisor.
terms by the franchisor are admissible as an
expression of the franchisor’s obligation to Dispute resolution and applicable law
continuously develop its franchise system ac- Germany provides one (federal) court sys-
cording to changing market conditions. Without tem, consisting of the local courts (values <
a respective provision, amendments of the EUR 5,000.-), the district courts (values > EUR
86
5,000.-), the higher regional courts (generally lessor and lessee about adjustments of the rent
courts of appeal), and the Federal Supreme amount. This provision is accompanied by a
Court. In principle, it is admissible for the par- new statutory requirement to prioritize and ac-
ties to a franchise agreement to agree on a celerate court actions about such adjustments.
choice of law to apply to their contractual rela-
Within the past months, various courts have
tionship, and, if the franchisee is a merchant, to
had to deal with the question of whether the
agree on a venue clause.
lessee remains obliged to pay the (full) rent if,
It is also admissible to agree on arbitration due to government measures, the store must
as the exclusive way of resolving disputes not be opened. The courts came up with differ-
between the parties, thus waiving the due ent results and reasoning: While some courts
process of law. This may be favorable, as the affirmed full payment obligation, denying that
parties may choose the language of the pro- the government measures are a defect of the
ceedings and have an influence on the arbi- premise entitling the lessee to a reduction
trators selected. Also, arbitration proceedings of the rent, other courts argued that the les-
are, unlike proceedings before ordinary courts, see may claim a reduction due to frustration
not held in public. However, if the value in dis- of contract, as it is unreasonable to continue
pute is rather low, arbitration may often be too the unchanged agreement given the circum-
cost-intensive. stances. In that regard, the extent to which a
reduction may be claimed is dependent on the
COVID-19 necessary balancing of interests, taking into
From early 2020 on, the COVID-19 pandemic has account all circumstances of the respective
been having a huge impact especially on the fran- individual case, such as possible advantages
chise sector due to the government measures, of the lessee due to increased online trade,
especially shutting down public life to contain the short-time work, and state aid, the economic
pandemic. Therefore, legislation was passed in situation of both parties, the duration of the
Germany to mitigate this impact, e.g., temporary lease to date, and the lessee´s possibly being
payment moratoria (until June 30, 2020). Franchise a member to a group.
fees, however, were not covered by these and,
With a uniform case law as well as a Federal
therefore, had to be paid continuously.
Supreme Court decision not in sight to date,
One of the more recent COVID-19 related legis- the question of whether or not a (franchisee)
lation is a provision in German civil law referring lessee is entitled to an adjustment of the rent
to the principles of frustration of contract with amount in COVID-19 cases still is a matter of all
respect to commercial lease agreements in gen- circumstances of the individual case; the judi-
eral, intending unanimous solutions between cial development should be observed.
87
Greece
40
Legal professionals
Region Offices
EMEA Athens
Essentials
about Greece’s franchising law
1 No specific form or procedure prescribed by law regarding

franchisor´s precontractual disclosure obligation.
2 As a “business founder”, a franchisee may be entitled to

revoke the franchise agreement.
3 Franchisees may be entitled to compensation payment

upon termination of the franchise agreement.

Dr. Ilias Koimtzoglou Koimtzoglou-Bakalis-Venieris-Leventis
Konstantina Gkouti & Associates Law Partnership
88
Relevant areas of law commercial agents, are analogously applica-

ble to exclusive distribution agreements. If the
franchise agreement has the same essential
Greek law neither defines “franchise” nor a
characteristics as an exclusive distribution
codified legal framework regulating franchis-
agreement, provisions regarding compensa-
ing. Greek franchise law has been developed
tion and notice period for termination of the
by court decisions. Its implications result from
Presidential Decree 219/1991 on commercial
many different areas of law, especially civil,
agents are analogously applicable on franchis-
commercial and corporate law and the vol-
ing. In that view, the franchisee may be entitled
untary Code of Ethics, written by Franchise
to a compensation payment upon termination
Association of Greece, which is in line with that
of the franchise agreement, and the notice pe-
of the European Code of Ethics for franchising
riod is one month during the first year of the
and only a few additions have been made to
agreement, two months during the second
reflect business practices in Greece.
year and so on, up to six months for the sixth
and following years.
Corporate Law
IP Law
business in Greece is the société anonyme (as
a “SA”) and the private limited liability compa-
third parties´ attacks or imitations, especial-
ny (as an “EPE” or as an “IKE”). It is easy to set
ly by registering their trademarks – either as
up a société anonyme by one or more persons
and requires a minimum capital of EUR 25,000.
Intellectual Property Organization (“WIPO”), as
Furthermore, only EUR 1 is required to set up
EU Trademark (“CTM”) with the EU Intellectual
an EPE/IKE. In both company formats, solely
Property Office (“EUIPO”) in all 27 EU member
the registered capital is liable to the compa-
countries, or as a national trademark in Greece
ny´s creditors, not the shareholders personal-
only with the Hellenic Industrial Property
ly. Greek corporate law does not impose any
Organisation (“HIPO”). Under the franchise
general restrictions on foreign operations in
agreement, the franchisee usually has the right
Greece, nor on franchise systems in particular.
to use the franchising system’s IPs during the
term only for the franchising, while the fran-
chisor remains the owner of the IPs.
Under Greek Consumer Protection law (Law
2251/1994), franchisees are not qualified as
consumers, because ‘consumer’ means any
natural person who is acting for purposes that
chise system, legal implications may arise from
are outside his trade, business or profession.
real estate and tenancy law. In a usual struc-
ture, where the franchisor (sub-) leases the lo-
cations to the franchisees, both the franchise
According to Law 3557/2007 (art. 14), provi-
and the lease agreement are concluded for
sions of the Presidential Decree 219/1991,
the same term and obligations. The franchisor
that implements Directive 86/653/EEC on
89
can charge its franchisee tenant a fixed rent or of Ethics are voluntary and therefore, there are
a rent calculated as a percentage of its sales. no specific consequences for failure to observe
There is also the structure where a franchisee disclosure requirements.
is the owner of the property. After the termina-
For reasons of proof, precontractual informa-
tion of the franchise agreement, the franchisor
tion should be carried out in writing. In addi-
can take over and operate the franchisee’s
business by either acquiring the property
and examples when disclosing information in
owned by the franchisee or leasing it.
order to comply with the requirements of the
General Data Protection Regulation (“GDPR”).
Greek law does not provide specific disclosure A violation of the precontractual duty to inform
obligations regarding the franchise. There is may entitle the franchisee to claim damages in
only a general provision of articles 197 and 198 the course of negotiations and torts (articles 140-
of the Greek Civil Code setting out obligations 149, 197-198, 914, 919 of the Greek Civil Code).
arising from negotiations. Prior to signing a
franchise agreement, franchisors should in- Selected questions/aspects
form each potential franchisee accurately and
Legal restrictions
with reasonable advance about major circum-
stances recognizably relevant for the conclu- Antitrust/Competition Law
sion of the franchise agreement. Franchise agreements may contain restric-
tions that infringe art. 1 of Greek Competition
The Greek Code of Ethics provides guidelines Act (Law 3959/2011) and art. 101 Treaty on
regarding the minimum information to be dis- the Functioning of the EU (“TFEU”). In par-
closed (https://www.franchise.org.gr/en/codes- ticular, franchise agreements may contain
of-ethics/). In particular, the franchisor should non-compete clauses during the term of the
disclose to the potential franchisee necessary franchising agreement and post-term. Post-
information on the franchise system, namely term non-compete clauses are examined ad
the corporate status of the franchisor and the hoc in alignment with the general provisions
description of its business and relevant data on of the Greek Civil Code. Exemptions from the
total costs associated with establishing a fran- prohibition in art. 101 TFEU and art. 1 Law
chised business, in order franchisee to generate 3959/2011 are possible under the Regulation
own calculations of profitability and to draw own (EU) 330/2010 on vertical restraints and art.
conclusions about the prospects of success re- 101(3) of the TFEU on an individual exemption.
garding the franchise. Moreover, the franchisor However, according to Hellenic Competition
should disclose information relating to all licens- Authority case law (Decisions No. 395/2008
es required by law for the operation of the fran- and 495/2010), non-compete clauses and ex-
chise system and the basic content of the fran- clusive supply obligations imposed in franchise
chise agreement, i.e., rights and obligations of agreements infringe art. 4 (d) Regulation (EU)
both parties, duration, etc. Notwithstanding the 330/2010, by prohibiting cross sales between
foregoing, the franchisor is not obliged to dis- authorized franchisees within the franchise
close trade secrets. The provisions of the Code system. Moreover, exclusive supply obligations
90
91
under a selective distribution agreement must Termination
be limited to a reasonable period, generally not Franchise agreements are entered into either
exceeding 5 years. for a fixed time and terminate with the lapse of
that time either for an indefinite time which can
Greek Civil Code. Franchise agreements are
be terminated at any time. A regular termination
subject to general provisions of the Greek Civil
for a fixed time franchise agreement by one of
Code. In that view, both parties have the obliga-
the parties before the agreed term expires is
tion to behave fairly, reasonably, in good faith,
not admissible unless either party has good
loyally, in fairness and with goodwill not only
cause for early termination. In an indefinite time
precontractual (negotiations phase), during the
franchise agreement, the terminating party
term of the franchise agreement and post-term.
must provide notice to the other party before
termination subject to restrictions imposed by
Franchise fees
the contractual obligations. Unjustified termi-
There are no laws in Greece regulating the
nations by the terminating party might entitle
payment of franchise fees except the rule for
the other party to claim damages for lost profits
abuse of rights of the Greek Civil Code. Usually,
and unnecessary expenses.
there is an initial fixed fee the franchisee pays
to enter the franchising system. During the
term of the franchise agreement, the fran-
Any renewal of the franchise agreement should
chisee usually pays continuing fees and an
be done explicitly and in writing. Tacit renewal
advertising contribution. The interest rate for
is also permitted by law, except it is forbidden
default payments cannot exceed the rate set
by a clause in the franchise agreement. There
by the Bank of Greece (currently 5.25%).
are no legal restrictions for a franchisee to
transfer its business. However, it is admissible
Confidentiality
to contractually restrict a franchisee´s ability to
explicit prior written consent of the franchisor.
But this is not very common in Greece.
Greece. The franchisor may file an interim in-
damages occurred due to the breach, and
Greece provides a court system, consisting of
possibly terminate the franchise agreement
Magistrates’ Court (claims valued up to EUR
extraordinarily. Furthermore, a confidentiality
20,000), Single-Member Court of First Instance
clause is advisable in order to adequately pro-
(claims valued between EUR 20,001 and EUR
tect existing business secrets.
250,000) Multi-Member Court of First Instance
(claims valued more than EUR 250,000).
Amendments
Decisions of Courts of First Instance can be
Amendments of the franchise agreement may
appealed to the Courts of Appeal. Decisions of
only be agreed unanimously between fran-
Courts of Appeal are subject to cassation appli-
chisor and franchisee and should be done ex-
cation before the Supreme Court. In principle, it
plicitly and in writing.
92
is admissible for the parties to a franchise agree- of the rent amount with respect to commer-
ment to agree on a choice of applicable law on cial lease agreements provided that lessee’s
their contractual relationship, subject to man- business was implicated by COVID-19 meas-
datory domestic rules. Greek courts will also ures and its store was closed due to lockdown.
recognize the choice of a foreign jurisdiction. Notwithstanding the above mentioned, a
statutory moratorium applied which stopped
It is also admissible to agree on arbitration
creditors from exercising rights against a
as the exclusive way of resolving disputes be-
business’s assets.
tween the parties, but this is not very common
in Greece. The parties can also use the simple Despite the above, some franchises faced a
mediation procedure for the settlement of positive impact during the COVID-19 pandem-
disputes arising in relation to franchise agree- ic. These franchises either sell products tai-
ments, which is introduced by the Franchise lored to this new environment or have adapt-
Association of Greece. ed to a new business model during the crisis.
Many franchises, whether small businesses or
COVID-19 large corporations, are finding ways to keep
COVID-19 pandemic has a huge impact on the customers coming back for more, such as food
franchise sector, which faces significant levels deliveries, clothing and footwear, and cosmetic
of uncertainty and instability due to financial products sold via online stores.
weakening, disruption of operations at work-
places, and the number of consumers plum-
meted. In particular, franchising and distribu-
tion represented a large part of the market
share impacted by COVID-19 due to the gov-
ernment measures, which shut down public
life and suspended business activities to con-
tain the pandemic.
Although, the Greek government took relevant

measures to mitigate the impact of COVID -19,
these measures, such as temporary payment
moratoria, did not cover franchise agreements
fees. Among the measures which helped the
franchising systems to mitigate the impact of
COVID-19 were credit lines and loans for micro,
small and medium-sized companies, flexibility
in the rules for obtaining loans, a moratorium
on debt repayments, and credit lines for small
and medium-sized companies to pay salaries.
Moreover, more recent COVID-19 related legis-

lation granted temporary payment moratoria
93
Guatemala
11
Legal professionals
Region Offices
AMERICAS Guatemala City
Essentials
about Guatemala’s franchising law
1 There is no franchise law.
2 The only law that mentions franchises is the Industrial Property Law,
Decree 57-2000 of the Congress of the Republic of Guatemala. This law
regulates the registration in the Intellectual Property Registry of the license
to use the trademark contained in a franchise agreement.
3 Since 2007, a group of more than 20 local entrepreneurs and franchisors

have joined forces to establish the Guatemalan Franchise Association (AGF).

Estuardo Paganini Asesores y Consultores Corporativos, S. A.
Carmen Mérida (Deloitte Legal)
94
Relevant areas of law Antitrust/Competition Law

Since 1997, Guatemala has been develop-
Legal basis of Franchise law
ing a preliminary draft of the Competition
In Guatemala, there is neither a legal definition
Law through the Ministry of Economy.
of a “franchise” nor a franchise law. Franchises in
However, to date, Guatemala does not
Guatemala have been developed according to
have a Competition Law. The Guatemalan
established business models of other countries
Commercial Code has a section regarding
and replicated in the country. Furthermore, en-
the protection of free competition and acts
trepreneurs and franchisors have created the
of unfair competition. Likewise, the Industrial
Guatemalan Franchise Association with a pur-
Property Law includes a section titled “On
pose of representing the interests of the indus-
the Suppression of Unfair Competition”.
try, both locally and internationally.
These general regulations apply to any com-
Corporate Law mercial or business activity, and are therefore
The most common corporate form of a busi- applicable to franchises. Any contract or fran-
ness organization in Guatemala is locally known chise agreement has to adhere to and respect
as a Sociedad Anónima (“S.A.”), or an incorpo- these provisions.
rated company (“Inc.”). It is easily set up by two
or more people and requires a minimum cap- Employment Law
ital of GTQ200.00, approximately US$30.00. In It is important for the franchisee to maintain
this type of commercial company, the capital is its status as an independent entrepreneur or
divided and represented by shares. The liability merchant. This removes the doubt that the
of each shareholder is limited to the payment franchisee is not an employee of the franchisor.
of shares subscribed by them. The Commercial
If an employment relationship evidence is
Code of Guatemala does not regulate or im-
found between the franchisee and the fran-
pose any type of restrictions on franchises.
chisor, the franchisee could make a claim for
the payment of legal benefits in accordance
with the Labor Code, including severance for
The Consumer and User Protection Law,
time worked.
Decree 06-2003 of the Congress of the Republic
of Guatemala, regulates the rights of consumers The key to reducing this risk is the franchise
and users, contractual protection and the entity agreement, which must clarify the independ-
in charge of ensuring the protection of consum- ence of the parties, and not mention terms
ers and users. However, it does not mention that are specific to an employment relation-
or regulate any matter related to franchises. It ship. These include: salary, schedule, vacations,
is important to note that this law applies to all dependence on an immediate supervisor, etc.
legal acts carried out between suppliers and In addition, these situations cannot occur in
consumers and/or users be they individuals or practice either.
legal entities, national or foreign, and thus, it is
applicable to any franchise model.
95
Law on Commercial Agents the formal process before the Intellectual
Guatemala does not have a specific law on Property Registry. The same law stipulates that
Commercial Agents. However, the Commercial it is not required to register the licenses of a
Code regulates the definition of commercial trademark in order to establish its validity, to
agents as those persons who act permanently, affirm the rights on a trademark or for other
in relation to one or more principals, promoting purposes. If you choose to register the license
commercial contracts or entering into them on of use, the application may be submitted by the
behalf of their name. Commercial agents can owner of the trademark or by the licensee.
be: 1) dependent, if they act on behalf of the
To protect the IP of franchisors, it is necessary
principal, form part of their company and are
to use the available legal mechanisms to avoid
bound to the principal through an employment
any copy or imitations by third parties.
relationship; 2) independent, if they act through
their own company and are bound to the princi-
pal through a commercial contract, also known
If it is necessary to lease a location that com-
as an agency contract. Independent commer-
plies with the instructions of the franchisor,
cial agents may also enter into commercial
within the franchise or business model, it will
contracts on their own account—to sell, dis-
be important to consider the terms for ter-
tribute, promote or place goods or services in
mination of the agreement. For example: 1) if
the national territory, when it has been agreed
the franchise agreement is terminated, will the
with the principal. Individuals or legal entities
lease be terminated too?; or 2) if the franchisor
acting as agents under this law, must register
unilaterally terminates the franchise agree-
as such in the Registry of Agents, Distributors
ment, will it be subrogated in the place of the
and Representatives in the Mercantile Registry.
franchisee in the lease agreement?
Based on the above, the provisions for com-
mercial agents are not applicable to franchises, Selected questions/aspects
in addition to the fact that the relationship of
commercial agents is protected by a specific
contract called an “Agency Contract”.
chisors, and in a sub-franchising structure,
master franchisees have to inform each poten-
IP Law
tial franchisee about all circumstances relevant
The Industrial Property Law, Decree 57-2000
for closing the franchise agreement accurately
of the Congress of the Republic of Guatemala,
and with advance notice. This is not a formal
states that in franchise agreements—specifical-
obligation for the franchisor.
ly for the issuance of trademark use licenses—
the provisions of this law must be applied. For There is neither a statutory list of which infor-
registering the license to use the trademark in- mation has to be made available and in what
dicated in a franchise agreement, the applicant form, nor is there a standard compliance proce-
has to present the section of agreement that re- dure. The pre-contractual disclosure is subject
fers to the license or a summary of it, following to how the interested parties wish to handle it.
96
Pre-contractual information should be in writ- Legal restrictions

en format and a Non-disclosure Agreement Due to the lack of regulation in franchises and
(NDA) should be signed for the protection of franchise agreements, there are also no legal
the franchisor. However, the franchisor does restrictions on them. In general terms, any
not have the obligation to continue making object or activity can be franchised, as long as
or updating the disclosure. This will depend they can be legally and commercially traded.
on their criteria of what information is essen-
tial for the franchisees prior to formalizing the Franchise fees
franchise agreement. Besides the prohibition of usury, there are
no laws in Guatemala regulating the nature,
The franchisees cannot demand the disclosure
amount or payment of franchise fees. The par-
of information in any way, but if an NDA is signed
ties will have to exclusively agree to this in the
and the franchisee violates the terms, the fran-
franchise agreement.
chisor can claim damages in accordance with
what has been stipulated in the agreement. There are no restrictions on a franchisee’s abil-
ity to make payments to a foreign franchisor in
As there is no obligation to register such doc-
the latter’s domestic currency. This shall de-
uments, the disclosure documents and fran-
pend on what is agreed to by the parties in the
chise agreements can be issued in the lan-
guage of each party.
97
98
Confidentiality Renewal and Transfer

Confidentiality clauses in franchise agree- Franchisors are free to decide whether or not
ments (often in combination with a contractual to renew a franchise agreement. If they choose
penalty) are quite common and enforceable in to, renewals should be made explicitly and in
Guatemala. The franchisor can claim the pay- writing. It is admissible to contractually restrict
ment of damages for confidentiality violation, a franchisee’s ability to transfer its franchise,
and it may also be a cause (if stipulated) for ter- typically by requiring explicit prior written ap-
mination of the agreement without any liability proval from the franchisor.
on their part.
Amendments The parties can indicate the applicable law and
The rule should be that all the amendments to form of dispute resolution.
the franchise agreement should be expressive-
The judicial procedure to be followed will de-
ly accepted by the two parties. The franchisee
pend on what matters are sought to be re-
should not be entitled to amend the agree-
solved in court. Usually, the agreement only
ments unilaterally, for e.g., to adapt it to market
stipulates that disputes will be resolved ac-
developments, unless the franchise agreement
cording to the regulations of the Republic of
itself has an express authorization that frees
Guatemala and in the courts of Guatemala City.
the franchisee to do so without their consent.
Arbitration is the most recommended means
However, in case if the franchise agreement
of dispute resolution for the parties in a fran-
does not allow unilateral amendments, but still
chise agreement. Therefore, the franchise
the franchisee creates them for the betterment
agreement must incorporate an arbitration
of the franchise and it is successful in the coun-
clause, providing for the specific center that is
try, the franchisor may choose to accept these
designated for the arbitration. In Guatemala,
changes that it was unaware of previously.
there are two centers for arbitration: 1) The
Arbitration and Conciliation Center of the
Termination
Guatemalan Chamber of Commerce (CENAC)
The conditions for terminating a franchise
and 2) The Conflict Resolution Commission of
agreement should be agreed to by the parties
the Guatemalan Chamber of Industry (CRECIG).
within the same agreement.
For example: After the fulfillment of a term stip- COVID-19

ulated in the contract and by agreement of both There are no changes regarding franchises as a
parties, one of the parties may choose to no result of the COVID-19 pandemic, since to date
longer continue with the franchise agreement there is still no law or court provision regarding
(upon previous notification and compliance with franchises in Guatemala.
the pending obligations) should they wish to, due
to a violation of any of the parties’ obligation, etc.
99
India
6
Legal professionals
Region
APAC
Essentials
about India’s franchising law
1 There does not appear to be any specific legislation that

regulates franchising in India. Rather, franchising arrangements
are generally governed by contract law.
2 Franchisees must withhold certain amounts (as income tax)

when paying royalties and technical fees to overseas franchisors.
3 There does not appear to be a requirement for franchisors to

make any pre-contractual disclosures.

100
Relevant areas of law For example, the FEMA governs payments

made and guarantees issued by Indian fran-
chisees to foreign franchisors, and the Foreign
In India, there does not appear to be a legal
Direct Investment Policy (“FDI Policy”), as issued
definition of “franchise” or specific legisla-
and enforced by the Department of Industrial
tion addressing franchising arrangements.
Policy and Promotion, regulates any proposed
However, many franchisors and franchisees
foreign direct investment into India and lists the
are members of franchise associations, like
sectors in which such investment is permitted.
the Franchising Association of India, which has
formulated a code of conduct that their mem- Furthermore, a franchisee in India must with-
bers are expected to follow (although this is hold tax at a certain rate (usually 20%) on the
not binding). payment of royalties and technical fees to the
overseas franchisor. However, if the franchisor
Franchising arrangements are generally
is located in a jurisdiction that has a double
governed by contract law as codified in the
taxation avoidance treaty with India, the pro-
Contract Act 1872 (“CA”) and supplemented by
visions of that treaty will prevail over Indian tax
general principles of contract law (e.g., an im-
law (so long as the treaty provisions, when ap-
plied obligation on contracting parties to deal
plied, produce a more beneficial outcome for
with each other in good faith). The parties in
the franchisor).
a franchise agreement are generally free to
agree on the terms and conditions of franchise
Corporate Law
arrangements, as long as such arrangements
The most common business structure in India is
do not contravene the CA’s express provisions
a company (either public or private) incorporat-
(e.g., illegality of consideration).
ed in accordance with the Companies Act 2013.
Specifics regarding foreign franchisors To incorporate a company in India, the follow-

There do not appear to be any laws in India ing requirements (among others) must be met:
which require a franchising agreement pre-
• Shareholders/directors:
pared by a foreign entity or governed by a
foreign law to be adapted to a certain form in – public companies must have a minimum of
order to be enforceable in India. However, cer- three (3) directors and seven (7) shareholders;
tain provisions may be contrary to Indian law – private companies must have a minimum of
and should be modified or removed accord- two (2) directors and two (2) shareholders.
ingly—for e.g., under the Foreign Exchange • Corporate information: The names of the
Management Act 1999 (“FEMA”), an Indian fran- proposed directors/shareholders of the
chisee cannot issue a bank guarantee in favour company and the proposed address of the
of a foreign franchisor except under very limit- company’s office must be provided.
ed circumstances.
• Charter documents: A memorandum and arti-
Also, certain Indian laws which govern contrac- cles of association must be prepared and sub-
tual relations with foreign entities may be rele- mitted (along with the “Corporate information”
vant depending on the franchise agreement. above) to the Ministry of Corporate Affairs.
101
All required filings with and payments to rele- Employment Law
vant authorities can be undertaken online, and A franchisee will not be regarded as an employ-
a company can generally be incorporated with- ee of a franchisor and their relationship will be
in one (1) month. treated as between two principals. However, if a
franchisee is deemed to be an “employee”, the
As discussed under the “Specifics Regarding
protections they will enjoy under Indian labour
Foreign Franchisors” section above, the FDI
laws depend on the type of employee which
Policy regulates the formation of foreign busi-
they will be classified as (e.g., “workman” under
ness entities and imposes sector-specific regu-
the Industrial Disputes Act 1947 and Factories
lations on foreign investment.
Act 1948) and the Federal and/or State legisla-
tion that will apply to them based on that classi-
fication and their location of employment.
Franchisees are not covered by the definition of
“consumer” under the Consumer Protection Act To mitigate the risk of establishing an employ-
1986 and will not be protected by its provisions. ment relationship, a franchise agreement may
stipulate that a franchisee will be acting as an
Antitrust/Competition Law independent contractor in its capacity and
Franchising arrangements are regulated by the nothing in the agreement should be construed
Competition Act 2002, which places restrictions as creating an employment relationship be-
on, among others, exclusive distribution agree- tween the franchisor and the franchisee.
ments, territorial and customer restrictions and re-
sale price maintenance. However, franchisors can Law on commercial agents
impose certain reasonable restrictions, like those An “agent” is defined under Indian law as a per-
in connection with the protection of Intellectual son who is employed to act on behalf of anoth-
Property Rights (“IPRs”). In the context of franchise er, or to represent another in dealing with third
agreements, franchisors can impose restraints on parties. For example, if a franchisee is given the
a franchisee to prevent them from carrying on a authority to enter into contracts with third par-
competing business during the term of the fran- ties on behalf of the franchisor, the franchisee
chise agreement. Generally, a franchisor can legal- would be an “agent” of the franchisor and
ly restrict a franchisee from having its own website would have the authority to bind the franchisor
presence, promoting its business on the internet to such contracts.
and engaging in e-commerce activities, insofar as
To mitigate the risk of a franchisee being
these activities are undertaken in connection with
deemed an “agent”, franchise agreements
the franchisee offering products or services which
should be drafted to expressly exclude any
compete with the franchisor’s own offerings.
employment and/or agency relationship.
Further, the Competition Commission of India
must approve any acquisition of shares/voting IP Law
rights/control in an Indian company when cer- Franchise agreements may allow the licencing
tain thresholds (e.g., net assets of a company/ and/or transfer of all forms of IPRs, depend-
corporate group being acquired) are exceeded. ing on the nature of the intended activity or
102
103
business of the franchisee. Franchisors may provides that payments made by an Indian
control, supervise and impose conditions and franchisee to a foreign franchisor must be made
limitations on the exploitation and use of their through an authorised payment institution (i.e.,
IPRs by a franchisee. banks and other organisations which have been
approved by the Reserve Bank of India as “au-
While Indian law does not appear to require
thorised payment institutions”).
IPRs (e.g., licences, patents and trademarks) to
be registered in order to be legally recognised,
Amendments
undertaking relevant registrations (e.g., with
The parties to a franchise agreement are free
the Indian Trade Mark Registry) is advisable in
to agree on terms which allow a franchisor to
order to obtain statutory protection of such
unilaterally amend the terms of the franchise
IPRs under Indian law.
agreement, subject to the provisions of the CA
and general principles of contract law.
Precontractual disclosure Termination
There are no laws in India which require fran- Fixed-term franchise agreements will auto-
chisors to disclose any matters to potential matically terminate on the expiry of the fixed
franchisees prior to entering into a franchis- term—the length of which the parties to a fran-
ing arrangement. Accordingly, potential franchise agreement are free to agree on, subject
chisees should perform their due diligence to the provisions of the CA and general princi-
and evaluate any proposed franchise arrange- ples of contract law.
ment and the franchisor before entering an
There does not appear to be any limitations on
franchising arrangement.
the right of a franchisor to terminate a franchis-
ing agreement under Indian law. The parties to
Legal Restrictions
a franchising agreement are free to agree on
As discussed in “Legal Basis of Franchise Law”
the grounds for terminating such an agree-
above, there does not appear to be any specif-
ment (e.g., material breach of contract, repudi-
ic legislation in India that imposes particular re-
ation), subject to the provisions of the CA and
strictions on provisions in franchise agreements.
general principles of contract law.
Confidentiality
Confidentiality clauses are generally enforcea-
There are no laws in India which require fran-
ble subject to the provisions of the CA and gen-
chisors to renew a franchise agreement. The
eral principles of contract law.
parties to a franchise agreement are free to
agree on provisions in connection with the re-
Franchise fees
newal and transfer of franchise agreements,
As discussed in the “Legal basis of franchise law”
subject to the provisions of the CA and general
section above, the parties to a franchise agree-
principles of contract law.
ment are free to agree on any matters in con-
nection with franchise fees. However, the FEMA
104
Dispute resolution and applicable law Applicable Law

Indian courts will generally defer to the law
that parties have chosen to govern a franchise
Cross-border franchising arrangements may be
agreement, subject to exceptions such as
governed by foreign laws. Accordingly, parties
who wish to resolve disputes in connection with
public policy in India.
such arrangements may resort to arbitration
to avoid jurisdictional issues which may arise
COVID-19
if a claim were brought in an Indian court. Of
Businesses in India have been badly hit by
course, in the absence of a mandatory arbitra-
the COVID-19 pandemic and the Indian gov-
tion or mediation provision in the franchising
ernment has introduced relief measures in
agreement or mutual consent by the parties to
connection with, among others, tax filings,
such dispute resolution options, the parties may
corporate compliance, goods and service tax,
commence proceedings in an Indian court. The
customs and central excise, insolvency and
Judicial system of India is broadly classified into
bankruptcy, fisheries and banking matters. As
three levels (in descending order of superiority):
of 15 July 2021, there does not appear to be
• Supreme Court of India; any COVID-19 related legislation in India that
• High Courts of each state in India; and directly relates to franchising matters.
• District/Subordinate Courts for one or more

districts in India.
105
Indonesia
35
Legal professionals
Region Offices
APAC Jakarta
Essentials
about Indonesia’s franchising law
1 There is an obligation for a franchisor to have a Franchise Offer Prospectus

prepared, pursuant to the Indonesian Franchise Law.
2 Franchisors are required to obtain Surat Tanda Pendaftaran Waralaba/

STPW to enable their franchise business activity.
3 The Indonesian Antitrust/Competition Law expressly states that a franchise

agreement is not subject to the Indonesian Antitrust/Competition Law.
However, in practice, we understand that parties to a franchise agreement
usually consider the Indonesian Antitrust/Competition Law when preparing
the franchise agreement, to avoid scrutiny from the authority.

Cornel B. Juniarto Hermawan Juniarto & Partners,
member of Deloitte Legal Network
106
Relevant areas of Law amount of capital based on the agreements of

shareholders in domestic investment (PMDN
Company), and a minimum of issued and paid-
Under Article 1 of Government Regulation
up capital of IDR 10,000,000,000 for a Foreign
Number 42 of 2007 concerning Franchise (“GR
Direct Investment (PMA Company). The es-
42/2007”) and Article 1 of Regulation of Trade
tablishment costs for PT (PMDN/PMA) are
Minister Number 71 of 2019 concerning Franchise
very moderate. In addition, pursuant to Law
Implementation (“TMR 71/2019”), the definition of
Number 11 of 2020 concerning Job Creation
“franchise” is a special right given to an individual
and Government Regulation Number 8 of 2021
or a business entity with regard to their successful
concerning Company’s Authorized Capital and
business system for marketing goods and/or ser-
Incorporation, Amendment, and Dissolution
vices, so that the system can be utilized and used
of Companies Qualifying as Micro and Small
by other parties based on a franchise agreement.
Enterprises, Indonesia has granted an oppor-
There are certain regulations that specifi- tunity for every individual to establish a micro
cally deal with the franchise issues, name- and small enterprise with a sole proprietorship
ly Law Number 7 of 2014 concerning Trade, of one person.
GR 42/2007, and TMR 71/2019 (“Indonesian
There are restrictions for foreign investors when
Franchise Laws”).
conducting certain businesses in Indonesia,
To carry out franchise business activity, a fran- which refer to the Positive List of Investment
chisor, including a foreign franchisor, is required to (Daftar Positif Indonesia or “DPI”) regulated
obtain a Franchise Registration Certificate (Surat under Presidential Regulation Number 10 of
Tanda Pendaftaran Waralaba or “STPW”) from the 2021, as amended by Presidential Regulation
Ministry of Trade. The Certificate is valid till five Number 49 of 2021, concerning Investment
years and is extendable for another five years. Business Lines. Generally, business sectors
To obtain this Certificate, certain documents are that are not identified under the DPI are con-
required as stated in TMR 71/2019. One of these sidered open for foreign investment without
documents is a prospectus that sets out the of- restriction, unless other specific law and reg-
fered franchise business from the franchisor. In ulation provide otherwise. Also, for several
terms of foreign franchisors, they must legalize identified sectors, there may be maximum for-
their Franchise Offer Prospectus to a public no- eign ownership thresholds applicable (in addi-
tary by attaching a statement letter issued by the tion to other requirements), pursuant to the
Trade Attaché of the Republic of Indonesia or the Indonesian Standard Industrial Classifications
Representative Office of the Republic of Indonesia (Klasifikasi Baku Lapangan Usaha Indonesia or
in the franchisor’s country of origin. “KBLI”). In principle, if the franchisor’s business
activity is not identified under the DPI, it is open
Corporate Law for a foreign investment. However, the legal
The most common corporate form to set up feasibility of the proposed foreign investment
business in Indonesia is the limited liability should be assessed with reference to both the
company (Perseroan Terbatas or “PT”). It can DPI and applicable sectoral regulations.
be easily set up by two or more people with the
107
Consumer Protection Law IP Law
Under the Indonesian Franchise Laws, a fran- Under TMR 71/2019, a franchise business must
chisee is not defined as a consumer but as have its IP right registered. Hence, a franchisor
an individual or a legal entity that is given the must register its franchise business trademark
rights by a franchisor to use the franchise, pursuant to Law Number 20 of 2016 concerning
based on a franchise agreement and protect- Brands and Geographical Indications. It must be
ed by the specific regulations on franchise in taken into account that IP protection for trade-
Indonesia. However, in general, when the fran- marks in Indonesia shall apply in terms of terri-
chisee orders some supplies from the fran- torial basis. Therefore, the franchisor needs to
chisor to carry out their business under a sale register its franchise business trademark with
and purchase agreement, the franchisee will the Director General of Intellectual Property
be treated as a consumer and protected under Rights of Indonesia to protect its brand from in-
the Indonesian Consumer Protection Law. fringement. Please note that a registered trade-
mark with the International Registration of the
Antitrust/Competition Law World Intellectual Property Organization is not
Article 50 (b) of Law Number 5 of 1999 concern- protected under the Indonesian IP Law.
ing Prohibition of Monopolistic Practices and
Unfair Business Competition (“Law 5/1999”) Selected questions/aspects
expressly states that agreements related to
franchise are excluded from the implementa-
Under TMR 71/2019, a franchisor or sub-franchisor
tion of this law. However, in practice, there are
must submit the Franchise Offer Prospectus
legal practitioners and academics that advise
to the prospective franchisee or prospective
a franchise agreement to comply with the re-
sub-franchisee in no later than two weeks prior to
quirements under Law Number 5 of 1999 to
the signing of the franchise agreement.
avoid scrutiny from the authority.
The Franchise Offer Prospectus must be written
Employment Law in Indonesian language and contain the following:
A franchise agreement shall not constitute any
• Identity of franchisor or sub-franchisor;
employment relationship of employee and em-
ployer between the franchisee and the fran- • Business legality of the franchise;
chisor. The franchisee shall remain independ- • History of business activity;
ent as an individual or a legal entity and have • Organization structure of franchisor or
free will to conduct its business activity. sub-franchisor;
• Financial statements of the last two years;
Law on Commercial Agents
Under the Indonesian laws, a franchisee is not • Number of existing business locations;
treated as a commercial agent due to the dif- • List of franchisee or sub-franchisee;
ferences in legal definition and characteristics • Rights and obligations of franchisor or
between commercial agents and franchisees in sub-franchisor and franchisee or sub-fran-
Indonesia. Therefore, regulations on commercial chisee; and
agents are not applicable to franchisees.
• Information on the Intellectual Property
rights of the franchise.
108
109
A franchisor or sub-franchisor has to register • Procedure for royalty payment;
the Franchise Offer Prospectus by filing a re- • Ownership, change of ownership, and rights
quest for the STPW in accordance with the pre- of heir;
vailing laws and regulations. For a foreign fran-
• Dispute resolution;
chisor, the Franchise Offer Prospectus must
be legalized by a public notary by attaching a • Procedure to extend and terminate fran-
statement letter from the Trade Attaché of the chise agreement;
Republic of Indonesia or the Representative • Warranty from franchisor; and
Office of the Republic of Indonesia in the coun- • Number of existing business locations.
try of origin.
Legal restrictions
If a franchisor or sub-franchisor does not regis-
There are restrictions under the provisions of
ter the Franchise Offer Prospectus, the Minister,
Indonesian laws concerning franchise agree-
Governor, or Regent/Mayor—based on their
ments, namely: (i) selling prices of franchises
respective authority, can impose administrative
are prohibited from being fixed as it will elim-
sanctions in the form of written warning letters,
inate price competition between franchisees,
fines, and/or revocation of STPW.
and (ii) franchisors may not prohibit fran-
Administrative sanctions in the form of fines chisees from buying supplies from other par-
are imposed on the franchisors that do not ties, as long as they meet quality standards.
register the Franchise Offer Prospectus af-
ter receiving the third written warning letter. Franchise fees
The maximum amount of such fines is IDR There are no requirements for franchise fees
100,000,000. or royalties in a franchise agreement. The de-
termination of franchise fees or royalties shall
Franchise agreement be made based on the agreement by both par-
A franchise agreement must be written in ties, including the amount of interest that may
Indonesian language and contain the following: be charged on overdue payments. In addition,
payments to a foreign franchisor may be made
• Name and address of the parties;
in the franchisor’s domestic currency.
• Type of the Intellectual Property right;
• Business activity; Confidentiality
• Rights and obligations of franchisor and The confidentiality clause in a franchise agree-
franchisee; ment is very common and enforceable in
Indonesia to protect the Intellectual Property
• Assistance, facility, operational guidance,
right, the know-how, and the characteristics
training, and marketing provided by
of the franchise against any duplication or imi-
franchisor;
tation. Furthermore, a confidentiality clause is
• Business area; advisable to be included in a franchise agree-
• Franchise period; ment, to provide adequate protection for ex-
isting trade secrets.
110
Amendments to Franchise Agreement Supreme Court. The district court system ac-
Considering that a franchise agreement is en- commodates every individual or party with a
tered into between a franchisor and a franchisee, dispute to submit a file to a district court based
the franchisor is unable to unilaterally amend the on the domicile of the defendant, if there is a
agreement without the consent of the franchisee. default in contract/agreement or unlawful act.
It is also recommendable for both parties to
Termination agree on arbitration as an alternative dispute
A franchise agreement is entered into for a cer- resolution forum to settle the dispute between
tain period of time and will be terminated with both parties. It is admissible for both parties to
the lapse of that period. A unilateral termination select one choice of jurisdiction between the
by one of the parties before the franchise peri- district court system and the arbitration in a
od ends is not admissible, unless both parties franchise agreement.
agree on such termination with the procedures
set by both parties in the franchise agreement. Applicable Law
It is expressly required under the Indonesian
Renewal and transfer Franchise Laws that a franchise agreement
There is no obligation for a franchisor to renew must be made, pursuant to the laws of the
a franchise agreement and the franchisor can Republic of Indonesia.
refuse the renewal of the agreement. Usually,
renewals should be done accurately, in writ- COVID-19
ing, and should be agreed by both parties. The Since early 2020, the Covid-19 pandemic has
franchisor may restrict the franchisee to trans- had a huge impact on various sectors, espe-
fer its franchise to sub-franchisees. In addition cially on the economic condition of Indonesia.
to transfer, Indonesian laws require a franchise This also includes the franchise sector as the
agreement to contain a provision on owner- government has issued policies to temporari-
ship, change of ownership, and rights of heir— ly prohibit all non-essential and critical work-
in the event of a franchise ownership transfer ers from working from the office and cease
or upon the death of the franchisor. the operations of shopping centers. Earlier
this month, Indonesia’s president announced
Dispute Resolution and Applicable Law a new restriction policy for parts of Java and
Bali islands, in an effort to contain the rapidly
spreading Delta variant of Covid-19, including
Indonesia adheres to the district court system,
closing mosques, schools, shopping malls, and
consisting district courts for the first court
sport facilities, which affects the sustainability
level, high courts for the appeal level, and the
of franchise businesses in Indonesia.
111
Italy
192
Legal professionals
Region Offices
EMEA Bari, Bologna,
Firenze Genova,
Milano, Padova,
Roma, Torino,
Essentials
about Italy’s franchising law
1 Under law 129/2004 (“Franchising Law”), contracts must be in writing, with mini-
mum duration of three (3) years and expressly include the following information:
• Value of expenses for franchisee;

• Calculation, payment method of royal and minimum revenue for franchisee;
• Potential territorial exclusivity;
• Know-how provided;
• Assistance, training services of franchisor;
• Renewal, resolution, transfer conditions.

Ida Palombella Deloitte Legal Società tra Avvocati a r.l.
Emilio Cucchiara
112
Relevant areas of law parties. In this regard, the subsistence of a sub-

ordinate employment relationship is incompat-
Legal basis of franchise law
ible in such cases.
Franchising agreement is defined as “the con-
tract between two legal entities, which are eco-
nomically and judicially independent, under
An “agent” distinguishes itself from a franchisee
which a party grants a set of industrial or intel-
because the former is considered as a “para-
lectual property rights relating to trademarks,
subordinate”, while the latter is an independ-
trade names, signs, utility models, designs,
ent entrepreneur. Due to this, the franchisee
copyrights, know-how, patents, technical and
takes on and bears the business risk, unlike
commercial assistance or consultancy, by in-
the agent. In addition, the agent’s fee is always
cluding the franchisee in a system consisting of
constituted by a commission on deals carried
a plurality of franchisees distributed through-
out successfully, while the franchisee realizes
out the territory, in order to market certain
its gain by recharging the price of goods or ser-
goods or services”. Furthermore, the general
vices offered, which the franchisee purchases
principles set forth by the Italian Civil Code
from the franchisor and re-sells it in the name
regarding contracts and obligations apply to
and on its own behalf.
franchising agreements.
IP Law
Corporate Law
Protection and regulation of intellectual prop-
Regarding the legal form of the parties in-
erty rights represents the core of the fran-
volved in the franchise agreement, there are
chising agreements. In fact, through such
no limitations under the subjective profile. The
agreements, the franchisor will usually grant
contractual parties can be physical people or
the franchisee a license to use and exploit
legal entities, as long as they qualify as entre-
their intellectual property, particularly their
preneurs pursuant to articles 2082 and 2195
trademarks and know-how, for the purpose of
of the Italian Civil Code.
carrying out the franchising business. In this
regard, the definition of franchising under the
Franchising Law specifies that the franchisor
Potential franchisees are considered entrepre-
must grant the availability of “a set of industrial
neurs and not consumers. With reference to
or intellectual property rights relating to trade-
the initial stage in which the franchisor turns
marks, trade names, signs, utility models, de-
their commercial communication to the po-
signs, copyrights, know-how, patents, technical
tential franchisee to insert in their network,
and commercial assistance or consultancy” to
Legislative Decree No. 145/2007 on misleading
the franchisee.
advertising between companies (B2B) applies.
Several interests come into play, and have to
Employment Law be protected and regulated within the frame-
A crucial assumption for the existence of fran- work of such contracts. On one hand, the
chising agreements is the reciprocal judicial franchisor has an interest in ensuring that
and economic autonomy of the contractual the franchisee uses the licensed rights in an
113
appropriate manner, consistent with the image know-how. Under Franchising Law, “know-
and quality standards of the franchise net- how” is defined as “a patrimony of unpatented
work. On the other hand, the franchisee has an practical knowledge derived from experience
interest in the licensed rights being regularly and tests carried out by the franchisor, which
registered and free from constraints or oppo- is secret, substantial and identified”.
sitions from third parties.These aspects are
To this end, in accordance with the Italian
normally regulated through specific clauses in
Industrial Property Code know-how is granted
contracts, which may also provide for penalties
protection only when:
or express termination clauses in the event of
non-compliance. • it is secret;
Once the franchising agreement has been ter- • it has gained economic value due to it being
minated, the relative license contained therein a secret;
will also be terminated and the franchisee will • adequate measures to maintain it a secret
no longer be authorized to use the franchisor’s are implemented by the owner.
distinctive signs. Following the contract termina- Often, in order to protect the know-how grant-
tion, any abusive use of the intellectual property ed to the franchisee from possible unauthor-
rights by the franchisee may be prevented by the ised uses or disclosures, franchisors will include
franchisor by filing a precautionary injunction. certain clauses in the contracts. These claus-
With regards to the protection of licensed es are aimed at providing an obligation to the
trademarks, Article 122-bis of Legislative franchisee aand its collaborators to use the
Decree n.30/2005 (Italian Industrial Property know-how only for purposes strictly related
Code) provides that the licensee may also be to the contractual performance and for strict
entitled to bring a legal action against the in- confidentiality clauses. Moreover, the franchis-
fringement of licensed trademark, provided ing contract can also state that breach of said
they have obtained the consent of the trade- clause may result in a penalty for the franchisee.
mark owner (i.e., the licensor). Nonetheless, if
the licensee holds an exclusive license and the Selected questions/aspects
trademark owner has failed to act promptly to Precontractual disclosure
protect their intellectual property rights, then Article 4 of the Franchising Law provides that at
the law grants the right to the licensee to bring least 30 days prior to the execution of a franchise
a legal action against the infringer, regardless agreement, the franchisor must deliver to the
of the trademark owner’s consent. Moreover, franchisee a complete copy of the contract to
under a procedural perspective, the licensee be signed together with the following annexes,
may also intervene in an infringement action with the exception of those documents for which
brought by the trademark owner in order to ob- there are objective confidentiality requirements:
tain compensation for the damage suffered.
• main corporate data relating to the franchisor;
For the purpose of carrying out the franchis-
• details concerning the trademarks owned or
ing activity, the franchisor will also grant the
otherwise used by the franchisor;
franchisee a license to use their company
114
• description of the business activity which is 101 TFEU and Article 2 of the Italian Antitrust
the subject of the franchise agreement; Law are possible under the EU-Vertical Block
• list of franchisees operating in the system; Exemption Rule (“V-BER”). This can be possible,
provided that the respective parties to a fran-
• indication of the annual change in the num-
chise agreement do not have a market share of
ber of franchisees and their location;
more than 30% each and the franchise agree-
• description of any proceedings in which the ment does not contain “black clauses” (such as
franchisor is involved. provisions dictating fixed prices or prohibiting
The above-mentioned disclosure obligations passive sales outside a designated territory,
aim at ensuring the protection and the in- etc.,) which would render the whole agreement
formed decision of the prospective franchisee. void. “Grey clauses”, such as a non-compete
If the franchisor omits to provide such informa- obligation exceeding five (5) years, may only
tion at all or provide false information, the fran- cause a specific provision (but not the whole
chisee can claim an annulment of the contract agreement) null and void.
and may be entitled to obtain damages, pursu-
In case of breach of Article 101 TFEU and/or Article
ant to Article 8 of the Franchising Law.
2 of the Italian Antitrust Law, fines up to 10% of the
With regards to the master franchise, two dis- parties’ total turnover may be imposed.
tinct relationships must be considered: (i) be-
Furthermore, a great imbalance in the contrac-
tween franchisor and master franchisee, and
tual rights and obligations between the par-
(ii) between master franchisee and sub-fran-
ties may be qualified as an abuse of economic
chisees (where the master franchisee acts as
dependence pursuant to Law No 192/1998.
a kind of ‘franchisor’ vis-à-vis the sub-fran-
Consequences of abuse of economic depend-
chisees), as follows:
ence infringement include nullity of the agree-
• Considering the relationship between fran- ment, possible actions for damages, and fines
chisor and master franchisee, the latter is the up to 10% of the infringer total turnover.
‘weaker’ party and the disclosure obligations
fall upon franchisor; Franchise Fees
• With respect to the relationship between the Pursuant to Article 3, paragraph 4, b) of the
master franchisee and the sub-franchisees, Franchising Law, the agreement must indicate
the disclosure obligations fall upon the mas- the expenses of the investments and poten-
ter franchisee. tial entrance fees, as well as the method of
calculating the royalties. In case of overdue
Legal restrictions payments, the discipline of default interest ap-
Antitrust/Competition Law plies (Article 1244 of the Italian Civil Code and
Franchise agreements may contain restrictions Legislative Decree 9 October 2002, No 231).
in contrast with Article 101 of Treaty on the The parties can decide to apply a legal rate or
Functioning of the EU (“TFEU”) and/or Article 2 a conventional rate. If the conventional rate is
of the Italian Antitrust Law (Law No. 287/1990). higher than the legal rate, such fee must be de-
Exemptions from the prohibition in Article termined in writing and not exceed the thresh-
old of luxuriousness.
115
Confidentiality right, it is not possible for the franchisee to ex-
Pursuant to Article 5, paragraph 2, of the ercise a unilateral right of withdrawal before the
Franchising Law, the franchisee undertakes to natural expiry of the agreement.
keep the maximum discretion regarding the com-
Pursuant to Article 3 of the Franchising Law,
pany’s activities, even after the termination of the
franchising contracts must last at least three
contract. In practice, the franchisor normally re-
(3) years, but can always be terminated early
quires the franchisee to sign a specific confidenti-
for material breach of one of the parties. This
ality agreement. Confidentiality obligations apply
is in line with general principles provided for by
to both the franchisee and its personnel.
Article 1453 et seq. of the Italian Civil Code.
Amendments
Clauses specifying the goods/services which
The Franchise Act does not provide for a “right
are the subject matter of the franchise relation-
to renewal”; Article 3, by requiring the contract to
ship and the possible power of the franchisor
define the conditions of renewal, has de facto de-
to change the range of products, to eliminate
nied that renewal must necessarily be automatic.
some of them or to introduce new ones, are
normally provided within the franchise agree- It is very common in practice to include claus-
ment. In the absence of a written reservation es providing for a deadline by which the fran-
of this right, the franchisee may object to the chisee must express its willingness to renew
ineffectiveness of the change unilaterally im- the contract; once the deadline has expired,
posed by the franchisor. the contract will be terminated.
With regard to the possibility of assigning

Termination
the Agreement and/or the obligations arising
There is no specific provision on withdrawal
therefrom, franchising agreements are gener-
right provided by Franchising Law. Pursuant
ally considered to be intuitu personae agree-
to Article 1373 of the Italian Civil Code, a party
ments, meaning that personal qualities of the
may withdraw from a contract without any spe-
contracting parties are considered to be of
cific reason only if such a contract specifically
particular importance.
provides for a right of withdrawal. However, in
the absence of such a clause, withdrawal right
cannot be exercised, unless the agreement is
of indefinite duration. Dispute resolution, court system
Pursuant to Article 7 of the Franchising Law, for
Lacking a specific right of withdrawal provided
disputes relating to franchising agreements, the
by the contract, pursuant to Article 1372 of the
parties may agree that, before going to court or
Italian Civil Code a contract may be terminated
resorting to arbitration, an attempt at conciliation
upon mutual consent by the parties.
must be made at the Chamber of Commerce, in
In this case, lacking a specific clause in the agree- whose territory the franchisee is established.
ment granting the franchisee such a withdrawal
116
COVID-19 or omitted fulfilments”. Article 1467 of the Civil

With the recent and prolonged closure of Code further dictates that in long-term con-
non-essential shops, the franchising world has tracts, if the performance of one of the parties
been significantly impacted. The main effect has become excessively burdensome due to
of the pandemic is the concept of frustration unpredictable and extraordinary events, then
and force majeure, and the impossibility of such party can ask for the rescission from
completing certain contractual obligations the contract, with the effects established by
due to the sanitary crisis. In such a situation, Article 1458. However, the code is very clear in
the measures adopted for the Coronavirus that the rescission cannot be asked for if the
constitute a cause for liability exemption from burden is included in the normal contractual
contractual breach. This is regardless of the circumstances. In particular, because fran-
specific contractual provisions, for both the chisees classify as entrepreneurs, they have
franchisors and the franchisees, pursuant to to bear a high degree of business risk. That
and for the purposes of art. 1256 of the Italian said, therefore, although the Covid-19 global
Civil Code. Such exemption was confirmed by disruption has the potential of being a reason
the “Decreto Cura Italia” (DL 18/2020) which, why a contract would be rescinded, a case-to-
as Art.91 specifically explains, provides that case analysis is most suitable. This is because
“compliance with the containment measures is when coming to a judgment, one may have to
always assessed for the purpose of excluding, look at different factors such as governmental
pursuant to and for the purposes of articles subsidies and eventual dispositions that have
1218 and 1223 of the Civil Code, the liability of ordered the closure of certain economic activi-
the debtor, also in relation to the application of ties in specific sectors.
any forfeiture or penalties related to delayed
117
Japan
30
Legal professionals
Region Offices
APAC Osaka, Tokyo
Essentials
about Japan’s franchising law
1 There is no general statute that regulates franchises, and a

franchisor and a franchisee can freely agree on the terms
of a franchise agreement under the principle of freedom of
contract.
2 However, there are several laws affecting franchises that one

should pay attention to, including the Antimonopoly Act.
3 One should also keep an eye on the developments and updates

of the relevant laws as some have been revised recently.

Toru Yamada DT Legal Japan
Tsutomu Yamatoya
118

A branch office and a subsidiary are available
for foreign franchisors to carry on business in
There is no general statute which defines a
Japan. The adoption out of these two options is
“franchise”. However, the Guidelines Concerning
decided primarily from a taxation perspective.
the Franchise System under the Antimonopoly
There are mainly two forms of entity for a sub-
Act (“Guidelines”) published by the Fair Trade
sidiary: the Kabushiki Kaisha (Corporation) and
Commission (“FTC”) describe franchises as fol-
the Godo Kaisha (LLC). The latter is increasing-
lows: The franchise system is generally consid-
ly being selected because the establishment
ered to be a form of business in which the head
fees can be saved and there is no obligation to
office provides the member with the rights to
publish financial statements. It is necessary to
use a specific trademark and trade name, and
check whether or not an advance notification
also provides coordinated control, guidance,
under the FEFTA is required, as it will be re-
and support for the selling of goods, the pro-
quired for foreign investors to set up a branch
vision of services, and other business and its
office or a subsidiary to carry out certain cate-
management of the member. In return, the
gories of business in Japan. The FEFTA is of im-
member pays consideration to the head office.
portance to note because it has been revised
The Small and Medium-sized Retail Business frequently in the past few years.
Promotion Act (“SMRBPA”) defines a “chain
business” as a “business that continuously sells Consumer Protection Law
goods or acts as an intermediary for sales of The Consumer Contract Act, which is the prima-
goods, and provides management-related ry consumer protection law in Japan, regulates
guidance for primarily small and medium-sized “consumer contracts” that are contracts be-
retailers, based on contracts with uniform tween a consumer and a business operator and
terms and conditions” and a “specified chain therefore, in principle, does not apply to fran-
business” as “any chain business with terms chise agreements between business operators.
and conditions that include a provision that
permits its members to use certain trade- Antitrust/Competition Law
marks, trade names, or any other signs, and a When negotiating a franchise agreement, it is
provision that collects membership fees, de- necessary to ensure one’s conduct does not
posits or any other money from the member fall. For example, within the following “unfair
when joining the business.” trade practices” under the Act on Prohibition
of Private Monopolization and Maintenance
Specifics regarding foreign franchisors No re-
of Fair Trade (“Antimonopoly Act”): “luring cus-
striction is imposed on foreign franchisors con-
tomers by deception”, “abuse of dominant bar-
ducting franchise business, just on the basis of
gaining position”, or “restrictive trading”.
it being a franchise. However, an advance notifi-
cation under the Foreign Exchange and Foreign The Guidelines and other guidelines for relevant
Trade Act (“FEFTA”), and industry-specific per- areas published by the FTC provide the factors
mits and licenses may be required. considered for enforcement by the FTC and it is
common practice to take note of and abide by
119
them. The Guidelines were revised in April 2021,
following the publication of the report, “Fact-
Finding Survey about Transactions between Head
Offices of Convenience Stores and Members”
(November 2020). The descriptions of (1) expla-
nations when soliciting, (2) compelling purchases
of certain quantities, (3) 24/7 business, (4) domi-
nant strategy, and (5) sales of closeout items were
newly added in the Guidelines. The FTC may issue
cease and desist orders or impose surcharges for
violations of the Antimonopoly Act.
Employment Law
In practice, the determination of whether some-
one is a “worker” differs depending on wheth-
er one is dealing with the Labor Standards Act
and the Labor Contracts Act, which regulate
individual labor relationships, or dealing with
the Labor Union Act, which regulates collective
labor relationships and it tends to be interpret-
ed broader in the latter case.
If franchisees are deemed to be “workers” under

the Labor Standards Act and the Labor Contracts
Act, there arises the risk that regulations on wag-
es and working hours, prohibitions of the abuse
of dismissal rights, and obligations to protect
workers’ safety will be imposed on franchisors.
However, a court recently decided that a fran-
chisee does not constitute a worker because it
manages the store as an independent business
operator. Also, franchisors need to react to col-
lective bargaining if a union that is organized
by franchisees falls within a “labor union” under
the Labor Union Act. This topic is controversial.
Recently, the Tokyo Labor Relations Commission
ruled that the franchisees in a cram school case
were workers, while the Central Labor Relations
Commission ruled that franchisees in a conveni-
ence store case were not workers. Courts have
yet to decide on the matter.
120
Law on Commercial Agents When conducting a specified chain business

No special restrictions will be imposed if fran- under the SMRBPA, a franchisor must deliver
chisees are deemed to be commercial agents. a document that states the following items
Here, something called “name-lending liability” and explain it in advance: (1) franchise fee and
is worth mentioning. This is where a franchisor deposit, (2) terms and conditions about sales
will bear the same responsibility as the fran- of goods, (3) guidance about management, (4)
chisee against a counterparty in a case where trademarks and trade names, (5) duration, re-
the following requirements are met: (1) there newal, and termination of contract and so on.
is an appearance that the franchisor operates Note that the cabinet ordinance was revised
the store, (2) there is attributability to the fran- and an item will be added to the above from 1
chisor, and (3) the counterparty misconceives April 2022. From that period onwards, it must
the situation. As such, it is advisable to make also state matters regarding income and ex-
sure that a third party can recognize that fran- penditure of the past three business years of
chisees are members of the franchisor, and franchisees that are similar in terms of popu-
to patrol and monitor the operation of fran- lation, traffic, and other location conditions of
chisees regularly. the surrounding area. Although the language
is not specifically designated, it should be in
IP Law Japanese because the counterparties should
Trademarks once registered will be protected be able to understand the content. Against
against infringement by the Trademark Act, non-compliance with the above duties, the au-
under which injunctive relief is available, and thorities may make recommendations for com-
in certain cases, an infringer will be subject pliance and if the recommendations are not
to criminal punishment. Uregistered trade- followed, they may make a public announce-
marks can also be protected by the Unfair ment of that fact.
Competition Prevention Act (“UCPA”) against
In addition, even in cases where the franchisor
certain infringing activities. Know-how, if it falls
does not engage in specified chain business,
within the definition of “trade secrets” under
disclosure of sufficient information when solic-
the UCPA, will be protected against infringing
iting is required under the Antimonopoly Act, as
activities by the UCPA, under which injunctive
the Guidelines explain. If disclosure is not suffi-
relief is available, and in certain cases, an in-
cient, one could fall within “luring customers by
fringer will be subject to criminal punishment.
deception”. As stated above, the FTC may issue
cease and desist orders or impose surcharges
for violations of the Antimonopoly Act.
In any of these events, franchisees may seek
The obligation of a franchisor to explain un-
termination (fraud or mistake) or invalidity (vi-
der the principle of good faith has been rec-
olation of public order and morals) of the con-
ognized by courts and pre-contractual dis-
tract and claim damages (tort or contractual
closure is required by the SMRBPA and the
liability) against the franchisor.
Antimonopoly Act.
121
Legal restrictions concerning the amendment. These can include
In principle, a franchisor and a franchisee may necessity of the amendment, the appropriate-
freely agree on the franchise agreement terms ness of the details of amended conditions,
(the principle of freedom of contract), except whether or not it is provided in the contract
for the restrictions in compulsory provisions that the standard terms may be subject to an
under the Antimonopoly Act and the Civil Code. amendment pursuant to the provisions of the
However, if it were to (although it is unlikely) Civil Code, and the details of such provisions.
fall within “standard terms of contract”, which
were newly introduced by the amendment of Termination
the Civil Code (effective from 1 April 2020), the The parties may, after demand, terminate the
franchisee is deemed to not have agreed to agreement if the counterparty does not per-
provisions (1) that restrict the rights or expand form its obligations and may terminate imme-
the duties of the franchisee and (2) that are diately in certain cases. These circumstances
found, in light of the manner and circumstanc- could be around where the performance of
es of the standard transaction as well as the the obligation becomes impossible under the
common sense in the transaction, to unilater- Civil Code. Other than that, the parties are free
ally prejudice the interests of the franchisee in to agree on situations in which parties can ter-
violation of the principle of good faith. minate the agreement. However, some courts
require circumstances that destroy the rela-
Franchise fees tionship of trust or compelling reasons to be
As long as it is not against public order and unable to continue a contract in order to termi-
morals, a franchisor and a franchisee may free- nate the agreement.
ly agree on the nature, amount, and payment
of franchise fees and late payment penalties. Renewal and transfer
A franchise agreement will terminate upon the
Confidentiality term’s expiry. In practice, a renewal clause is usu-
Confidentiality clauses are enforceable, assuming ally included which provides that the agreement
they are part of the contractual content and thus, automatically renews unless one of the parties
parties may claim injunctive relief and damages. expresses a refusal of renewal by a certain point
in time before the expiration. However, as with
Amendments the cases of termination, some courts require
A franchisor cannot amend a franchise agree- compelling reasons to be unable to continue a
ment unilaterally unless otherwise provided in contract in case of refusal to renew.
the franchise agreement. However, in the case
Further, although it is considered to be an
of standard terms of contract, the franchisor
assignment of contractual status or an as-
may amend agreements unilaterally (1) if the
signment of claims and obligations, under the
amendment conforms to the general interest
Civil Code, a franchisee may not assign its fran-
of the counterparties, or (2) if the amendment
chise without the franchisor’s consent and it is
is not contrary to the purpose of the contract,
common to include an assignment restriction
and it is reasonable given the circumstances
clause in a franchise agreement.
122
Dispute Resolution and Applicable Law of a state of emergency, while at the same time
taking measures to provide compensation
for business operators who cooperate with
Litigation and arbitration (if agreed to) are avail-
the requests. The issues here are, for exam-
able as means of dispute resolution. The court
ple, whether franchisees may terminate their
system of Japan is a threetier system. There is
franchise agreements or whether franchisees
no jury system or discovery. Generally speaking,
may ask for exemptions from the payment of
arbitration is recommended for foreign fran-
royalties (in cases where there is a minimum
chisors in terms of language, confidentiality, and
royalty clause). The applicability of the principle
the professional knowledge of arbitrators.
of clausula rebus sic stantibus to the fact that
franchisees are compelled to close their stores
Applicable Law
and whether Covid-19 pandemic constitutes
In principle, a franchisor and a franchisee may
a force majeure need to be considered. The
freely agree on the applicable law of their fran-
Supreme Court of Japan recognizes clausula
chise agreement.
rebus sic stantibus but is reluctant to apply it to
cases. On the other hand, whether the Covid-19
COVID-19
global disruption constitutes a force majeure
It is not specific to franchises, but during the
will be a case-by-case decision, considering
pandemic, the Japanese government request-
whether parties can possibly foresee the situ-
ed restaurants and commercial facilities, in-
ation. In any event, parties will be required to,
cluding many franchises, to close shops and
and in fact do, negotiate in good faith, which is
shorten business hours under the declaration
the principle under the Civil Code.
123
Latvia
10
Legal professionals
Region Offices
EMEA Riga
Essentials
about Latvia’s franchising law
1 Pre-disclosure obligations apply irrespective of the provisions

of the franchise agreement
2 The commercial secret protection mechanism is available

according to the Commercial Secret Protection law
3 No specific provisions on franchise fees except for payments

related to the non-competition obligation of the franchisee

Ivita Samlaja SIA “ZAB Deloitte Legal”
124
Relevant areas of law The most common corporate form for busi-
ness operations in Latvia is the limited liabil-
ity company (as a “Sabiedrība ar ierobežotu
The legal framework of franchise agreements
atbildību” or “SIA”). SIA requires a minimum
is provided by the Commercial law of Latvia,
share capital of EUR 2800. Another option is
which contains a separate section regarding
to establish a joint-stock company (“Akciju sa-
franchise agreements (Articles 474 to 480).
biedrība” or “AS”). The minimum share capital
Commercial law defines the franchise agree-
requirement for AS is EUR 35000, and AS can
ment. A franchise agreement is an agreement
place its shares in a public offering. For both
by which a merchant (franchisor) grants the
types of companies, only the registered share
other party (franchisee) the right to use a
capital is liable to the company´s creditors, not
trademark, other intellectual property rights,
the shareholders personally. In order to es-
know-how in the sale, distribution, or provi-
tablish SIA or AS, the founders need to sign an
sion of services, under a system developed
agreement or decision on the establishment
and tested by the franchisor (franchise). But
and other documents, appoint a board (for
the franchisee pays the agreed fees (Article
AS also a supervisory board), and register the
474). As the franchise relationship is private
company in the Commercial register.
law, the relationship between merchants,
the legal framework of the franchise agree- Foreign companies often choose to operate in
ment provided in the Commercial law is ap- Latvia through the branch. The branch is not
plicable, if the parties have not agreed other- a legal entity but a part of the company oper-
wise. There are only a few exceptions when ating separately on behalf of the company. To
Commercial law provisions are mandatory establish a branch, a branch manager shall be
(for example, definition of a franchise agree- appointed, and the branch needs to be regis-
ment, pre-contractual obligations). Also, the tered with the Commercial register.
mandatory rules of the public law overrule
the provisions of the franchise agreement (for Consumer Protection Law
example, mandatory licensing regulations for According to the Consumer Rights Protection
particular types of commercial activity, com- Law, a consumer is an individual who buys goods
petition law). or receives services for a purpose not related to
his/her commercial or professional activity. For
Specifics regarding foreign franchisors this reason, the franchisee does not qualify as
There are no restrictions regarding foreign the consumer, and laws and regulations deter-
franchisors. Any person can become a fran- mining consumer rights are not applicable.
chisor and enter into the franchise agreement.
Corporate Law According to the Latvian legislation, the man-
Latvian corporate law does not impose any re- datory rules of the public law overrule the
strictions on operations of foreign merchants provisions of the franchise agreement. Such
in Latvia, nor on franchise systems in particular. kind of public law is the Competition law. The
125
rules on prohibited agreements overrule the the mandatory provisions of law regarding
agreement provisions, which distort competi- the commercial agent apply: (1) the commer-
tion within the territory of Latvia (Art 11 of the cial agent is entitled to receive remuneration
Competition law). The provisions of the fran- every month, the period for the calculation of
chise agreement, which distort competition, remuneration can be prolonged only up to 3
are deemed to be invalid retrospectively, i.e., as months, (2) the minimum termination period
of the moment when the franchise agreement for a commercial agent’s contract by any par-
was concluded. ty is 1 month – if termination is made in the
1st year of the contract, 2 months – if termina-
Employment Law tion is made in the 2nd year of the contract, 3
There is no specific labor regulation related months – if termination is made in the 2nd year
to franchise and employment relationships of the contract, and 4 months – if termination
is governed by the Labor Law. A franchise is made on fourth or subsequent years of con-
agreement is a type of agreement governing a tract, (3) any party can terminate the contract
particular business activity. The employment immediately on the grounds of important rea-
agreement is a different type of agreement son, and other. These mandatory provisions of
according to which an individual undertakes to law prevail over any agreements.
perform certain tasks and is entitled to receive
a salary. Due to significant differences in defi- IP Law
nitions of the substance of these agreements, The trademarks are protected by Trademark
the franchisee should not be considered to be Law as there are no specific provisions about
an employee of the franchisor. To avoid any risk the trademarks used for the franchise.
that a franchise agreement could be consid- Owners of trademarks can acquire the right to
ered to constitute an employment relationship, prohibit the other persons to use their trade-
the franchise agreement should clearly state marks by registering their trademarks – either
the type of relationship between the parties. as International Registration with the World
Intellectual Property Organization (WIPO),
Law on commercial agents as EU Trademark with the EU Intellectual
According to Commercial law, a commercial Property Office (EUIPO) in all 27 EU member
agent activity is a separate type of business ac- countries, or as a national trademark in Latvia
tivity. The commercial agent is a merchant, who only with the Patent Office of the Republic of
is permanently authorized on behalf of and for Latvia. If the trademark is not registered, the
the benefit of the other person (principal). The owner using a non-registered trademark can
agent prepares the conclusion of contracts or only dispute the registration of the trade-
to conclude contracts with the third parties mark by another person and needs to prove
(Article 45 of the Commercial law). There are the rights of the owner of the well-known
no limitations for the franchisor to authorize non-registered trademark.
the franchisee to perform such types of activ-
Know-how is protected as a commercial secret.
ity as part of the franchise agreement. If the
The protection is provided by the Commercial
franchisee acts as a commercial agent, then
law and Commercial Secret Protection Law.
126
The Commercial Secret Protection Law defines agreement, the franchisee is entitled to re-
what type of action is deemed to be lawful and muneration for the whole period of this limi-
what is considered to be unlawful in relation to tation. The remuneration shall be determined
the acquisition, use, and disclosure of the com- in the franchise agreement. However, if the
mercial secret, and commercial secret protec- franchisor terminates the agreement due to
tion mechanism available to the injured party. potential harm to his reputation or due to an
important reason, which was caused by the
Selected questions/aspects fault of a franchisee, the franchisee loses his
right to receive remuneration.
The Commercial law determined that prior to
Confidentiality
entry into the contract the franchisor must
The franchisor has a legal obligation not to dis-
provide the following information to the po-
close to the third party the commercial secret,
tential franchisee: (1) general description of
which has become known to the franchisee
the franchise compliant with the actual cir-
as a result of using the franchise. This obliga-
cumstances, (2) evidence on the existence
tion remains effective five years after the ex-
of rights included in the franchise and gen-
piry of the franchise agreement. Although the
eral description of know-how, (3) franchise
Commercial law section on franchise agree-
term and extension options, (4) franchise fee
ments does not provide a specific definition
and payment terms, (5) other information
of the commercial secret for the franchise, the
the franchisor considers necessary for entry
general rules section of the Commercial law
into franchise contract. The franchisee has
and the Commercial Secret Protection Law de-
a general obligation to disclose significant
fines the information. It is considered a com-
circumstances to the franchisor relevant for
mercial secret, and these definitions also apply
entry into the franchise agreement. The law
to the franchise. Even if the franchise agree-
provides the right to the party of the franchise
ment does not contain the provisions for the
agreement, which has suffered from non-dis-
protection of commercial secrets, these provi-
closure or provision of misleading information
sions of law apply.
by the other party, to terminate the franchise
agreement unilaterally. The Commercial Secret Protection Law pro-
vides a commercial secret protection mecha-
Franchise fees nism, which is made available to the parties to
The franchise fees shall be determined in the protect the information. The injured party may
franchise agreement and are a mandatory ask the court to prohibit the other person or
part of the agreement. The franchise fees to impose an obligation to the other person to
are not regulated by law. Specific payment perform certain actions to protect commercial
obligations are provided by law regarding secrets and terminate unlawful actions with
a non-competition of the franchisee. If the the commercial secret. The injured party may
non-competition clause is included in the also ask the court to order compensation of
agreement limiting the business activity of the loss or non-pecuniary harm.
franchisee after the expiry of the franchise
127
Amendments/ Termination Renewal and transfer
The provisions regarding the franchise agree- The Commercial law does not provide any pro-
ment amendments and termination shall be visions on transfer or renewal of the franchise
included in the agreement. The Commercial agreement. The specific provisions on transfer
law states that any of the parties have a right and renewal should be stated in the franchise
to terminate the franchise agreement accord- agreement. In the agreement, the franchisor
ing to the provisions of law or agreement. If the may prohibit the franchisee from transferring
agreement does not determine otherwise, the the franchise agreement or any claims arising
provisions of the law are applicable. from it to another person.
According to the law, any of the parties may If the agreement does not provide specific
withdraw from the agreement, if the per- provisions regarding renewal and transfer, the
formance on the franchise agreement has general provisions of the law are applicable. In
become too burdensome due to objective such a case, the renewal of the agreement after
change of circumstances or misleading infor- its expiry is possible only by agreement of both
mation regarding the significant circumstances parties. The franchisee can transfer his rights
was provided by the other party before enter- and liabilities arising from the franchise agree-
ing into the contract. ment to another person as part of the business
transfer. It is possible under the provisions of
The law provides that in case if the performance
transfer of merchant’s undertaking provided in
on the franchise agreement has become too
Article 20 of the Commercial law. According to
burdensome due to objective change of circum-
the definition given in the law, the merchant’s
stances, the parties have to perform negotia-
undertaking is an organizational unit of mer-
tions to amend or terminate the contract. The
chant consisting of pool tangible and intangible
party may refer to the objective changes of cir-
assets and other valuable items used for com-
cumstances if: (1) changes have occurred after
mercial activity. If the franchisee transfers its
the entry into the agreement, (2) the party could
undertaking (for example, shop, manufacturing
not foresee the change of circumstances at the
plant) to another person, all rights and obliga-
moment of entry into the franchise agreement,
tions related to it, including the relevant fran-
and (3) the party has not undertaken the risk of
chise agreement, are deemed to be transferred
change of circumstances.
to the acquirer of the undertaking. However, in
In addition, if as a result of the negotiations case of such transfer, the franchisee and the ac-
agreement between the parties to amend or quirer shall maintain joint liability for the trans-
terminate the agreement has not been reached, ferred obligations, which existed before the
any of the parties may ask the court either to transfer, or it will become due within 5 years af-
decide on the termination of the agreement or ter the transfer. This liability provision is manda-
amendments of the contract, determining fair tory and prevails over any provisions of agree-
distribution between the parties of the loss and ment. The same provisions apply in the case of
gains resulting of changed circumstances. transfer of an undertaking by the franchisor in
case, if part of it is a franchise agreement.
128
Dispute resolution and applicable law Applicable Law

The parties of the franchise agreement can
agree on a choice of law to apply to their con-
The parties to a franchise agreement can
tractual relationship. In order to avoid disputes
agree on the venue of the disputes. The par-
on applicable law, the governing law shall be
ties of the franchise agreement may choose
determined in the franchise agreement. If the
that the disputes are reviewed by an arbitra-
agreement on applicable law does not exist,
tion court instead of the state court. In such
then it is determined according to the pro-
case, the arbitration clause shall be included
visions of the Latvian Civil law. The Civil law
in the franchise agreement.
states that in relation to the contractual ob-
If agreement on venue or jurisdiction of arbi- ligations. The applicable law is the law of the
tration court is not made, the claims against country where the obligations have to be per-
any party can be brought to the Latvian state formed. If this country cannot be determined,
courts if the defendant is registered in Latvia then the applicable law is the law of the coun-
or the claim relates to losses that have oc- try where the agreement was concluded.
curred in Latvia.
COVID-19
Latvia has a three-tier court system. The first
No specific legislative provisions have been
instance court is region (city) court, which re-
adopted in relation to the franchise agree-
views the case in merits. The judgment of the
ments. There are only general provisions
first instance court is appealable to the district
adopted influencing all types of contractual
court, which has the competence to review
relationships. Until 1 September 2021, there
disputes on merits repeatedly. After the ap-
is a temporary moratorium for compulsory
pellate court has issued its judgment, the cas-
collection of different types of payments – the
sation complaint regarding the appellate judg-
debtor shall be given 60 days time for volun-
ment can be submitted to the Supreme Court.
tary payment before commencement of the
However, the Supreme Court does not have
compulsory collection process. Also, the ap-
the competence to review the case on merits.
plication for commencement of the debtor’s
The Supreme Court can only verify whether
insolvency process cannot be submitted to the
there was a breach of substantive or pro-
court earlier than 1 September 2021.
cedural law during the review of the case on
merits. If the Supreme Court finds that there
was such breach, it can cancel the judgment
in full or part and return the case to a new re-
view in merits by the first instance or appellate
instance court.
129
Malaysia
6
Legal professionals
Region
APAC
Essentials
about Malaysia’s franchising law
1 In Malaysia, franchising arrangements are governed by the Franchise

Act 1998 (“FA”) and its subsidiary legislation, which prescribe strict
requirements in connection with franchise agreements. It also includes
mandatory terms that must appear in such agreements and the lan-
guage that such agreements must be drafted in;
2 The FA generally treats master franchisees as franchisors, such that

master franchisees are subject to similar obligations as franchisors; and
3 Franchisors do not need to be registered with professional bodies, but

they must register their franchise with certain Government bodies.

130

The most common business structure in
Malaysia is a private limited company incorporat-
We understand that franchising arrange-
ed in accordance with the Companies Act 2016.
ments in Malaysia are governed by the FA and
the Franchise Regulations 1999 (“FR”), which • Shareholders/officers: Every company must
are enforced by the Franchise Development have a minimum of:
Division of the Ministry of Domestic Trade – one (1) director who is ordinarily resident
and Consumer Affairs (“FDD”), and that the in Malaysia;
FA applies to the operation of any franchise in
– one (1) company secretary who is (i) a Ma-
Malaysia and the sale of such a franchise.
laysian citizen or permanent resident and
Under the FA, we understand that a “franchise” (ii) ordinarily resident in Malaysia; and
is generally an agreement under which a fran- – one (1) shareholder.
chisor grants certain rights to the franchisee,
• Corporate information: The names of the
such as the right to operate a business or use
proposed directors/company secretary/
the franchisor’s intellectual property rights
shareholders of the company and the pro-
(“IPRs”), in exchange for the franchisee provid-
posed local address of the company’s office
ing monetary or other consideration.
must be provided.
Generally, in order to undertake franchising • Charter documents: A company constitution
operations in Malaysia, foreign franchisors must be prepared and submitted (along with
must register their franchise with, among the “Corporate information” above) to the
others, the FDD. Companies Commission of Malaysia.
In addition, many franchisors and fran- Most required filings with and payments to
chisees are members of the Malaysian relevant authorities can be undertaken online,
Franchise Association, which has formulated and a company can generally be incorporated
a code of conduct that their members are ex- within a few – usually two (2) – weeks.
pected to follow (although this is not binding
There do not appear to be any unusual restric-
on its members).
tions on foreign ownership of businesses under
Malaysian law, save for (i) acquiring an interest in
companies carrying on business in connection
As noted in “Legal Basis of Franchise Law”
with, among others, financial services, educa-
above, foreign franchisors are generally re-
tion, public utilities, petroleum production, and
quired to register their franchise with the FDD.
shipping and (ii) requirements for members of
For such registration, we understand that local
certain indigenous groups to hold a certain level
authorities typically require the provision of,
of shareholding (usually 30%) in certain compa-
among others, three (3) years of notarised and
nies (e.g., companies acquiring real property in
audited accounts.
Malaysia valued at above RMB20 million).
131
Consumer Protection Law be acting in their capacity as an independent
Franchisees do not appear to be covered by the contractor, and nothing in the agreement,
definition of “consumer” under the Consumer should be construed as creating an employ-
Protection Act 1999 and will not be protected ment relationship between the franchisor and
by its provisions. the franchisee.
Antitrust/Competition Law Law on commercial agents

Franchising arrangements do, however, ap- Generally, the FA provides that a franchising ar-
pear to be covered by the Competition Act rangement will not give rise to any agency rela-
2010, which generally prohibits, among others, tionship between a franchisor and franchisee.
agreements that are targeted at having and/or
in fact have a significant adverse effect on com- IP Law
petition in any market for goods or services. Franchise agreements may allow the licensing
and/or transfer of all forms of IPRs, depend-
Employment Law ing on the nature of the intended activity or
The question of whether a franchisee is an business of the franchisee. A franchisor may
“employee” of a franchisor under common law control, supervise and impose conditions and
principles is a question of fact, which will be limitations on the exploitation and use of their
determined based on a variety of factors such IPRs by a franchisee.
as the degree of control exercised by the fran-
While Malaysian law does not appear to re-
chisor over the franchisee, how the franchisee
quire trademarks or licenses to be registered
is remunerated and whether the franchisee is
to engage in franchising activities, undertak-
obliged to work solely for the franchisor– and
ing relevant registrations with the Intellectual
other factors. Notwithstanding the above, giv-
Property Corporation of Malaysia is advisable
en that a franchisee must typically pay a fran-
in order to obtain statutory protection of such
chisor for, among others, the use/exploitation
IPRs under Malaysian law.
of the franchisor’s intellectual property rights
(“IPRs”) and a franchisor would not usually ex- We understand that the FA specifically pro-
ercise a degree of control over a franchisee to tects a franchisor’s confidential information by
the same extent as an employer would have requiring a franchisee to give the franchisor a
over their employees, we understand that written guarantee that the franchisee and spe-
franchising arrangements are generally unlike- cific related parties (e.g., directors) will not dis-
ly to give rise to an employment relationship close certain confidential information (e.g., in-
under Malaysian law. formation in the franchise operations manual)
to any other person. This obligation continues
To help mitigate the risk of characterization as
throughout the term of the franchise agree-
an employment relationship, a franchise agree-
ment, and for two (2) years, after its expiry or
ment may also stipulate that the franchisee will
termination, whichever is earlier.
132
133
Selected questions/aspects Franchise fees
The FA requires franchise agreements to stipu-
late the franchise/promotion fees or royalties,
Under the FA, a franchisor/master franchisee
which may be payable by a franchisee. Save
must provide any potential franchisee/sub
for this requirement, the parties to a franchise
franchisee respectively with (i) a copy of the
agreement are generally free to agree on any
franchise agreement and (ii) certain docu-
matters in connection with franchise fees.
ments prescribed by the FR (e.g., the back-
ground of the franchisor and details of the
Amendments
franchisor’s directors) at least 10 days before
signing the franchise agreement. Franchisors/
erally free to agree on terms that allow for a
master franchisees who fail to comply will com-
franchisor to unilaterally amend the terms of
mit an offense and may therefore be liable for
the franchise agreement subject to principles
penalties (e.g., fines).
of contract law set out in the Contracts Act
The FA requires franchise agreements to be 1950 (“CA”).
in writing but the language to be used varies
based on the parties as follows: Termination
Generally, the FA requires franchise agree-
• the agreement may be in English where it is
ments to have a minimum term of five (5) years.
between a foreign franchisor and a direct lo-
Subject to this requirement, fixed-term fran-
cal franchisee; and
chise agreements will automatically terminate
• the agreement must be in both Bahasa on the expiry of the fixed term, the length of
Malaysia and English, where it is between which the parties to a franchise agreement are
(i) a local master franchisee and its local generally free to agree on the subject to princi-
sub-franchisee and (ii) a local franchisor and ples of contract law set out in the CA.
a local franchisee.
The FA provides that a franchisor or franchisee
Legal restrictions can generally only terminate a franchise agree-
The FA requires certain compulsory provisions ment before the expiration date for a “good
to be present in all franchise agreements (e.g., cause”, including a failure to comply with the
obligations of the franchisor and franchisee and terms of the franchise agreement, the bank-
details of the territorial rights granted to a fran- ruptcy of either party, or abandonment of the
chisee), which cannot be contracted out of – gen- franchise business.
erally, provisions purporting to do so will be void.
Confidentiality Generally, a franchisor may refuse to extend a
Confidentiality clauses are generally enforcea- franchise agreement if the franchisee:
ble under Malaysian law to the extent that they
• has breached the terms of a previous fran-
are not inconsistent with the mandatory con-
chise agreement; or
fidentiality obligations imposed by the FA as
noted in “IP Law” above. • fails to provide written notice to the franchisor
to renew the term of the franchise agreement.
134
Unless a franchisor can establish either one of COVID-19

the above, it would seem that the FA requires Businesses in Malaysia have been badly hit by
a franchisor to extend the term of a franchise the COVID-19 pandemic, and the Malaysian gov-
agreement on terms that are no less favorable ernment has offered financial support for busi-
than that of the existing franchise agreement if nesses, including providing wage subsidies and
the franchisee has applied for such extension extending deadlines for tax and other filings.
in accordance with the FA. As of July 24, 2021, there does not appear to be
any COVID-19 related legislation in Malaysia that
specifically relates to franchising matters.
erally free to agree on provisions in connection
with the transfer of franchise agreements.

governed by foreign laws. The parties can opt
for dispute resolution by arbitration in a “neu-
tral” location (rather than a Malaysian court). In
the absence of a mandatory arbitration or medi-
ation provision in the franchising agreement or
mutual consent by the parties to such dispute
resolution options, the parties may commence
proceedings in a Malaysian court.
The Judicial system of Malaysia is broadly classified

into four levels (in descending order of superiority):
• Federal Court (appellate jurisdiction and only

by special leave);
• Court of Appeal (appellate jurisdiction only)
• High Courts of Malaysia in (i) Malaya and (ii)
Sabah and Sarawak; and
• Subordinate Courts, consisting of the (i)
Sessions Courts and (ii) Magistrates’ Courts.
Applicable Law
Malaysian courts will generally defer to the
law that the parties have chosen to govern a
franchise agreement (and indeed other agree-
ments), subject to exceptions such as where
contrary to public policy.
135
Mexico
150
Legal professionals
Region Offices
AMERICAS Guadalajara,
Mexico City,
Monterrey,
Tijuana
Essentials
about Mexico’s franchising law
1 The franchise agreement is regulated in Mexican legislation.
2 The franchise has minimum content for its celebration, and the franchisor must
share information with the franchisee prior to the execution of the agreement.
3 The franchisor may have interference in the organization and operation of the
franchisee solely to ensure compliance with the standards of administration
and image of the franchise.

Mauricio Oropeza Deloitte Impuestos y Servicios Legales, S.C.
Melissa Franco
136
Relevant areas of law • The characteristics of the technical and op-

erational training of the franchisee’s staff, as
well as the method or form in which the fran-
In Mexico, the franchise agreement is regu-
chisor will provide technical assistance;
lated in the Federal Law for the Protection of
Industrial Property («Ley Federal de Protección • The criteria, methods, and procedures of
a la Propiedad Industrial»). supervision, information, evaluation, and
qualification of the performance, as well as
In this sense, there will be a franchise with the the quality of the services provided by the
license to use a brand, granted in writing, tech- franchisor and the franchisee;
nical knowledge is transmitted, or technical
• The terms and conditions to sub-franchise, in
assistance is provided so that the person to
the event that the parties so agree;
whom it is granted can produce or sell goods
or provide services in a uniform manner and • The causes for the termination of the franchise,
with the methods operational, commercial and • The assumptions under which the terms or
administrative established by the trademark conditions related to the franchise agreement.
owner, aimed at maintaining the quality, pres- It is worth mentioning that, there will be no
tige, and image of the products or services that obligation of the franchisee to alienate their
it distinguishes. assets to the franchisor or to whom he desig-
According to Mexican law, the franchise agree- nates at the end of the agreement unless oth-
ment must be in writing, containing, at least: erwise agreed and there will also be no obliga-
tion for the franchisee to dispose of or transfer
• The geographical area in which the fran- to the franchisor in any moment, the shares
chisee will carry out the activities that are the of his company or make him a partner unless
object of the agreement; otherwise agreed.
• The location, minimum size, and character-
Intervention of the franchisor: The franchisor
istics of investments in infrastructure, with
may have interference in the organization and
respect to the establishment in which the
operation of the franchisee, solely to ensure
franchisee will carry out the activities derived
compliance with the standards of administration
from the subject of the agreement;
and image of the franchise in accordance with
• The inventory, marketing, and advertising the provisions of the corresponding agreement.
policies, as well as the provisions relating to
the supply of goods and contracting with The franchisor will not be considered to have
suppliers, if applicable; interference in cases of merger, split, trans-
formation, amend of bylaws, transfer of so-
• The policies, procedures, and terms relat-
cial shares, equity, or shares of the franchisee
ed to reimbursements, financing, and other
when this modifies the personal characteris-
compensation payable by the parties under
tics of the franchisee that have been foreseen
the terms agreed in the agreement;
in the respective agreement as a determinant
• The criteria and methods applicable to the de- of the will of the franchisor for the celebration
termination of profit margins or commissions of such agreement with the said franchisee.
of the franchisees;
137
Specifics regarding foreign franchisors However, said the legislation does stipulate the
Currently, there is no restriction in Mexican regulations that must be observed in the fran-
law to establish a foreign franchise in Mexico. chise since, by its nature, it protects the final
However, it is essential to consider that, in the consumer of goods and services.
Foreign Investment Law, certain restrictions are
In addition, those products that are marketed
stipulated in activities that are exclusively re-
under a franchise must observe certain min-
served for Mexican nationals or in which foreign
imum requirements regarding the registered
investment is limited to a certain percentage.
trademark. It is required to register it before
Additionally, in the case of opening branch- the competent IP Mexican authority.
es in Mexico, it is necessary to submit to the
Ministry of Economy the corresponding no- Antitrust/Competition Law
tice or authorization request, according to the Although the applicable law in antitrust does
country of nationality of the company. not regulate franchises per se, it is essential to
consider that, even if there are minimum claus-
Corporate Law es that must be stipulated in the agreement, the
The most common corporate regimes in content in terms of the competition is left to the
Mexico are the Limited Liability Company discretion of the parties, as is the case of setting
(«Sociedad de Responsabilidad Limitada») and prices of products, restriction in terms of con-
the Stock Company («Sociedad Anónima»). In tracting suppliers, among others –since fran-
both corporate regimes, it is essential to have chisor and franchisee are two entities/individ-
a minimum of 2 partners or shareholders, with uals that are not competitors with each other–.
a minimum capital of MXN$1.00.
Additionally, the competent authority, if
In both cases, the procedure implies the au- deemed pertinent, could carry out investiga-
thorization for the use of the corporate name, tions to corroborate whether or not there are
as well as going before a notary public for the monopolistic practices or that there is sub-
formalization of the bylaws and transitory stantial power in the relevant market derived
clauses in which the amount of capital, admin- from the franchise, and, if it is determined that
istrators, proxies, among others, is defined, it does exist, the authority may request the
as well as its registration before the Public correction or suspension of the franchise.
Registry of Commerce, for publicity purposes
before third parties. Employment Law
Under Mexican labor law, the franchisor and
Consumer Protection Law franchisee do not have a relationship of an em-
In Mexico, consumer protection legislation does ployment/social security nature.
not specifically regulate the nature of the fran-
In this case, the provisions contemplated in the
chise or qualifies the franchisee as a consumer
Federal Labor Law and the Social Security Law
since the franchise is understood as a voluntary
will be applicable to regulate the relationship be-
agreement between the parties involved.
tween the franchisee and its employees and the
franchisor and its employees, as the case may be.
138
By exception and under specific assumptions, the

franchisor could be liable before the franchisee’s
workers, according to what is stipulated in the
franchise agreement, but in this case, it must be
proven that there is an employment relationship
between said workers and the franchisee.

In the Commercial Code, various figures are
regulated in this regard: i) factors are consid-
ered to be those people who have the address
of a company or manufacture or commercial
establishment, or are authorized to contract
with respect to all businesses concerning
said establishments or companies, on behalf
of and in the name of their owners; ii) on the
other hand, those who constantly carry out
one or some procedures of the traffic, in the
name and on behalf of the owner of this, will
be considered dependent; iii) the commercial
commission agent, who will be the person who
performs a mandate applied to acts of trade.
IP Law
To protect a brand against third parties in na-
tional territory, the franchisor must register its
brand with the Mexican Institute of Industrial
Property («Instituto Mexicano de la Propiedad
Industrial» “IMPI”). For such purposes, it is al-
ways advisable to search for the trademark
in the categories in which the registration is
sought prior to the start of the registration
procedure.Nevertheless, in some cases, an
international treaty on the matter may be ap-
plicable, by virtue of which, if the trademark is
registered in a Contracting State, the local pro-
cess may be simplified.
139
Selected questions/aspects In the event that the information provided by
the franchisor is not true, the franchisee, in ad-
dition to claiming the nullity of the agreement,
It is to be considered that, whoever grants
may claim the payment of damages that have
a franchise (owner of the trademark), must
been caused by the breach. This right may be
provide the interested party in obtaining the
exercised by the franchisee during one year
franchise (franchisee), the technical, economic
from the conclusion of the agreement. After this
and financial information on the status of its
period has elapsed, he/she will only have the
company, with at least thirty days prior to the
right to demand the nullity of the agreement.
execution of the agreement.
This information must cover, as a minimum: Franchise fees

As it is a private contract, the fees applicable
• Name or company name, domicile and na-
to the franchise will be agreed upon between
tionality of the franchisor;
the parties.
• Description of the franchise;
The Mexican Franchise Association («Asociación
• Age of the original franchisor company and,
Mexicana de Franquicias» “AMF”) indicates that,
where appropriate, master franchisor in the
by virtue of the fact that franchises are currently
business object of the franchise;
a common business model, the cost of each will
• Intellectual property rights involved in the depend on the size and line of business chosen,
franchise; as well as the return on investment that such
• Amounts and concepts of the payments that franchise offers.
the franchisee must cover the franchisor;
• Types of technical assistance and services that Confidentiality
the franchisor must provide to the franchisee; The franchisee must save during the term of the
agreement and, once terminated, the confiden-
• Definition of the territorial area of operation
tiality of the information that has said character
of the negotiation exploited by the franchise;
or of which it has had knowledge and property
• Right of the franchisee to grant or not of the franchisor, as well as the operations and
sub-franchises to third parties and, where activities concluded under the agreement.
appropriate, the requirements what he/she/
it must cover to do it; Amendments
• Obligations of the franchisee regarding the As it is a private agreement, the Mexican au-
confidential information provided by the thority does not intervene in its granting.
franchisor, and Except for its registration, all those modifica-
• In general, the obligations and rights of the tions or amendments to the franchise agree-
franchisee that derive from the termination ment must be commonly agreed between the
of the franchise agreement. intervening parties, always observing the re-
quired formalities –granted in writing– and the
minimum content established by law.
140
Termination Dispute resolution and applicable law

The franchisor and the franchisee may not ter-
minate or terminate unilaterally the franchise
As it is a commercial agreement, any contro-
agreement unless it has been agreed for an
versy raised by virtue of a franchise will be re-
indefinite period or there is a just cause for it.
solved through an ordinary commercial lawsuit
The franchisee or franchisor can terminate the unless, in the same franchise agreement, it is
agreement in advance, whether this happens agreed that arbitration or some alternative dis-
by mutual agreement or by termination, they pute resolution mechanism will be applicable.
must comply with the causes and procedures
agreed in the corresponding agreement. COVID-19
Derived from the pandemic called covid-19,
In the event of violations of such provisions,
various franchises in Mexico had to close due
the early termination made by the franchisor
to mobility restrictions and the economic re-
or franchisee will result in the payment of the
percussions that this pandemic had.
conventional penalties that the parties agreed
in the franchise agreement, or instead to com- Although there is no record of a franchise that
pensation for damages caused. has disappeared in its entirety, it is not uncom-
mon to hear that, in order to maintain the fran-
Renewal and transfer chise, many merchants have chosen to “opti-
For the renewal or transfer of the franchise, mize” their resources.
unless otherwise stipulated in the franchise
To date, financial entities in Mexico have grant-
agreement, it will be necessary for the parties
ed various benefits in terms of loan payment
to agree again on the applicable term, as well
terms, but there has not been a specific meas-
as the terms and conditions thereof or the pro-
ure for the franchise sector.
visions for its transfer observing, at all times,
the minimum content of the franchise agree-
ment stipulated by law.
141
The Netherlands
71
Legal professionals
Region Offices
EMEA Amsterdam,
Eindhoven,
Rotterdam
Essentials
about The Netherlands’ franchising law
1 The Dutch Franchise Act entered into force on January 1st, 2021.
2 The Franchise Act applies to all franchisees established in the Netherlands, even
if parties have chosen foreign applicable law to govern the franchise agreement.
3 A ‘stand-still period’ of four weeks is introduced between the moment on which

the franchisee receives all required information and the moment of signing the
franchise agreement. During this period, no amendments are allowed to be
made to the franchise agreement; the franchisor is not allowed to conclude the
actual franchise agreement or related agreements. They are also not allowed to
request the franchisee to make investments and payments.

Maaike van Velzen Deloitte Legal B.V.
Arthur von Martels
Nathalie Niessen
142

Article 6:230 under g DCC defines a consum-
er as an individual acting for purposes outside
In the Netherlands, the Franchise Act entered
of his business or profession, whereas a fran-
into force on the 1st of January 2021. Article
chisor would normally act within the scope of
7:911 under f of the Dutch Civil Code (“DCC”) de-
its professional activities to exploit the fran-
fines a franchise agreement as: ´the agreement
chise formula. Therefore, a franchisor would in
whereby the franchisor grants to a franchisee,
principle not be qualified as a consumer, but
in exchange for financial consideration, the right
rather as a trader based on Article 6:230 under
and obligation to exploit a franchise formula in
g DCC: ‘a natural person or legal entity acting in
the manner designated by the franchisor for
the course of trade, his business or profession’.
the manufacture or sale of goods or the provi-
sion of services.’ The provisions of the Franchise
Act are of mandatory law as far as franchise
It is inherent to a franchise formula that a fran-
agreements are concluded with franchisees
chisor protects the accumulated knowledge and
established in the Netherlands, regardless of a
safeguards a uniform appearance of the formu-
foreign applicable law clause in the agreement.
la. This protection may go too far, thus violating
the Antitrust Law, more specifically Article 6 of
the Dutch Competition Act and Article 101 of
The Franchise Act applies to all franchisees es-
the Treaty of the Functioning of the European
tablished in the Netherlands, also if the fran-
Union. These Articles prohibit agreements and
chisor is established in a foreign country. There
practices which prevent or restrict the competi-
are no specific regulations applicable to foreign
tion (e.g., price agreements between franchisor
franchisors in the Netherlands.
and franchisee). Certain activities carried out by
cooperative ventures – which includes the fran-
Corporate Law
chise relationship – are exempted from the car-
In practice, an option would be to establish a
tel prohibition in the Decree providing exemp-
private limited company (“B.V.”). There are no
tions for cooperation agreements in the retail
restrictions regarding the formation of foreign
trade sector (“het Besluit vrijstellingen samen-
business entities in the Netherlands, however,
werkingsovereenkomsten detailhandel”). At a
registration in the trade register of the Dutch
European level, the Block Exemption Regulation
Chamber of Commerce (“KvK”) is mandatory for
on Vertical Agreements and the accompanying
all companies. Companies incorporated under
guidelines are particularly important for fran-
foreign law that are not located in an EEA coun-
chise relationships.
try, operate entirely in the Netherlands and do
not have a connection with the country of in-
Employment Law
corporation can be subject to the Companies
For an agreement to qualify as an employment
Formally Registered Abroad Act (“Wet op de
agreement, the parties must have agreed on
formeel buitenlandse vennootschappen”).
the following 4 essential elements: (i) the em-
ployee works for the employer, (ii) the work is
143
carried out personally (the employee cannot be IP Law
replaced), (iii) the employee receives a wage, and Arrangements regarding the protection, en-
(iv) the employee performs his work under the forcement, and use (i.e., exploitation) of IP are
supervision of the employer. If an agreement an important part of the franchise formula. In
qualifies as an employment agreement, Dutch the franchise agreement, parties can agree
Employment Law will be applicable, including that the franchisee is entitled to use the IP
amongst others dismissal laws, continued pay- (e.g., trademarks) by means of a license. The IP
ment of wages, or sick pay. The protection of provision within the franchise agreement may
an employee can be far-reaching under Dutch contain contractual arrangements regarding
Employment Law. To mitigate the risk of the the material and territorial scope of the right to
franchise agreement qualifying as an employ- make use of the IP, the future development of IP,
ment agreement, the franchisor and franchisee enforcement of IP, and use of the IP rights after
should ensure that the agreement is in line with termination. It deserves a recommendation to
the definition and scope of the franchise agree- also include a clear definition of the know-how
ment as provided by Article 7:911 under f DCC shared by the franchisor with the franchisee and
(as described further on page 143). to determine the scope of the use of know-how
by the franchisee in the franchise agreement.
The agency agreement is codified in Book Selected questions/aspects
7 DCC and contains mandatory provisions.
Before the Franchise Act entered into force,
The franchisor must provide the franchisee the
the statutory rules on the agency agreement
following (non-exhaustive list of) information,
would analogously apply when the franchise
at least 4 weeks prior to concluding the fran-
agreement would correspond in substance to
chise agreement, which is labeled the ‘stand-
an agency agreement. Since the Franchise Act
still period’ (as described further on page 142):
has entered into force, the rules governing the
agency agreement do not apply to a franchise • The definitive draft of the franchise agree-
agreement anymore. Attention should be paid ment, including annexes;
to the following aspects to make a distinction • All relevant details for the conclusion of the
between franchise and commercial agency. franchise agreement and necessary financial
Firstly, franchisees pay a fee for the use of information, including the financial numbers
the franchise formula, whereas the commer- regarding investments that the franchisor
cial agent is entitled to a commission under demands from the franchisee;
Section 7:431(1) DCC. Secondly, franchisors
• The extent to and the manner in which the
supervise the way in which franchisees carry
franchisor can develop initiatives through
out their business, while the principles of an
which the franchisor de facto competes with
agent mainly focus on the results. Thirdly, fran-
the franchisee (e.g., setting up a derived for-
chisees act in their name and at their own risk,
mula which may include a webshop with the
whereas agents act in the name and at the risk
same brand name, house style, and products).
of the principal (Article 7:428 DCC).
144
Agreements between the franchisor and fran-

chisee regarding non-disclosure of confidential
information to ensure that confidential informa-
tion provided for (deliberating on) the conclusion
of the franchise agreement will not be disclosed,
are exempt from the ‘stand-still period’. For both
franchisors and franchisees, there is an obliga-
tion to keep each other updated with relevant
information during the term of the franchise
agreement. Disputes in case of violations of the
disclosure obligation by the franchisor will often
be settled through actions based on breach of
contract or tort, which may lead to compensa-
tion for damages if the franchisor is held liable for
disclosure of confidential information.
Legal restrictions
The substantive requirements and limitations on
provisions in the franchise agreement are limited
due to the basic principle of freedom of contract
in Dutch civil law. The franchise agreement must,
however, specifically include a goodwill provision
in case of an acquisition of the business of the
franchisee by the franchisor. The goodwill pro-
vision should be clear regarding how the fran-
chisor and franchisee will determine whether
goodwill exists. If this is the case, it should also
be determined to what extent it is attributable to
the franchisee. The Franchise Act also contains
a framework for permissible agreements regard-
ing non-competition clauses.
Franchise fees
There are no provisions in the Franchise Act
regulating the payment of franchise fees. In
the event of overdue payments, Article 6:119
under a DCC states that a statutory interest of
8% may be charged on the unpaid part of the
sum. In principle, there are no restrictions on
a franchisee’s ability to make payments to a foreign
franchisor in the franchisor’s domestic currency.
145
Confidentiality Amendments
In general, confidentiality clauses to prevent Franchisors will often reserve the right to
unauthorized use or disclosure of confidential make unilateral amendments to the franchise
information are enforceable under Dutch Civil agreement with respect to various subjects.
Law. The EU Trade Secrets Directive, which is The Franchise Act has, however, introduced a
implemented in the Dutch Trade Secrets Act, right of consent for a franchisee with respect
protects certain confidential business infor- to changes – set out in Article 7:921 DCC – that
mation. A franchisor may only rely upon the have (substantial) financial implications for
protection of the Trade Secrets Act if the fol- the franchisee. The consent must be obtained
lowing conditions are met: (i) the information from either a majority of the franchisees with
must not be generally known, (ii) the informa- whom the franchisor has concluded a fran-
tion must have commercial value because it chise agreement or from all individual fran-
is secret, and (iii) legal, technical and organ- chisees affected by the financial implications.
izational measures must have already been
taken to keep the information a secret (e.g., a Termination
confidentiality clause in a contract, encryption Article 7:920 DCC states that parties must
of the information and merely disclosing the agree to compensate for accrued goodwill
confidential business information on a ‘need that may be granted to the franchisee, as far
to know’ basis). In order to protect confidential as the goodwill can be reasonably attributed to
business information that must be provided as the franchisee. This arrangement is limited to
part of the precontractual disclosure process, the situation where the franchisor takes over
the franchisor and franchisee should enter into the franchise for himself or transfers it to a
a non-disclosure agreement. new franchisee. Furthermore, the term of the
postcontractual non-competition clause may
not last longer than 1 year and is limited to: (i)
146
the geographical area where the franchisee treaties concerning the execution of foreign
exploited the franchise, (ii) what is necessary judgments, cases where specialized knowledge
to protect the franchisor’s know-how, and (iii) is required, and cases where confidentiality is
the business activities that compete with the key. Arbitration can, however, be relatively ex-
franchisor’s products and services. pensive compared to the Dutch court system,
because in principle, the administration fee
Renewal and transfer for the ICC International Court of Arbitration is
The Franchise Act does not provide a statutory higher than the fixed court fees.
requirement for franchisors to renew the fran-
chise agreement. Based on the general principle Applicable Law
of freedom of contract in Dutch civil law, parties The provisions of the Franchise Act are of man-
may, however, agree on an obligation to renew. datory law, which means that no derogation
In addition, the principles of reasonableness from the Franchise Act may be made to the
and fairness may limit the franchisor’s freedom detriment of franchisees established in the
to refuse renewal (e.g., when the franchisor has Netherlands, not even when parties have cho-
promised an extension). Based on the general sen foreign applicable law to govern the agree-
principle of freedom of contract the franchisor ment. Solely when franchisees are established
may also restrict a franchisee’s ability to transfer outside of the Netherlands, the franchisors are
its franchise. The franchise agreement will often not bound by the provisions of mandatory law.
require the franchisee to offer its business to
the franchisor or other franchisees. COVID-19
The lockdown measures for COVID-19 have
Dispute resolution and applicable law had a major impact on the franchise sector.
Various courts have addressed the question
of whether tenants are obliged to pay rent if,
The judicial system in the Netherlands is divid-
due to governmental measures, the property
ed into 11 district courts, 4 courts of appeal
cannot be exploited for the purpose for which
and 1 Supreme Court. Disputes can be taken
it is intended. The main argument (however
to court, but there are also forms of alterna-
depending on all circumstances of the case) is
tive dispute resolution available such as me-
that for rental agreements concluded before
diation and arbitration. The Dutch Franchise
the start of the COVID-19 crisis, COVID-19 and
Association (“the NFV”) has established dis-
the subsequent measures must be considered
pute settlement rules for mediation. The Dutch
unforeseen circumstances that are not attrib-
Franchise Association and the Netherlands
utable to the tenant. In short, some courts
Arbitration Institute have also established a
have ruled that the consequences of these
list of ‘franchise arbitrators’ from which par-
unforeseen circumstances have to be shared
ties can select an arbitrator to settle a fran-
equally between the parties. This allowed ten-
chise dispute. Arbitration can be a good option
ants to suspend the payment of rent up to
for disputes involving international franchise
50%, or they were granted a reduction of up to
contracts where one of the parties resides in
50% on the contractual rental fees.
a country that is not bound to international
147
New Zealand
6
Legal professionals
Region
APAC
Essentials
about New Zealand’s franchising law
1 There does not appear to be any specific dedicated

legislation that regulates franchising in New Zealand, and
instead, general principles of contract law would apply;
2 There do not appear to be any laws in New Zealand that

require franchisors to disclose any matters to potential
franchisees prior to entering into a franchising arrangement;
3 Trademarks should generally be registered with the relevant

authority to be enforceable under New Zealand law.

148

The most common business structure in New
Zealand is a limited liability company incorpo-
There does not appear to be either a legal defini-
rated in accordance with the Companies Act
tion of “franchise” under New Zealand law or spe-
1993 (“CA”).
cific legislation addressing franchising arrange-
ments, which are generally governed by contract To incorporate a company in New Zealand, the
law and legislation of general application, such following requirements (among others) must
as the Commerce Act 1986 and Fair Trading Act be met:
1986 (“FTA”) which relate to, among others, trade
• Shareholders/directors: Every company
practices and consumer fair trading matters (e.g.,
must have a minimum of one (1) director
misrepresentations) respectively.
who is (i) ordinarily resident in New Zealand
However, many franchisors and franchisees or (ii) ordinarily resident in Australia and
are members of the Franchise Association also a director of a company incorporated in
of New Zealand, a private association that Australia, and one (1) shareholder.
promotes best-practice franchising in New • Corporate information: Among others, the
Zealand and has formulated its own rules that names of the proposed directors/share-
are binding upon its members, which generally holders of the company and the proposed
comprise franchisors, franchisees, and master local address of the company’s office must
franchisees alike. These internal rules contain be provided.
provisions relating to, among others, disclo-
• Charter documents: A company constitution
sure requirements, rights of termination, and
must be prepared and submitted (along with
dispute resolution.
the “Corporate information” above) to the
New Zealand Companies Office, which is the
national companies registry.
There do not appear to be any specific laws in
New Zealand that require a franchising agree- Most required filings with and payments to
ment prepared by foreign entity or governed relevant authorities can be undertaken online,
by a foreign law to be adapted to a certain form and a company can generally be incorporated
to be enforceable in New Zealand. within approximately 20 working days.
Generally, a franchisee in New Zealand must Consumer Protection Law

withhold tax at a certain rate (which we un- Franchisees do not appear to be covered
derstand to be usually 28%) on the payment by the definition of “consumer” under the
of royalties and technical fees to the overseas Consumer Guarantees Act 1993 and the FTA
franchisor. However, if the franchisor is lo- and will not be protected by the provisions of
cated in a jurisdiction that has a double tax- those statutes.
ation treaty with New Zealand, the provisions
of that treaty will generally prevail over New
Zealand tax law.
149
150
Antitrust/Competition Law should be construed as creating an employ-

As noted in “Legal Basis of Franchise Law” ment relationship between the franchisor and
above, although there do not appear to be any the franchisee.
specific laws in New Zealand addressing fran-
chising arrangements, the Commerce Act 1986, Law on commercial agents
which generally places restrictions on, among We understand that a franchisee is generally
others, agreements that substantially reduce not regarded as an “agent” under New Zealand
competition, territorial restrictions and resale law as they would typically trade in their own
price maintenance (e.g., a franchisor pressuring name, receive income on their own account
a franchisee not to sell products below a certain and be ultimately and directly responsible for
price), may apply to such arrangements. any liability arising in connection with goods or
services they supply.
Employment Law
To help mitigate the risk of characterization as
The Employment Relations Act 2000 is relevant
an agency relationship, a franchise agreement
to the question of whether a franchisee is an
may also stipulate that nothing in the agree-
“employee” of a franchisor and which is a ques-
ment should be construed as creating an
tion of fact based on a variety of factors such
agency relationship between the franchisor
and the franchisee.
is remunerated and whether the franchisee
IP Law
is obliged to work solely for the franchisor–
Franchise agreements may allow the licensing
among other factors.
Notwithstanding the above, given that a fran- ing on the nature of the intended activity or
chisee must typically pay a franchisor for, among business of the franchisee. A franchisor may
others, the use/exploitation of the franchisor’s control, supervise and impose conditions and
intellectual property rights (“IPRs”) and a fran- limitations on the exploitation and use of their
chisor would not usually exercise a degree of IPRs by a franchisee.
control over a franchisee to the same extent as
While New Zealand law does not appear to
an employer would have over their employees,
require trademarks or licenses to be reg-
we understand that franchising arrangements
istered to engage in franchising activities,
are generally unlikely to give rise to an employ-
undertaking relevant registrations with the
ment relationship under New Zealand law.
Intellectual Property Office of New Zealand is
To help mitigate the risk of characterization as advisable to help obtain statutory protection
an employment relationship, a franchise agree- of such IPRs.
ment may also stipulate that the franchisee
will be acting in their capacity as an independ-
ent contractor, and nothing in the agreement
151
Selected questions/aspects cancel contracts entered into based on mis-
representations (under certain circumstances).
There do not appear to be any laws in New
Confidentiality
Zealand that require franchisors to disclose any
Confidentiality clauses are generally enforceable
matters to potential franchisees prior to entering
under New Zealand law.
into a franchising arrangement. It would, there-
fore, be advisable for potential franchisees to
Franchise fees
undertake some due diligence on the franchisor
The parties to a franchise agreement are gener-
and the proposed franchise arrangement before
ally free to agree on any matters in connection
entering into any franchising arrangement.
with franchise fees subject to the provisions of
the CCA and general principles of contract law.
Legal restrictions
While there does not appear to be any specific
Amendments
legislation in New Zealand that requires par-
The parties to a franchise agreement are gener-
ticular provisions to appear or prohibits par-
ally free to agree on terms that allow a franchisor
ticular provisions from appearing in franchise
to unilaterally amend the terms of the franchise
agreements, the Contract and Commercial
agreement, subject to the provisions of the CCA
Law Act 2017 (“CCA”) may protect franchisees
and general principles of contract law.
by giving them, among others, the right to
152
Termination The Judicial system of New Zealand is broadly

The parties to a franchise agreement are gen- classified into four levels (in descending order
erally free to agree on the length of a fixed-term of superiority):
franchise agreement subject to the provisions
• Supreme Court (appellate jurisdiction and
of the CCA and general principles of contract
only by special leave);
law. Such agreements will automatically termi-
nate on the expiry of the fixed term. • Court of Appeal (appellate jurisdiction only);
• High Court; and
Under New Zealand law, there do not appear
to be any limitations on the right of a fran- • District Court.
chisor to terminate a franchising agreement.
Applicable Law
The parties to a franchising agreement are
New Zealand courts will generally defer to the
generally free to agree on the grounds for
law that the parties have chosen to govern a
terminating such an agreement (e.g., material
franchise agreement (and indeed other agree-
breach of contract, repudiation) subject to the
ments), subject to exceptions such as where
provisions of the CCA and general principles of
contrary to public policy.
contract law.
COVID-19
Businesses in New Zealand have been badly hit
There do not appear to be any laws in New
by the COVID-19 pandemic. The New Zealand
Zealand that require franchisors to renew or
government has offered financial support
transfer a franchise agreement. The parties
for businesses and introduced the COVID-19
to a franchise agreement are generally free to
Response (further management measures)
agree on terms in connection with its renewal
Legislation Act 2020, which, among others,
and transfer subject to the provisions of the
modifies the application of the CA to help
CCA and general principles of contract law.
businesses cope with the effects of the pan-
demic. Some of these changes include giving
companies the option to freeze existing debts,
Dispute resolution, court system allowing more extensive use of electronic
Cross-border franchising arrangements may signatures, extending statutory deadlines in
be governed by foreign laws – and the parties connection with general meetings and annual
can opt for dispute resolution by arbitration in returns, and providing safe harbor protections
a “neutral” location (rather than a New Zealand for company directors in connection with insol-
court). In the absence of a binding arbitration vency matters. As of July 24, 2021, there does
agreement expressly reflected in the agree- not appear to be any COVID-19 related legisla-
ment or otherwise agreed by the parties, the tion in New Zealand that specifically relates to
parties may choose to commence proceedings franchising matters.
in a New Zealand court.
153
Norway
53
Legal professionals
Region Offices
EMEA Bergen Vest,
Drammen,
Kristiansand,
Oslo, Rogaland,
Tondheim,
Tonsberg
Essentials
about Norway’s franchising law
1 In Norway, there is no statutory definition of a “franchise” nor is there a specific act

exclusively concerning franchise businesses.
2 The regulation in franchise agreements restricting competition between franchisor

and franchisee, between different franchisees and/or in relation to third parties
must be compliant with the Norwegian Competition Act of 2008.
3 While contractual freedom is a basic principle in Norway, the courts have the com-
petence to amend or set aside severely unbalanced franchise agreements.

Sandra Ihlebæk Deloitte Advokatfirma AS
Live Marie Bjønness-Jacobsen
154
Relevant areas of law capital of NOK 30,000 (approximately EUR

3000). Furthermore, a Norwegian business
address (note that postbox addresses are not
In Norway, there is no statutory definition of the
accepted) and a registration with the Register
word “franchise” and no specific act which exclu-
of Business Enterprises is required. The es-
sively regulates franchise businesses. Instead, a
tablishment costs are moderate, but please
variety of laws and regulations apply whereof
note that the Register must receive a registra-
the most relevant are described briefly below.
tion notification of the company within three
months after the company is established.
Corporate Law
Generally, the company cannot undertake obli-
Both partnerships and limited liability compa-
gations before the registration completion and
nies can be relevant company structures for a
the company is given an organization number.
franchisee. However, private or public limited
liability companies (in Norwegian “AS” or “ASA”) The process of establishing a general partner-
are generally preferred, with private limited lia- ship company is similar to the process described
bility companies being more commonly chosen, above—however, no stating capital is required.
as compliance requirements are less extensive. In a partnership business, the owners (at least
two founding parties) share the risk of liability,
In Norway, establishing a private limited liability
either as a “DA business” with shared liability for
company is done by completing a form with the
the agreed upon share of debt, or an “ANS busi-
signatures of all board members. However, the
ness” with joint unlimited liability.
process may vary depending on the nationali-
ties of board members and/or individuals with
significant roles in the company. Where board
Where there is a legal distinction between “pro-
members do not hold a Norwegian identifica-
fessionals” and “consumers”, Norwegian regula-
tion number, a D-number which allows the for-
tion treats franchisees as professionals. This is
eigner to work or run a business, open a bank
based on an assumption that the franchisee has
account or be a board member in an enter-
the capacity and capability to take on responsi-
prise can be obtained upon application.
bilities of a professional party in an agreement.
In other situations, forms consisting a mem-
However, when a franchisee is doing business
orandum of association and articles of asso-
with consumers, the franchisee must comply with
ciation may be used. However, the concrete
relevant consumer protection laws which pro-
procedures and necessary forms depend on
vides consumers significant rights and protection.
specific circumstances. Citizens from outside
the EU/EEA area need a residence permit, al-
lowing for work to be performed in Norway to
The Norwegian Competition Act of 2008 pro-
run a business.
hibits agreements whose purpose or effect
Regardless of the nationality of the founding is to restrict competition in a market. This
parties, establishment of a private limited li- prohibition may apply to franchise agree-
ability company requires a minimum starting ments as they usually contain a combination
155
of limitations related to products that are dis- Provided that the owner has the right to a trade-
tributed. These include non-compete clauses mark and that consumers view the said trade-
and territorial division clauses providing exclu- mark as well known— thena trademark can also
sive distribution within a defined geographi- be obtained through consistent use. However,
cal area. Such vertical restraints may contain registration is a considerably practical option.
regulations that restrict competition between The Norwegian Trademark Act protects the
franchisor and franchisee in some cases, be- trademark for 10 years at a time and protection
tween different franchisees and or in relation can be renewed. If the trademark is obtained
to third parties to an extent prohibited by the through consistent use, it remains until the trade-
Competition Act, resulting in sanctions. mark owner seizes the use of the trademark.
The business “know-how” can constitute a

Employment Law
trade secret by the Marketing Control Act of
Generally, Norwegian labor laws do not consid-
2009 which provides businesses with some
er the franchisee an employer of the franchisor,
protection. Also, the Trade Secrets Act of 2020
even though the franchisor does exercise power
provides protection of undisclosed trade se-
and influence over the franchisee. Furthermore,
crets against their unlawful acquisition, use
it is the franchisee who will be considered an
and or disclosure. When assessing which in-
employer of the employees in a business.
formation constitutes a trade secret, the impli-
However, if the franchisor controls, instructs cations on the business’ competition strength
and handles a large part of the franchisee’s and the protective measures taken to protect
business, i.e., controls the franchisee’s opening the information becomes relevant.
hours or the terms in individual agreements
with the employees employed by the fran- Selected questions/aspects
chisee, or where the franchisor holds a financial
risk of the franchisee, then the franchisee may
There is no regulation clearly stipulating that
be assessed as an employee of the franchisor.
the franchisor has a duty to inform each poten-
tial franchisee accurately and with reasonable
IP Law and Trademark
advance about all circumstances recognizably
If a trademark is unregistered, the trade-
relevant for the franchise agreement’s conclu-
mark can be registered with the Norwegian
sion. However, a Norwegian district court has de-
Industrial Property Office or with the European
clared a contract void based on article 36 in the
Union Intellectual Property Office for a trade-
Contracts Act, because the franchisee was not
mark, which will have effect in both Norway
given sufficient information about the concept or
and the EU member states. If a trademark is
the financial details. This casemade it impossible
registered in a nation taking part in the WIPO
for them to make a reasonable decision regarding
trademark registration system, an application
the business risk theywere taking on. The con-
of protection in Norway can be sent through
tract also made it difficultfor the franchisee to
WIPO. Note that a Norwegian registration is
profit, while the franchisor would earn profit even
not valid in other countries.
when the franchisee suffered financial losses.
156
157
Legal restrictions invoke the agreement. It is quite seldom that
The primary source of regulation is the fran- agreements are deemed void, and one could
chising agreement. The already existing regu- say that it requires the parties to be significant-
lations on contractual relationships are used to ly uneven in terms of power, combined with a
interpret the franchise agreement. Other than very uneven distribution of duties. Therefore, it
the regulations specifically concerning a busi- is important to enter into agreements that are
ness entity’s establishment, it is important to not, or will not become, unreasonable or go
considerother regulations that may affect the against the general accepted practice.
business entity. This includes the Contracts
The European Franchise Federation (EFF) and
Act, the Personal Data Act, labour law acts and
the International Franchise Association (IFA)
regulations, as well as other acts relevant to
both have a set of ethical rules called “code of
the specific field of business.
ethics”. The European national franchise asso-
As stated, the primary legal source of regula- ciations must include the EFF code of ethics in
tion between parties is the franchising agree- their bylaws. These are not legally binding but
ment itself. Thus, it is crucial to ensure that serve as guidelines for the different European
both the franchisor’s and franchisee’s interests franchise associations and their members.
are considered and that all aspects of the con- Norway does not have a national franchise as-
tractual relationship are regulated. sociation and are therefore, not directly bound
by the EFF ethical guidelines. Nevertheless, the
Contractual freedom is a basic principle in
rules are followed by Norwegian franchisors
Norway. However, it is important to be aware of
and franchisees to a great extent.
its limitations. Due to the naturally unbalanced
relationship between the parties, article 36 in
Franchise fees
the Contracts Act is especially relevant for the
Besides the startup costs of establishing a lim-
limitation of content in franchising contracts.
ited liability company or a general partnership
The purpose of article 36 is to limit contracts
company and other incurred costs as a result
that already were or have become very un-
of owning said company, there are no laws in
fair for one of the parties. If deemed unfair by
Norway regulating the payment of franchise fees.
the courts, the agreement may be partially or
wholly changed or set aside. The judge must
Confidentiality
evaluate the situation in its entirety, and will
consider the agreement’s content, position of
are common and enforceable in Norway.
the parties and circumstances at the time of
the signing the agreement, in addition to sub- Depending on the exact confidentiality clause’s
sequent circumstances and events that may wording, the franchisor may file an injunction
make the agreement unreasonable to invoke. against an infringing franchisee, claim damag-
TThe Norwegian Supreme Court does not use es occurred due to the breach, and possibly
this article widley but it may be used in cases terminate the franchise agreement extraordi-
where it would be “unreasonable or in conflict narily. Furthermore, a confidentiality clause is
with general accepted business practice” to advisable to adequately protect existing trade
158
secrets. According to the Business Secrets Act restrictions on the possibility to arrange arbitra-
of 2020, a trade secret is only protected if the tion instead of a process through the tradition-
owner of the secret has taken appropriate al court system. The parties can also choose/
measures to maintain secrecy. negotiate desired applicable law. However, the
access to arbitration must be included in the
Amendments franchising agreement and must be agreed
The terms for the franchisor’s and franchisee’s upon for consideration. If the parties do not
right to amend the franchise relationship will explicitly agree upon arbitration, the legal pro-
normally be included in the agreement be- ceedings will proceed through the traditional
tween the parties. There is no regulation stat- court system with the applicable law being de-
ing the right to amend the content or nature cided by the Act on Civil Proceedings. The ad-
of the franchising agreement in Norwegian law. vantages of arbitration are the same for foreign
and domestic franchisors. The cost might be
Termination higher than court proceedings in the traditional
The terms for a franchisor’s and franchisee’s court system. Norway is a party to the UN con-
right to end the franchise relationship, either vention on the recognition and enforcement of
with or without cause, will normally be includ- foreign arbitrary decisions, and the Norwegian
ed in the agreement. The agreement will also Arbitration Act opens for the possibility to en-
include whether there is a right to immediate force foreign arbitration decisions.
termination or if it requires notice preceding
the termination. COVID-19
From early 2020 onwards, the COVID-19 pan-
Renewal and transfer demic has had a huge impact especially on the
There is no Norwegian law regulating the franchise sector due to the government shut-
transfer of franchise agreements. However, itt ting down public life to contain the spread of the
is possible to incorporate a clause in the fran- coronavirus. The government has issued sever-
chise agreement that gives the franchisor the al compensation packages to limit the negative
right to approve or disapprove atransfer from effects of the shutdown on businesses. We will
the old franchisee to a new franchisee. not go into detail on what these packages entail,
but several businesses have been compensat-
Dispute Resolution and Applicable Law ed for necessary and inevitable costs in some
Most Norwegian franchising agreements have way, either completely or partially.
an arbitration clause, therefore making the
solution of disputes confidential. There are no
159
Paraguay
2
Legal professionals
Region Offices
AMERICAS Asuncion
Essentials
about Paraguay’s franchising law
1 No specific form or procedure prescribed by law regarding Franchisor´s

precontractual disclosure obligation.
2 Franchisees may be entitled to compensation payment upon termination of

the franchise agreement.
3 Franchisees may adopt any type of company when operations begin.

Daniel Fariña Deloitte Paraguay S.R.L.
160

In Paraguay, there neither is neither a legal defi- Under Paraguayan consumer protection
nition of “franchise”, nor a codified fran-chise law. law, the rights recognized by the law to the
con-sumer may not be objects of resignation,
Corporate Law transaction or conventional limitation and will
The most common corporate form to set up prevail over any legal norm, use, practice, or
business in Paraguay is the Corporation. Those stipulation to the contrary.
are companies where the capital contributed
by partners is represented by shares. Partners Employment Law
are liable towards third parties only until the Care needs to be taken that a franchisee is
concurrence of their respective contributions. not qualified as an employee of the franchisor
This is because the corporation only responds ac-cording to Paraguayan employment law and
to social obligations with its assets. Paraguayan social law. In this case, the decisive
criteria is the grade of the franchisee’s per-son-
The corporation must be constituted by pub-
al dependency. Pursuant to Paraguayan ju-
lic deed, and in the constituent act, identi-fy-
risdiction, someone is an independent bu-
ing the following aspects is essential—the
si-nessperson who is—contractually as well as
partners, denomination, duration, object, the
factually—–free to design their activities and
amount subscribed and paid–in capital, num-
set their working hours, and who understands
ber and nominal value of the shares, method of
a selfentrepreneurial risk.
administration and control, rules under which
they will share the profits and losses, and other
clauses related to corporate transactions.
There are no considerations on the law re-lated to
There is another type of corporate form that commercial agents on the franchise agreements.
is widely used, which is the Limited Liability
Company. This must be constituted by two IP Law
or more people who could be “individuals” or Franchisors need to protect their IP against
a “legal person”. This type of form is char-ac- third parties´ attacks or imitations, especially
terized by the fact that liability is limited to the by registering their trademarks. Locally, there
amount of contributions, by having a small is a Public Office called Dirección Nacional
number of members (not more than 25), for de Propiedad Intelectual (DINAPI), who is in
the total subscription of capital when the charge of the IP register.
company is formed, by the division of capital
in quotas, by the difficulty of transmitting the Real Estate/Tenancy Law
membership quotas, for not having a minimum There are no specific regulation on the fran-chise
capital limit, and for its simplicity of setting up system. The real estate tax is paid by the person
and operation. who owns the land, and it is managed/collected
by the municipality of their location. Regarding
the tenancy, it is subject to VAT and CIT.
161
Precontractual Disclosure
According to the Paraguayan law, there are no
obligation prior to signing a franchise agree-
ment, where the franchisors and in a sub-fran-
chising structure, master franchisees have the
duty to inform each potential franchisee ac-
cu-rately and with reasonable advance about
all circumstances recognizably relevant for
the-franchise agreement’s conclusion. These
are agreements between parties.
Legal restrictions
There is a law that is called “Defensa de la
Competencia” (Competition defense). This
law’s purpose is to defend and promote free
competition in the markets. It is applicable to
all acts, practices or agreements carried out
by natural or legal persons, national or foreign,
with legal domicile in the country or abroad.
This is also applicable whether it is under pub-
lic or private law, or any entities that carry out
economic activities with non-profits and that
produce an effect on competition in all or part
of the national territory,
Law on general terms and conditions (“T&Cs”)

In franchise agreements, it is considered as an
agreement between parties and according to
that, the law is regulated by the agreement itself.
Franchise fees
Besides the prohibition of usury, there are no
laws in Paraguay regulating the payment of
franchise fees.
162
Confidentiality after having issued a fruitlesswarning (advisably in

Confidentiality clauses in franchise agree- writing), and within a rea-sonable period of time
ments (often in combination with a contractual after learning about the circumstances for the ter-
penalty) are very common and enforceable in mination. Unjustified terminations by a franchisor
Paraguay. The franchisor may file an interim might entitle the franchisee to claim damages.
in-junction against an infringing franchisee,
claim damages that might have occurred due Renewal and transfer
to the breach, and possibly terminate the fran- Franchisors are free to decide whether or not
chise agreement extraordinarily. Furthermore, to renew a franchise agreement. If they do so,
a confidentiality clause is advisable in order to renewals should be done explicitly and in writ-
adequately protect existing trade secrets. ing. It is admissible to contractually restrict a
franchisee´s ability to transfer its franchise,
Amendments typically by requiring an explicit prior written
Simply put, if the franchise agreement contains approval of the franchisor.
a precise and reasonable change reservation
clause, taking into account the franchisees’ Dispute Resolution and Applicable Law
in-terests, unilateral amendments of the In principle, it is admissible for the parties of
agreed terms by the franchisor are admissible a franchise agreement to agree on a choice of
as an expression of the franchisor’s obligation law and jurisdiction to be applicable on their
to continuously develop its franchise system contractual relationship, and if the franchisee
ac-cording to changing market conditions. As is a merchant, to agree on a venue clause.
the franchise agreement is an agreement be-
It is also admissible to agree on arbitration as the
tween parties, those amendments would have
exclusive way of resolving disputes be-tween
to be agreed again.
the parties, thus waiving the due pro-cess of
law. This may be favorable as the par-ties may
Termination
choose the language of proceedings and have
Franchise agreements are entered into for a cer-
influence on the arbitrators select-ed. Also, ar-
tain time and terminate after the lapse of that
bitration proceedings are (unlike proceedings
time. A regular termination by one of the parties
before ordinary courts) not held in public.
before that is not admissible, unless both parties
unanimously agree on the same. However, fran-
COVID-19
chise agreements may be termi-nated by each
From early 2020 onwards, the COVID-19
party without notice if it is un-reasonable for the
pan-demic has been having a huge impact on
terminating party to contin-ue the contractual
all the sectors due to the government meas-
relationship until the agreed time of termina-
ures, es-pecially shutting down public life to
tion (good cause). If the termi-nation’s cause is
contain the pandemic. Nevertheless, there
a breach of contractual obli-gation by the other
were no laws, regulations or measures that the
party, e.g., non-payment of franchise fees, the
government has implemented so far, specifi-
termination for good cause is only admissible
cally related to franchise.
163
Peru
7
Legal professionals
Region Offices
AMERICAS Lima
Essentials
about Peru’s franchising law
1 It is not regulated by Law.
2 It is flexible.
3 There are no limitations to celebrate this agreement.

Nevertheless, it is important to entirely cover the
franchise’s aspects in the contract.

Rogelio Gutierrez Deloitte & Touche SRL
164
Relevant areas of law IP Law

In Peru, there is neither a legal definition of Franchisors are able to protect their IP against
“franchise”, nor a codified franchise law. third parties´ attacks or imitations, especial-
ly by registering their trademarks before the
Corporate Law Peruvian authority, Indecopi. It is recommend-
The most common corporate forms to set ed to also carry out research beforehand to
up business in Peru are the Limited Liability prevent the potential loss of the trademark
Company (S.R.L.) or a Corporation in any of later and corresponding claims for disclosure
its tree forms: Closed Corporation, Ordinary and damages.
Corporation or Open Stock Corporation. The
creation of a company in Peru requires a min- Law on commercial agents
imum of two (2) people and the Peruvian Law There is no law on commercial agents in Peru.
does not require a minimum amount of share
capital. However, the banks require a minimum Selected questions/aspects
of PEN 500 to open a bank account. Precontractual disclosure
Additionally, Peruvian corporate law does There are no precontractual disclosure ob-
not impose any restriction on franchise sys- ligations in Peru. However, it is advisable to
tems in particular. request the franchisors to inform about all cir-
cumstances recognizably relevant for the fran-
Consumer Protection Law chise agreement’s conclusion.
Under Peruvian law, individuals seeking to be-
come franchisees and franchisors are not quali- Legal restrictions
fied as consumers, as the intention of their con- There are no restrictions applicable for fran-
duct is business-oriented. Nevertheless, they chise agreements.
will be considered as consumers when they act
outside their business activity. Franchise fees
There are no laws in Peru regulating the pay-
Antitrust/Competition Law ment of franchise fees.
Every company interested to celebrate a fran-
chise agreement will have to comply with the gen- Confidentiality
eral Antitrust and Competition Law. There are no It can be agreed by the parties with the sig-
special regulations for franchise agreements. nature of an NDA and inclusion of confidenti-
ality clauses in franchise agreements (often in
Employment Law combination with a contractual penalty). The
Every company interested to celebrate a fran- franchisor may file a claim against an infringing
chise agreement will have to comply with the franchisee, claim damages occurred due to the
general Employment Law. There are no special breach, and possibly terminate the franchise
regulations for franchise agreements. agreement extraordinarily.
165
166
Amendments Dispute Resolution and Applicable Law

If the franchise agreement contains a precise
Dispute resolution
and reasonable change reservation clause—
The parties have two options: submit their dispute
taking into account the franchisee’s interests—,
to the court or agree to an arbitration clause.
unilateral amendments of the agreed terms by
the franchisor are admissible as an expression Depending on the amount of the claim, complex-
of their obligation to continuously develop its ity of the dispute or the economic, social and/or
franchise system according to changing mar- judicial relevance, the dispute will be resolved in a
ket conditions. Without a respective provision, different kind of track: proceso sumarísimo, pro-
amendments to the franchise agreement may ceso abreviado, and proceso de conocimiento,
only be agreed upon unanimously between the last one being the most complex.
the franchisor and franchisee.
Finally, arbitration is the fastest and a more secure
way to resolve disputes in Peru due to its flexibility.
Termination
Franchise agreements are entered into for
Applicable law
a certain time and terminate with lapse of
The parties are free to agree the applicable law.
that time. A regular termination by one of the
parties before is not admissible, unless both
COVID-19
parties unanimously agree upon the same.
From early 2020 onwards, the COVID-19 pan-
However, the parties are allowed to agree on
demic has been having a huge impact in every
termination clauses in case of a contractual ob-
economic activity due to the government
ligation breach by the other party, within a rea-
measures, especially shutting down public life
sonable period of time after learning about the
to contain the pandemic. There are no COVID-
circumstances for the termination. Unjustified
related legislation affecting the franchising
terminations by a franchisor might entitle the
process directly. Nevertheless, every ministry
franchisee to claim damages.
has established protocols in order to open
business to public.
The renewal and transfer of the franchise
agreement can be freely agreed on by the par-
ties. This must be done with the same agreed
formalities in the first agreement.
167
Poland
112
Legal professionals
Region Offices
EMEA Cracow, Katowice,
Poznań, Szczecin,
Warsaw, Wrocław
Essentials
about Poland’s franchising law
1 No legal definition of the franchise and no legal provisions

dedicated to the franchise agreement.
2 Conclusion and content of the franchise agreement (including,

for example, confidentiality and IP clauses) is generally based on
the freedom of contract rule stipulated by the Polish civil code.
3 Pursuant to the jurisprudence, the franchisor and the

franchisee are deemed entrepreneurs.

Krzysztof Owsianny Deloitte Legal, Ostrowski, Gizicki i Wspólnicy sp.k
168
Relevant areas of Law Corporate Law

There are several forms of doing franchise
business in Poland: sole proprietorship, civ-
There is no definition of franchise in the Polish
il law partnership, capital companies (i.e.,
legal system. Neither the Polish civil code nor
Limited Liability Company and joint-stock com-
other legal acts contain rules governing the
pany) and partnerships (i.e., registered part-
running of a franchise business.
nership, limited partnership, limited joint-stock
The franchise agreement can be concluded on partnership).
the basis of freedom of contract rule, resulting
The most popular form of a business activity are
from the Polish civil code. Pursuant to this rule,
capital companies, i.e., limited liability companies
parties have the freedom to choose a type of
and joint-stock companies. The establishment
contract and can shape its content.
of a capital company requires conclusion of the
However, the primary features of a franchise Articles of Association (in the case of a joint-stock
agreement have been developed through the company–a statute), covering of the share capital
practice of trading. Also, the jurisprudence and entry of the company in the Polish commer-
attempts to define the franchise. Generally, it cial register. A foreign franchisor may hold shares
is indicated that the franchise agreement is a in a Polish capital company and may also be a
contract between entrepreneurs, pursuant to partner in a Polish partnership.
which the franchisor grants the franchisee the
Foreign entities from EU Member States may
right to use the so-called franchise package
also set up a branch of a foreign entrepreneur
when selling goods or services to final custom-
in Poland, if they operate a business in one of
ers. In addition, the franchisor undertakes to
the EU Member States. In case of foreign enti-
provide assistance to the franchisee on a per-
ties from countries outside the EU, it is possible
manent basis.
to establish the branch of a foreign entrepre-
The franchisee carries out business in his neur in Poland, provided that this possibility is
own name and on his own account in the allowed by ratified international agreements.
manner specified in the franchise agreement.
The franchisor is entitled to control the fran- Consumer Protection Law
chisee in this respect and to collect the agreed Consumer is a natural person who carries out a
remuneration. juridical act with an entrepreneur, which is not
directly related to their economic or profession-
Specifics regarding Foreign Franchisors al activity. Since, in accordance with the estab-
Foreign entities wishing to conduct the fran- lished practice of trade and the views of legal
chise business in Poland can be both the fran- doctrine and judicature, it is considered that the
chisor and the franchisee. In general, these parties to the franchise agreement are econom-
entities are subject to the same regulations ic operators (traders), the franchisee does not
as Polish entities and are therefore, subject to have the status of the consumer. Consequently,
similar restrictions under the Polish civil code the franchisee is not entitled to protection re-
and other legal acts. sulting from consumer protection rules.
169
The provisions of antitrust law in the field
of public law impact the franchise agree-
ment’s content. As Poland is a member of the
European Union, both EU law and national law
will apply. When considering the possibility of
concluding the franchise agreement with its
individual clauses, it is necessary to analyze
provisions of antitrust law, in particular those
relating to prohibited restrictive agreements.
Article 101 of the Treaty on the Functioning
of the European Union will be of the greatest
importance in EU law, while Polish law will be
about the Law of 16 February 2007 on the pro-
tection of competition and consumers, and
the Regulation of the Council of Ministers of 30
March 2011 on the exclusion of certain types
of vertical agreements from the prohibition of
restrictive agreements.
The first of these Polish Acts indicates a cata-

logue of prohibited agreements which could
disrupt or distort the functioning of the free
market. The Regulation eases some of the pro-
hibitions on so-called vertical agreements.
Employment Law
Polish labour courts have the power to de-
termine whether a legal relationship can be
regarded as an employment contract and con-
sequently, be subjected to labour law. In gener-
al, the risk of the franchisee being deemed an
employee of the franchisor seems rather small.
Pursuant to the definition of employment rela-
tionship, by entering into an employment rela-
tionship, the employee assumes the obligation
to perform specific work for the employer and
under the employer’s direction at a place and
time specified by the employer. The employer
assumes an obligation to employ the employee
against payment of remuneration. On the basis
170
of the legal doctrine and jurisprudence views, The most important piece of legislation to
a cooperation within the franchise generally protect know-how is the Act on Fair Trading.
does not fulfil the employment relationship It indicates unlawful acts which threaten the
elements indicated above. According to the ju- interests of another trader or customer. One
risprudence, the franchisee is an independent of the acts of unfair competition is a breach of
trader engaged in an economic activity in their business secrecy. It covers the transmission,
own name and on their own account in the disclosure or use of someone else’s trade se-
manner specified in the franchise agreement. cret information or its acquisition from an un-
authorized person if it threatens or prejudices
Law on commercial agents the interests of the trader. In the event when
Under Polish law, a franchise agreement and an the act of unfair competition occurs, the trader
agency agreement are not the same concepts. whose interest has been infringed may claim,
Unlike the franchise contract, the agency con- inter alia, cessation of violations and compen-
tract is a named agreement and is regulated by sation for the damage caused. Know-how may
the Polish civil code. The most important dif- also be subject to copyright protection.
ference between the franchise and the agency
contract is that the agent concludes contracts Selected questions/aspects
for or on behalf of the contract provider, while
the franchisee concludes the contract on their
In light of lack of regulations on the franchise
own behalf and acts on their own account. In
agreement in Polish law, there are no guide-
addition, the agent receives remuneration for
lines on what data and information the parties
their actions in the form of commissions, while
to the contract are obliged to disclose at the
in accordance with the trade practice, the fran-
negotiation stage. Therefore, the scope and
chisee pays remuneration to the franchisor for
procedure for transferring data to each other
support received from them. Therefore, as a
depends on a given agreement.
general rule, restrictions on the agency contract
do not apply to the franchise agreement. In case when a counterparty has not been pro-
vided with all relevant information or when the
IP Law information provided is untrue or incomplete,
The franchise agreement may include ele- then the infringer will be liable under the gen-
ments specific to intellectual property rights eral principles of the Polish civil code. It is also
agreements such as patent licenses, trade- possible to include contractual penalties in the
mark licenses and the know-how agreements. franchise agreement to be paid in case when
the violations described above occur.
The most important Polish Acts governing
the licensing agreements are the Industrial
Legal restrictions
Property Law and the Act on Copyright and
The franchise agreement is an unnamed con-
Related Rights. A franchise agreement may
tract and is therefore not directly governed
contain elements of the licensing agreement
by Polish civil code. There are also no provi-
and the know-how agreement.
sions containing restrictions or limitations
171
specifically related to the franchise agreement. Amendments
The parties to the agreement may shape its Amendments to the franchise agreement re-
content considering the principle of freedom quire consent of all parties to the agreement.
of contract as set out in the Polish civil code In the event of an extraordinary change of rela-
and other rules related to conducting business tions, the court may, at the request of the party,
activity in Poland. amend the content of the contract or even ter-
minate it, using the rebus sic stantibus clause.
Franchise fees This clause will be applicable once three con-
There are no regulations specifying the nature, ditions are met. Firstly, the change in relations
amount and method of payment of franchise fees. between the parties to the agreement must
There are also no statutory restrictions preventing be extraordinary. Secondly, this change must
payments in any currency. These issues depend entail excessive difficulty in performance or
on arrangements of the parties to the agreement, risk a gross loss to one of the parties. Thirdly,
however the fees should be at market value. the parties at the stage of the agreement con-
clusion might not anticipate the impact of an
The parties may determine amount of inter-
extraordinary change of relations on the obli-
est in the contract. The civil code indicates
gation. This clause is used exceptionally in the
the maximum amount of interest for late pay-
case of truly extraordinary events.
ments. Currently, the maximum percentage for
delay is 5.6% per annum. The above limitation
Termination
cannot be excluded in contractual terms, even
The franchise agreement may be concluded
if jurisdiction of foreign law is selected.
for a definite period or for an indefinite peri-
od. Due to the nature of the cooperation, it is
Confidentiality
a long-term agreement. Therefore, it is most
The parties have the option to include confi-
often concluded for an indefinite period or for
dentiality clauses in the franchise agreement.
a definite period covering a longer period, e.g.,
Those provisions should specify precisely what
several years. The franchise agreement may be
information is confidential and what actions
terminated by any party. The parties may spec-
are not permissible with respect to confiden-
ify the termination period and reasons for ter-
tial information. The parties may also indicate
minating the agreement with immediate effect.
a demand for payment of the contractual pen-
The franchise contract may also be terminated
alty in the event of a confidentiality obligation
by a concerted agreement between the parties.
breach.
It is possible that the parties will also be able to Renewal and transfer
claim compensation for the indicated infringe- The parties to the franchise agreement may
ments on a general basis. In such a situation, specify whether the rights and obligations aris-
a plaintiff will have to prove the fact and the ing from the contract are transferable. The par-
amount of the damage caused by the infringe- ties may also determine whether the transfer
ment and the causal link between the damage of contractual rights and obligations to another
and the infringement. entity requires a consent of the counterparty.
172
Dispute Resolution and Applicable Law basis for mediation is the mediation agree-
ment or a court decision directing the case to
mediation proceedings.
Civil law disputes are resolved by common
courts. They are divided into district courts, The parties have the opportunity to take ad-
regional courts and courts of appeal. However, vantage of arbitration proceedings conduct-
the legal proceedings consist of two instances. ed by an arbitral court. In Poland, the most
famous arbitration institution is the Court
In principle, where the subject matter of the
of Arbitration at the National Chamber of
dispute is pecuniary claim, the district courts
Commerce in Warsaw.
are entitled to hear cases in which the value of
the dispute does not exceed PLN 75,000.00. If
Applicable Law
the value of the disputes’s subject matter ex-
Generally, the parties are free to choose
ceeds PLN 75,000.00, the case will be heard by
Polish or foreign law being applicable to the
the regional courts.
It is possible to resolve a dispute amicably in
mediation proceedings. Mediation can be ap- COVID-19
plied in all cases where the outcome depends here are no Polish legal provisions on COVID-19
on the will of the parties, for example, in the directly related to the franchise. Both fran-
case of payment claims. Mediation is carried chisors and franchisees were able to benefit
out before or during legal proceedings. The from support offered to entrepreneurs by the
Polish authorities.
173
Portugal
46
Legal professionals
Region Offices
EMEA Lisboa, Porto
Essentials
about Portugal’s franchising law
1 Commonly executed in Portugal but lack of specific law; governed by general law
and provisions from legal regime of similar contracts. Detailed clauses in agree-
ments and court decisions have been relevant to govern franchise contracts.
2 Franchisor’s Intellectual Property (IP)/know-how need to be registered and protect-

ed to avoid misuse or be unlawfully disclosed by franchisees.
3 Unless otherwise foreseen in the agreement, franchisees are not entitled to clien-
tele indemnity upon its termination. Despite this, Agency Law may be applicable
by analogy since most courts reject franchisee’s right to clientele indemnity, as
franchisee benefits from franchisor’s customer base.

Sofia Barros Carvalhosa CTSU-Sociedade de Advogados SP, RL, SA,
Jacinto Bettencourt the Deloitte Legal practice in Portugal
Maria Carolina Araújo
174
Relevant areas of Law to the complete identification of the parties,

There is no specific legal regime that is ex- the trademark, insignia or similar right that is
pressly applicable to “franchise agreements”. licensed, as well as its national or international
There is also no legal definition of “franchise” registration number, the franchisor and fran-
in Portuguese legislation. However, scholars chisee respective obligations, exclusivity, ter-
and courts commonly define franchise as a ritory, as well as reference to the profession-
contractual relationship entered into between al training, stock, advertising materials, order
the franchisor who authorizes the franchisee requests, confirmation and delivery deadlines,
to carry on a business activity, under the fran- term of the agreement, conditions for renew-
chisor registered and owned mark, insignia or al and termination, are the primary standard
similar. Whereby the franchisor provides and clauses of the franchise agreement.
undertakes to maintain a certain business
The franchisor shall register the trademark, insig-
interest in the activity carried on by the fran-
nia or similar right at local level in advance, unless if
chisee on a continuing basis, providing the
it already benefits from international registration.
required know-how and training, whilst the
franchisee uses the trademark or insignia,the In Portugal, it is common practice to conclude
know-how and methods owned or controlled franchise agreements based upon the existing
by the franchisor, promoting capital invest- regulations from other jurisdiction and from
ment in the business on their own and under- the European Code of Ethics for Franchising,
taking entirely at theirown risk. The guarantee and furthermore based upon Portuguese
of legal independence of the franchisee is rel- court decisions.
evant to define the franchise contractual rela-
tionship, despite in some cases where the fran- Corporate Law
chisor freely decides to become a shareholder The most usual corporate forms adopted and
of the franchisee. incorporated to set up business in Portugal are
private limited liability companies by quotas
The absence of a legal definition and a specific
(“sociedade por quotas/Lda.”) and private lim-
legal regime often leads to doubts and con-
ited liability companies by shares (“sociedade
fusion with other similar distribution agree-
anónima/S.A.”).
ments, in particular with “concession agree-
ments” and “agency agreements”. It occurs A private limited liability company by quotas
namely whenever the agreements that rule may also be incorporated by one sole quota
the franchise do not include detailed, clear, holder who shall be the registered owner of the
and consistent clauses. Therefore, drafting a quota representative of the entire share capi-
franchise agreement accurately becomes sig- tal. In this case, it shall be a sole quota holder
nificantly relevant. The clauses and structure limited liability company by quotas, also called
of the franchise agreement should be com- “Unipessoal, Lda.” The quota holder(s) may
plete, detailed, and clear as possible to prevent freely decide over the share capital amount in-
and avoid any misunderstanding or confusion tended to be paid up for the incorporation of
with other similar contractual situations and a “sociedade por quotas” subject to the legally
to prevent potential disputes later. In addition required minimum amount of one euro. This
175
shall be paid up on the signature date, unless be liable with the person they have appoint-
the quota holder(s) expressly represents and ed. Directors shall be appointed for the term
undertakes to pay the share capital until the foreseen in the by-laws, which shall not ex-
end of the first financial year. Quota holders ceed four calendar years. A Statutory Auditor
are jointly liable for all the share capital entry is also required to be appointed along with an
contributions, up to the amount of the contri- Alternate Statutory Auditor.
butions. In general, only the Company’s assets
In both scenarios, some corporate decisions
are liable for the Company’s debts, unless it is
are mandatorily subject to the resolution of the
foreseen in the by-laws that one or more quo-
quota holder(s)/shareholders, by the majority
ta holders shall be liable towards the Company
of the votes unless whenever the applicable law
but also before its creditors, up to a defined
and by-laws demand a higher percentage major-
cap amount. In case a quota holder settles the
ity for the approval of specific issues. The quota
Company’s debt, they shall have the right to
holder(s)/shareholders decisions shall be taken
demand those amounts against the Company,
in a general meeting or in writing, but in the latter
but not against other quota holders. The com-
case it will imply to be unanimously approved.
panies incorporated as “sociedades por quo-
tas” shall be managed and represented by one
or more appointed directors, who may be a
Pursuant to the Portuguese Consumer
third-party to the company. The appointment
Protection Law, a franchisee does not fall
shall be understood as being without any de-
within the definition of a consumer, as goods
fined office term unless it is otherwise express-
or services delivered or provided by the fran-
ly foreseen under the by-laws.
chisor to it are meant for professional use.
In case of companies incorporated as “socie-
dade anónima/S.A.” and unless the relevant Antitrust/Competition Law
share capital is 100% directly held by a com- Special attention shall be given to certain
pany, establishing the relationship of a group clauses, namely market sharing, pre-pricing,
structure, a minimum of five shareholders for exclusivity and non-compete provisions, as
its incorporation is required. The minimum they may collide with the provisions set forth in
share capital amount in this case is fifty thou- the Treaty on the Functioning of the European
sand (50,000) euros, whose payment may be Union and in the Portuguese Legal framework
deferred in 70%. Each shareholder is liable up for competition. A prior assessment of the
to the amount of the respective shareholding abovementioned clauses should be carefully
in the Company’s share capital. The companies executed whiledrafting the franchise agree-
incorporated as “sociedades anónimas” have ment as well as during its effectiveness, based
to be managed by a board of directors, com- upon the particularities of each concrete case.
posed by the number of directors foreseen in
the Company’s by-laws. A legal person may be Employment Law
appointed as director, provided that they ap- Pursuant to the Portuguese Labor Law, an em-
point an individual to exercise the office in their ployee is someone who is deemed to render
own name. In this case, the legal person shall their intellectual or manual activity to other
176
person/entity—under its authority, control, franchisor’s network, the existence of training

and management, against the payment of a programs, the use of marketing materials pro-
specific remuneration and fulfilling with a spe- vided by the principal, franchisee’s exclusivity
cific labor schedule. Considering that, on the undertakings and level of economic depend-
one hand, neither the franchisee renders any ency of the franchisor, whether the franchisor
activity to the franchisor nor the franchisor shall benefit from the customers developed by
pays to the franchisee a specific remuneration the franchisee in a certain territory).
as under an employment agreement, and on
the other hand, the franchisor does not exer- IP Law
cise a management or disciplinary authority Intellectual Property (“IP”) rights are core in a
over the franchisee. There should be no asso- franchise system to the extent that franchising
ciation between the employment agreement usually encompasses the granting of a license
and the franchise agreement, and the fran- to the franchisee to use franchisor’s trade-
chisee cannot be qualified as an employee of marks, insignias or similar rights, in connection
the franchisor, regardless of the franchisee be- with the marketing and sale of goods or servic-
ing an individual or a company. es pursuant to the franchise agreement.
Safeguarding the IP, particularly by advance

registration of trademarks and insignias (either
Franchise agreements, although very common
at local level, e.g., Portuguese trademarks, in-
in Portugal, are atypical and therefore, not spe-
ternationally or within the European Union),
cifically regulated under Portuguese law, con-
is therefore of critical importance to the fran-
trary to agency contracts.
chisor. For that purpose, it is generally up to the
Nevertheless, Portuguese courts and schol- franchisor to defend its IP against third parties´
ars do not exclude the application thereto of attacks (directly or through a master franchisee)
certain rules of the Portuguese agency law as well as to make sure that the franchisees are
(“Agency Law”), so far as the relevant provi- clearly informed as to how they may or may not
sions may be applicable by analogy to a fran- use the IP in order to prevent any potential mis-
chise agreement. In fact, under the Agency use. The protection of IP further requires clear
Law, an “agent” is defined as a self-employed identification of what needs to be protected
intermediary who has continuing authority to (e.g., databases, software, know-how) and how
negotiate the sale or purchase of goods or ser- (copyrights, trademarks, industrial designs,
vices on behalf of the principal—thus exclud- etc.), consistent registration and enforcement
ing franchisees from being qualified as such. practices, and systematic monetarization of the
Portuguese courts have already ruled out in franchisees’ use of the IP.
favor of the application by analogy of the rules
Additionally, franchise also entails transfer
on termination of the agency agreement. Such
of know-how from the franchisor to the fran-
application is not undisputed and shall always
chisee as a central element of the agreement,
depends on the court’s assessment of the
as otherwise the franchisee will be unable to
particular circumstances (such as, inter alia,
implement the franchise concept. Although
the level of the franchisee’s integration in the
177
know-how is effectively transferred through infringers or to assist the franchisor in any legal
training sessions or the delivery of handbooks actions against infringers; an obligation on the
and manuals, it may still be protected by the franchisee not to assign the rights and obliga-
franchisor, as a trade secret, provided the in- tions under the franchise agreement without
formation in hand (i) is not generally known the franchisor’s consent, etc.
among, or readily accessible to, persons within
the circles that normally deal with the kind of Selected questions/aspects
information in question, (ii) have commercial
value because it is secret, and (iii) has been
As mentioned before, franchise agreements
subject to reasonable steps under the circum-
are not specifically regulated in Portugal, but
stances, by the person lawfully in control of
being subject to the general principles of con-
it, to keep it secret. Where information meets
tract law and the relevant sectorial legislation
the criteria to be qualified as know-how, the
that may be applicable to specific matters.
protection must be sought by way of clear
confidentiality policies and practices by the Franchisors or master franchisees usually pro-
franchisor, the imposition of confidentiality vide potential new franchisees with reason-
undertakings upon franchisees, and legal de- able advance to the execution of a franchise
fense against any illegal acquisition, use or dis- or sub-franchise agreement, with information
closure of know-how either by franchisees or on the circumstances that franchisees need
third parties. to consider prior to entering the agreement.
However, although the provisions of Civil Code
In any case, the franchise contract is a key el-
establish a general duty of good faith—both
ement for proper protection of IP and know-
in the negotiation and performance of an
how, to the extent that it imposes on the fran-
agreement, the Portuguese law does not im-
chisee clear and comprehensive contractual
pose any specific obligations on franchisors
obligations, including in respect of confidenti-
in respect of the information that needs to be
ality and the use of know how licensed by the
disclosed to franchisees, prior to the execution
franchisor only for purposes of exploitation of
of the agreement. This includes any statuto-
the franchise. Additional safeguards may also
ry procedure and minimum notice period to
be implemented through imposition on the
be followed in respect or in connection with
franchisee of other specific obligations, such
subsequent modification or update thereof.
as: an obligation not to engage, directly or in-
Nevertheless, the Portuguese Association of
directly, in any similar business, or to acquire
Franchising as well as most local franchisors or
financial interests in the capital of a competing
master franchisees follow the European Code
undertaking; an obligation to communicate to
of Ethics for Franchising’s guiding principles
the franchisor any experience gained in ex-
and rules, including on the franchisors’ precon-
ploiting the franchise and to grant it, or other
tractual disclosure obligations.
franchisees, a non-exclusive license for the
know-how resulting from that experience; an Additionally, failure to provide a potential fran-
obligation to inform the franchisor of infringe- chisee with all relevant information they need
ments of any IP, to take legal action against to receive and consider prior to entering the
178
franchise contract, in a timely and accurate of confidentiality undertakings upon fran-

matter, may render the franchisor liable for chisees, and legal defense against any illegal
breach of precontractual, negotiation and acquisition, use or disclosure of know-how ei-
good faith duties. In such cases, the franchisee ther by franchisees or third parties.
may be entitled to terminate the contract and
Confidentiality undertakings and notices are
seek compensation for damages.
therefore common in both the franchise con-
tract and documents, manuals and presenta-
Franchise fees
tions passed on or shown to franchisees. This
There is no Portuguese Law that foresees the
is done not only to ensure that franchisees
nature, amount, or payment of franchise fees.
have proper and full understanding of the na-
If the franchisee does not fulfill its obligation to
ture, value and purpose of the information to
timely pay the agreed franchise fees, the fran-
which they have access to, but also to evidence
chisor will be entitled to a compensation cor-
that the franchisor takes reasonable steps to
responding to default interest, which is legally
keep the information secret. Infringers of trade
defined depending on whether the franchisee
secrets may be rendered liable on the grounds
is an individual or legal person.Respectively,
of the contract and tort law, both for damages
this does not withstand the interest that may
or administrative penalties (which may go up
be foreseen under the agreement’s clauses.
EUR 100,000), as well as be subjected to pre-
There are no restrictions to the payment of the
liminary injunctions or protective measures
franchise fees in a foreign currency.
sought or requested by the franchisor.
Confidentiality
Amendments
As mentioned above, the passing of valuable
Unless otherwise expressly foreseen between
information on the franchise business and op-
the parties, amendments to a franchise agree-
erational procedures is a typical element of the
ment may be agreed between the franchisor
franchise. Without such information, the fran-
and the franchisee. Any amendments should
chisee will be unable to implement the fran-
clearly and expressly state to which clause it
chise concept. However, such information may
refers to, either deleted or amended, and the
be qualified as trade secrets to the extent that
new revised wording added therein.
(i) it is not generally known among, or readily
accessible to, people within the circles that
Termination
normally deal with the kind of information in
As noted above, although very common in
question, (ii) have commercial value because it
Portugal, franchise agreements are not spe-
is a secret, and (iii) has been subject to reasona-
cifically regulated under Portuguese law.
ble steps under the circumstances, by the per-
Therefore, like any ongoing contract, a franchise
son lawfully in control of it, to keep it a secret.
agreement normally terminates in accordance
Where information meets the criteria to be
to what is set out in the agreement and addi-
qualified as know-how, the protection may be
tionally, civil law provisions, given that an agree-
sought by way of clear confidentiality policies
ment terminates (i) on expiration term or upon
and practices by the franchisor, the imposition
verification of a condition of termination, (ii) by
179
just cause, (iii) by agreement of the parties or (iv) out and that termination notices longer than
when either party’s notice of termination, with the periods established under the Agency Law,
reasonable term of notice where no specific given the higher level of cooperation between
term has been agreed upon previously. the parties as compared to the one achieved in
most of the agency agreements.
Portuguese courts’ decisions have held, in spe-
cific situations, that certain provisions of the The Agency Law further determines that in
Agency Law on termination (which regulate, e.g., case of an agency agreement’s termination,
the conditions for termination, prior notices and the agent may be entitled to receive a clientele
clientele indemnity) may be applicable by anal- indemnity provided that certain cumulative
ogy to franchise agreements. Under the Agency conditions are met. Such conditions include,
Law, in order to terminate an agency agreement e.g., that the agreement is not terminated due
without a fixed term, the principal is required to a circumstance caused by or attributable
to give notice to the agent with a minimum pri- to the agent (for instance, there is no clientele
or notice period of one month for contracts in indemnity if the agreement is terminated due
force for less than one year; two months for to a serious breach of the agent’s obligations);
agreements in force for more than one year that the agent has developed and increased
and less than two years; and three months for the business of the principal; that after the ter-
agreements in force for more than two years. mination of the agreement the principal shall
However, the Portuguese Supreme Court of continue to profit significantly from the agent’s
Justice ruled out that the prior notice periods activity (i.e., in case the principal shall have a
established in Agency Law are not directly ap- relevant access to the clients after termina-
plicable to a franchise agreement but should be tion); and that the agent ceases to receive any
viewed as a reference. The Supreme Court also remuneration for contracts negotiated or en-
considered that a case-by-case assessment of tered into after the termination, with clients ar-
the prior notice’s adequacy needs to be carried ranged by them. This is a mandatory rule that
180
cannot be derogated by the parties. Dispute Resolution and Applicable Law

The application of clientele indemnity’s provi- Dispute resolution, court system
sions to franchise agreements is generally re- For purposes of dispute resolution, the parties
jected by most courts in Portugal, on the basis may resort to the court system or to arbitration.
that it is the franchisee–not the franchisor– In the latter option, it requires to be foreseen in
who typically benefits from the franchisor’ the provisions of the franchise agreement.
customer base and established business.
The Portuguese court system is divided into
However, a decision from the Lisbon Appeal
three hierarchy levels (i) court of first instance,
Court confirmed this indemnity can be claimed
which is divided as well into local courts (for
by a franchisee under a franchise agreement in
lawsuits with value up to EUR 50,000) and cen-
accordance with the provisions of the Agency
tral courts (for lawsuits with value higher than
Law (though in aspecific case, it rejected to
EUR 50,000); (ii) courts of appeal and (iii) su-
award the indemnity because the agreement’s
preme court of appeal.
cessation had been caused by the franchisee).
The Supreme Court of Justice decided that this In the agreement, the parties may choose the
indemnity can be claimed only when the fran- courts which shall have territorial jurisdiction
chisee evidences that they had an important to settle any dispute arising from the fran-
role in bringing new clients to the franchisor chise agreement.
or for the increase of its business (in a specific
case, the indemnity claimed by the franchisee Applicable law
was not awarded since the Court understood The parties may freely agree on the applicable
that no evidence had been provided in relation law which shall govern the franchise agree-
to such role of the franchisee). ment. The governing law clause should be fore-
seen in the franchise agreement. However, it
Renewal and transfer should be noted that Agency Law—whose pro-
The parties may foresee an automatic re- visions may, in certain circumstances, be also
newal of the agreement once the initial term applicable by analogy to termination of fran-
expires for an additional period as they see chise agreements—determines that an agent
fit. Otherwise, franchisors may propose an running its business exclusively or mainly in
extension of the franchise agreement to the Portugal shall benefit from the rules on cessa-
franchisees, in which case the parties shall tion of the agreement, insofar as they are more
conclude an amendment to the initial agree- favorable to it than the ones established in the
ment. An assignment of the franchise by the law chosen by the parties to govern the sub-
franchisee is subject to prior written consent stance of the agency agreement. Therefore,
of the franchisor, unless otherwise agreed by where Agency Law rules are deemed applica-
the parties. ble, the parties’ choice in respect of the appli-
cable law may be overridden.
181
Romania
62
Legal professionals
Region Offices
EMEA Bucharest, Cluj
Essentials
about Romania’s franchising law
1 All franchising agreements should be registered within the National

Franchise Registry;
2 The precontractual information that the franchisor is required to

provide to the franchisee is expressly regulated. However, there is
no restriction regarding the language in which such precontractual
information is provided;
3 The Franchising Law does not regulate specific provisions regarding

foreign franchisors.

Georgiana Singurel Reff & Associates SCA
Silvia Axinescu
182
Relevant areas of law third parties, transparency of the market and

to cover the following main topics: registration,
amendment/completion and termination.
The legal basis governing franchise is
Government Ordinance no. 52/1997
Corporate Law
(“Franchise Law” or “GO 52/1997”). The
Franchise Law defines franchising as “a trad-
business in Romania is the limited liability com-
ing system of products and/or services and/
pany (known as “S.R.L.”) compared to joint stock
or technologies, based on a continuous collab-
companies “S.A.”, which may be either private
oration between natural persons or legal per-
or public, but are less common. Setting-up an
sons, each of them legally and financially inde-
S.R.L. is a rather straightforward process with-
pendent from one another. Whereby a person
out involving significant fees. One or more per-
named franchisor grants to another person
sons (individuals or legal entities) may set up
named franchisee the right and imposes the
a, S.R.L., without any required minimum share
obligation to operate a business, in compliance
capital. In the case of an S.A., it is required by
with the franchisor’s concept.” A key aspect of
law to have at least two shareholders and a
the franchise system is the franchise network,
minimum share capital of approximately EUR
meaning the contractual relations established
25.000. Notwithstanding foreign trade law or
between the franchisor and one or more
regulatory requirements regarding foreign in-
franchisees, meant to promote a technology,
vestments in certain sectors, Romanian corpo-
product or service, as well as to streamline the
rate law does not impose any general restric-
development of their production and distri-
tions on foreign operations in Romania, nor on
bution. For the purpose of implementing the
franchise systems in particular.
franchise network, the Franchise Law provides
that the franchisor “authorizes and obliges the
franchisee, in exchange for direct or indirect
Although it is possible for both legal and nat-
contributions, to use products and/or services
ural persons to act as franchisees, the law
trademarks, other protected intellectual or in-
explicitly states that they act as professionals.
dustrial property rights, know-how, copyrights,
This means that they are automatically ex-
and signs of traders, benefiting from a continu-
cluded from consumer protection legislation
ous contribution of commercial and/or techni-
since their intention to enter the franchise is
cal assistance from the franchisor, within and
recognized by the law as business-related.
during the franchise agreement concluded
Therefore, provisions concerning commercial
between the parties for this purpose.” Based
agents will apply to both parties.
on Law no. 179/2019, the National Franchise
Registry was established in consideration of Antitrust/Competition Law
the European Parliament Resolution of 12 In Romania, the franchise agreement is regulat-
September 2017, on the functioning of fran- ed by GO 52/1997. GO 52/1997 offers general
chising in the retail sector. The main purpose guidance, with only limited references to com-
of the registry is to ensure opposability and petition law, on matters such as: non-compete
publicity of franchising structures to interested
183
or exclusivity clauses. That being said, franchise a designated territory (including online sales).
agreements may contain restrictions that collide In the recent years, the Romanian Competition
with art. 5 of Law no. 21/1996 on the Competition Authority focused its investigations primarily on
Law (the “Romanian Competition Law”) which is, vertical relationships2 , therefore we recommend
in fact a carbon copy of art. 101 Treaty on the bespoke competition law advice before the im-
Functioning of the EU (the “TFEU”). Therefore, plementation of any major vertical commercial
before implementing any franchise agreement, relationship. Finally, please note that a franchise
one should always consider the framework put in agreement that complies with the local legislation
place by the European Commission through the concerning such agreements (i.e., GO 52/1997)
EU-Vertical Block Exemption Regulation (“V-BER”) is not automatically complying with Romanian/
and its accompanying guidelines (Commission European competition law. Therefore, a quali-
Notice–Guidelines on Vertical Restrictions)1. tative analysis of the agreement must be per-
Under V-BER, some restrictions put in place in formed, in order to assess whether a franchise
the franchise agreements can be exempt-ed agreement is in line with its specific provisions
from the prohibitions mentioned in art. 5 of the and other relevant provisions such as competi-
Romanian Competition Law or art. 101 TFEU pro- tion law. The analysis will be based around V-BER
vided that the respective parties to a franchise and its accompanying guidelines.
agreement do not have a market share of more
than 30% each and no other hardcore restric- Employment Law
tions exist which will render the entire agreement A deemed employment risk could arise under
null and void. Examples for hardcore restrictions Romanian labour legislation and needs to be
are provisions dictat-ing fixed prices/rebates or considered regarding franchisees. If the fran-
prohibiting passive sales outside chisee’s activity mirrors an employment rela-
tionship, Romanian labour authorities/courts
of law could reclassify the franchise relationship
1 Please note that the V-BER and its accompa- into an employment relationship. As such, they
nying guidelines apply to “vertical agreements” could impose the conclusion of an employment
as agreements or concerted practices entered contract with the franchisee and apply fines for
into between two or more undertakings, each
of which operates at a different level of the
2 Competition Council’s Decision no. 65 dated
production or distribution chain, and relating
31 October 2012 regarding the commitments
to the conditions under which the parties may
assumed by Fornetti Romania S.R.L. – price fix-
purchase, sell or resell certain goods or servic-
ing agreement – the franchisor imposed a mini-
es. The V-BER includes vertical agreements con-
mum price to be followed by the franchisee.
taining certain provisions relating to the assign-
ment of intellectual property rights (IPRs) to or Competition Council’s Decision no. 39 dated
use of IPRs by the buyer in its application, and 14 September 2015 regarding the sanctioning
thereby excludes all other vertical agreements of Secuiana SA and its distributors/franchisors
containing IPR provisions. The V-BER applies to - price fixing agreement - the franchisor im-
vertical agreements containing IPR only when posed the margins for the franchisee, among
certain conditions are met. many others vertical restrictions.
184
185
undeclared work. Personal tax liabilities might agreement. However, the law states that the
also arise. A potential requalification to employ- franchisee must not disclose the know-how
ment would considerhow the relationship is provided by the franchisor to third parties, nei-
established in the franchise contract (particu- ther throughout the duration of the franchise
larly, the parties’ rights and obligations), what agreement nor thereafter. The franchisor may
are the concrete circumstances and elements impose a non-compete and confidentiality
characterizing the franchisee’s activity and if clause as well, to prevent the know-how being
they indicate the existence of a relation which disclosed without prior authorization during
has characteristics belonging to employment the execution of the exclusivity clause. Before
relationship. Therefore, it is important to ensure implementing non-compete or confidential-
that in substance, the franchisee’s activity is an ity clauses, especially post-term clauses, we
independent activity. strongly advice performing a competition law
review of such provisions.3 However, although
IP Law these rules are provided by law to govern the
In principle, based on a franchise agreement, franchise agreements, the franchisors still need
the franchisee is granted with the right to use to ensure the proper IP protection, for instance
protected trademarks, patents, know-how, by registering their trademarks, patents etc.
copyright and other protected intellectual or in-
dustrial property rights of the franchisor. These
rights may be granted for a period which is at 3 Please refer to Antitrust/Competition Law
least the equal to the duration of the franchise section.
186
Selected questions/aspects define each party’s rights and obligations and

liabilities, as well as any other clauses regarding
the collaboration between the parties.
The local franchise law explicitly governs this
phase. Precisely, the franchisor must provide Throughout the agreement’s execution, the fran-
the future franchisee with information ena- chisee must provide the franchisor with any in-
bling them to participate in the performance formation that facilitates knowledge and analysis
of the franchise agreement, after being fully of actual financial performance and situation, to
aware of the facts. ensure effective management in relation to the
franchise. That being said, all the information pro-
The franchisor must provide the franchisee
vided must be in line with rules and regulations re-
with an information disclosure document,
garding the exchange of sensitive information as
which should contain specific data relating to:
to avoid any competition lawrelated risks.
a) the franchisor’s history and experience; b)
details of the franchise management;s identi- Romanian Franchise Law does not provide any
ty; c) the dispute history of the franchisor and special rules in this respect. Thus, the contrac-
their management; d) the initial amount to be tual provisions and general legislation, i.e., Civil
invested by the franchisee; e) the mutual obli- Code, will apply. This is also applicable in terms of
gations of the parties; f) copies of the financial contractual liability/claims for any damages and
results of the franchisor in the last year; g) in- personal liability involving individual officers, di-
formation on the pilot unit (until the start of its rectors and employees of the franchisor. There
franchise network, the franchisor shall effec- is a possibility where the franchisee can cancel
tively operate a business concept for a period or rescind the franchise agreement due to fran-
of at least one year, in at least one pilot unit). chisor´s violation of the obligation to disclose. In
Documents regarding the information disclo- this case, the Franchise Law expressly stipulates
sure should be registered by the franchisor/ that any case of rescission or early termination
master franchisee with the NFR. Moreover, ad- of the agreement should be clearly stipulated
vertising for the selection of franchisees must under the agreement.
be unambiguous and contain no erroneous in-
The Franchise Law clearly stipulates that the
formation, while advertising documents, which
franchise agreement should expressly regulate
present a franchisee’s expected financial re-
the matter of sub-franchising and assignment.
sults, will need to be objective and verifiable.
In this regard, the contractual provisions would
With regards to language, in which the disclo- be supplemented by the general legal provi-
sure documents and franchise agreements sions of the Civil Code and by specific provisions,
must be drafted, the Franchise Law does not where applicable, such as trademark law. Also,
regulate any rule on this matter, giving a possi- in the case of a sub-franchise, the obligation to
bility for the parties to choose the language of provide precontractual information is applica-
drafting their contractual framework. However, ble to contracts concluded with the sub-fran-
the Franchise Law states that the franchise chisee. The Master Franchisee is required to
contract must clearly and with no ambiguity provide the related disclosure document to the
187
sub-franchisees. The Master Franchisee may any unlawful use of any information, either in
use the information provided by the franchisor, opposition to the other party and if the case
emphasising its own contractual obligations. arises, to other third parties. Before implement-
ing confidentiality clauses (especially post term
The Franchise Law clearly stipulates that the
confidentiality clauses), it is strongly advised to
franchise agreement should expressly regulate
perform a competition law review of such pro-
the matter of sub-franchising and assignment.
visions. Under certain conditions, confidential-
In this regard, the contractual provisions would
ity clauses could be regarded as non-compete
be supplemented by the general legal provi-
clauses and must be analyzed in the context of
sions of the Civil Code and by specific provi-
V-BER and its accompanying guidelines.
sions, where applicable, such as trademark law.
Also, in the case of a sub-franchise, the obligation
Amendments
to provide precontractual information is appli-
If the franchise agreement contains a precise
cable to contracts concluded with the sub-fran-
and reasonable clause regarding amendments,
chisee. The Master Franchisee is re-quired to
considering the franchisees interests, unilateral
provide the related disclosure document to the
amendments of the agreed terms by the fran-
sub-franchisees. The Master Franchisee may use
chisor are admissible as an expression of the
the information provided by the franchisor em-
franchisor’s obligation to continuously develop
phasising its own contractual obligations.
its franchise system according to changing mar-
ket conditions. Without a respective provision,
Legal restrictions
amendments of the franchise agreement may
There are no such restrictions imposed under
only be agreed between franchisor and fran-
Romanian law. However, if the franchise busi-
chisee—an almost impossible task in terms of
ness entails the acquisition of land, it should be
uniform regulations once a franchise system
noted that persons/entities from countries out-
has reached a size with a large number of fran-
side of the EU/EES may obtain ownership over
chisees. Special care must be taken in case of a
land in Romania only based on a mutual agree-
dominant franchisor (i.e., where the franchisor
ment between Romania and their country of or-
holds a market share of more than 40% on its
igin. They may obtain other real rights over land
relevant market) as to not discriminate, impose
should the franchise business require them.
unfair trading conditions or any other practice
that falls inside the scope of dominance abuse.
Confidentially
The franchisor may impose a non-compete and
Termination
confidentiality clause, to prevent the know-how
As the law requires parties to provide the con-
being disclosed without prior authorization
tract’s duration, it should be noted that un-
during the exclusivity clause’s execution. The
less otherwise agreed, the contract cannot be
confidentiality clause may be extended to other
unilaterally terminated. Furthermore, in case
aspects as well. A breach of the confidentiality
of a contract breach, a prior warning should
clause may be sanctioned similar to other con-
be provided before issuing a termination no-
tract defaults and depending on the situation,
tice, unless otherwise agreed. The reasons for
a party may seek interim measures to prevent
188
termination should be substantial and the law

also states that termination for breach of con-
tract may be enforced without a prior warning,
only if it was provided in the contract. Special
care must be taken in case of a dominant fran-
chisor (i.e., where the franchisor holds a market
share of more than 40% on its relevant market)
as to not unlawfully refuse to deal by way of
termination of an existing agreement. Refusal
to deal is considered a practice that falls inside
the scope of dominance abuse.
Renewal and Transfer

Franchisors are free to decide whether or not to
renew a franchise agreement. Parties may also
provide a clause for an automatic extension of
the agreement, if preferable, otherwise renew-
als should be done explicitly. It is admissible to
contractually restrict a franchisee´s ability to
Dispute Resolution and Applicable Law

COVID-19
GEO 29/2020, regulating certain moratoria
measures related to COVID-19 pandemic only
marginally, is concerned about the situation
of professionals carrying out their economic
activities in shopping centers (malls etc.,) that
were closed during the state of emergency.
Thus, probably the most consistent meas-
ures in favor of these small and medium-sized
en-terprises was the deferred payment for
util-ity services—electricity, natural gas, wa-
ter, telephone and internet services, as well
as deferred payment of rent for the building
des-tined for registered office and secondary
offic-es. However, no legal provision was regu-
lated in relation to the franchising fees or other
re-lated contractual fees.
189
Russia
54
Legal professionals
Region Offices
EMEA Moscow,
Saint Petersburg
Essentials
about Russia’s franchising law
1 Franchise shall always contain a trademark, otherwise the agreement is not

recognized as franchising. Transfer of the franchise shall be duly registered,
otherwise it is deemed as not having taken place.
2 Franchisee is entitled to revoke an open-ended franchise agreement with a

six-month’ notice. Either party is entitled to revoke the agreement with 30-days’
notice, with payment of a termination compensation.
3 Franchisor bears subsidiary or joint liability for claims arising from franchisee’s
non-compliance with quality requirements.

Dr. Yuriy Khalimovskiy Deloitte Consulting LLC
190
Relevant areas of Law Corporate Law

As the franchising agreement is dedicated to
use of intellectual property in business (com-
Franchising (commercial concession) is de-
mercial) activities, only eligible subject of such
fined in the Article 1027 of the Russian Civil
activities may become users (franchisees) un-
Code as a contract, under which one party
der the franchising agreement. Those eligible
(the right holder, the franchisor) undertakes
subjects are:
to provide the other party (the user, the fran-
chisee) with the right to use in the user’s busi- a) commercial legal entities (the most common is
ness activities the complex of exclusive rights a limited liability company, LLC (OOO in Russian);
belonging to the right holder, inter alia, the
b)sole entrepreneurs, duly registered with the
right to a trademark, service mark, know-how,
tax inspection in that status.
in exchange of a fee for a period or without
specifying a term.
Usually the franchisor also obliges to provide Under Russian law, individuals seeking to be-
the franchisee with ongoing technical and ad- come franchisees are not qualified as consum-
visory assistance, including assistance with ers, as the intention of their conduct is busi-
employee training and development, and to ness-oriented. In the course of the franchisee’s
control the quality of goods (works, services) business the franchisee is liable before con-
produced by the franchisee. sumers, if any.
Franchising is governed with Articles 1027 – 1040 However, the franchisor bears subsidiary li-
(Chapter 54) of the Russian Civil Code, while ability for claims against the franchisee for
rights to relevant intellectual property are sub- non-compliance with the quality requirements.
ject to rules of the Part IV of the Russian Civil For claims against the franchisee as the man-
Code. There is also a noticeable corpus of case ufacturer of the franchisor’s products (goods),
law related to franchising disputes. the franchisor shall be jointly and severally lia-
ble with the franchisee.
Registration of franchising agreements lies
within authority of the Federal Service for
Intellectual Property (Rospatent, https://rospat-
Russian law expressly permits to include the fol-
ent.gov.ru/ru/about ).
lowing provisions into the franchising agreement:
Specifics regarding Foreign Franchisors • obligation

of the franchisor not to provide
Russian law does not contain any restrictions others with similar franchises for their use in
nor specific requirements regarding foreign the territory assigned to the franchisee or to
franchisors. Any intellectual property, recog- refrain from their own similar operations in
nized and protected in Russia, may be fran- this territory;
chised by a Russian or foreign Franchisor. • obligation
of the franchisee not to compete
with the franchisor in certain territory;
191
• the franchisee’s obligation not to obtain the Intellectual Property
similar rights from the franchisor’s competitors Franchisors are obliged to carry out registra-
(potential competitors) and/or not to sell simi- tion of transfer of the franchise to franchisees.
lar goods, perform similar work or render simi- Franchisors are expected to keep validity and
lar services with the use of trademarks or com- legal protection (in case of trademarks – registra-
mercial designations of other right holders; tion) of the transferred intellectual property and
• the franchisee’s obligation to stick to fran- shall protect their IP against third parties´ claims,
chisor’s defined prices; misuse or imitations. Trademarks require regis-
tration as a national trademark in Russia.
•
obligation of the franchisee to sell goods,
perform work or render services only within
a certain territory;
The Federal Antimonopoly Service may chal- Precontractual disclosure
lenge the franchising agreement or its sepa- Franchisor’s obligation to disclose recognizably
rate provisions if they breach the antitrust law, relevant information related to the franchise to
considering the state of the relevant market a potential franchisee is not expressly estab-
and the economic situation of the parties. lished in the legislation, but is derived from the
good faith principle and precontractual liability
Employment Law (culpa in contrahendo). There is no statutory
Since a franchisee may only be a commercial list of which information has to be made avail-
company or a sole entrepreneur, no risk of able, and in what form, nor is there a standard
recognition of a franchising agreement into an compliance procedure. Likewise, there is no
employment contract arises. In the course of franchisor’s obligation to continuously update
the franchisee’s business the franchisee, not the precontractual information, unless speci-
the franchisor, is liable before franchisee’s em- fied in the franchise agreement.
ployees, if any. For the sake of evidencing, precontractual in-
formation exchange should be documented.
Law on commercial agents Applicable national and international personal
Franchising and commercial agency are rec- data protection regulations shall be obliged.
ognized as different, independent legal con-
structs in Russian law. While an agent acts on Failure to disclose essential information may
behalf of the principal or on the agent’s own give ground for a franchisee’s claim(s) for com-
behalf, but always at the expense of the princi- pensation of incurred losses and/or termina-
pal, a franchisee operates at its own risk, on its tion of the franchising agreement.
own behalf and at its own expense. The agent
is entitled to receive a fee from the principal, Legal restrictions
the franchisee is bound to pay a fee to the fran- Antitrust/Competition Law
chisor. A mixed agreement may be concluded Although franchising agreement may contain
but does not create any specific consequences territorial, pricing and other requirements
for rights and obligations of a franchisee. and limitation, those are bound to a gener-
al prohibition not to prevent, limit, eliminate
192
competition. Franchising agreements may

be evaluated for that purpose by the Federal
Antimonopoly Service on a case by case basis
(it should be noted that such cases are scarce).
Preformulated agreements
Franchise agreements are often concluded
with use of preformulated templates drafted
by franchisors. Using templates may signif-
icantly limit franchisees in their contractual
freedom, which grants them a potential claim
for challenging certain provisions as ineffective
due to unreasonably disadvantaging the fran-
chisee or unfairly advantaging the franchisor.
Franchise fees
Russian law does not provide for any specific
rules regarding franchise fees. Any fee me-
chanics may be used as long as there is a fee
established by the agreement or definable,
based on its terms and conditions.
A franchisor may charge a statutory interest on

overdue payments (equal to the key rate of the
Bank of Russia, currently 6.5% https://www.cbr.
ru/hd_base/KeyRate/?utm_source=w&utm_
content=page, unless other interest rate or a
fine is specified in the agreement.
Franchising agreement may provide for pay-

ing the fees in a foreign currency (other than
Russian Ruble). If the franchisor is a foreign en-
tity, such payment terms are eligible—howev-
er, the agreement and payments under it will
be subject to currency control (the franchisee
will have to register the agreement with the au-
thorized bank and carry out payments through
that bank). If both the franchisor and fran-
chisee are Russian entities or individuals, the
fees may be nominated in any currency, but
payments may only be made in Russian Ruble.
193
Confidentiality least six months prior to the termination date.
Maintaining confidentiality is a statutory obli- Under any franchising agreement, both parties
gation of a franchisee. The franchisor is com- may unilaterally terminate it by giving the other
monly also obliged to keep confidentiality, party a termination notice at least 30 days pri-
especially in terms of maintaining the secrecy or to termination and paying the termination
regime of know-how, if transferred as a part of compensation, defined by the agreement.
the franchise.
The franchisor is entitled to unilaterally termi-
A party in breach may be liable for losses nate the agreement in case of material breaches
and fines (if provided for in the agreement). committed by the franchisee (non-compliance
A breach of confidentiality may also serve as with quality requirements, gross non-obser-
grounds for early termination of the agree- vance of franchisor’s instructions, failure to pay),
ment (via litigation or outside the court, if ex- if the breach was not remedied within reasona-
pressly stated in the agreement). ble rime after the franchisor’s demand.
If the franchisor fails to maintain legal effective-

Amendments
ness of the transferred franchise in full or in
As a general rule, a franchising agreement
part (e.g., trademark protection is revoked) and
may only be altered, amended and/or added
fails to replace it, the agreement is terminated
to on the basis of mutually executed written
and the franchisee may claim for compensa-
supplementary agreement. Written form is a
tion of losses and/or reduction of the fees (if
statutory requirement. However, the agree-
the agreement survives).Franchising agree-
ment itself may establish a different procedure
ments terminate on the day a court recognizes
for amending (e.g., unilateral amendments by
either party insolvent.Return of the franchise
a party) with observation of the due written
subsequent to termination of the agreement
form. It would be recommended to avoid es-
shall be registered with Rospatent.
tablishing unilateral procedure for amending
the material conditions of the agreement, be-
cause there is inconsistent and contradictory
Parties are free to renew the agreement in
case law on the matter.
writing. The agreement survives any transfer
of exclusive rights to another right holder and
Termination
remains unchanged for the franchisee, except
Franchise agreements may be concluded for a
for the person of the franchisor. Transfer of the
certain time or without specified time (open-
intellectual property under transactions, inher-
term agreement). In the former case the agree-
itance, M&As etc., does not entitle the new fran-
ment expires as the time comes. In the latter,
chisor to review and change the agreement.
the agreement lasts until the parties terminate
it. In any case, the parties may terminate the The franchisee may transfer their rights and
franchising agreement unanimously in writing. obligations under the agreement only subject
to consent of the franchisor, who may demand
Under the open-ended agreement, the fran-
payment or establish additional conditions for
chisee is entitled to terminate it unilaterally by
such transfer.
giving the franchisor a termination notice at
194
The franchisee may, under the consent of the to contradict public order or basic principles of
franchisor, or if provided for in the agreement, Russian law).If the parties are both Russian enti-
is obliged to conclude franchising sub-agree- ties, they may not choose the governing law. If a
ments, and becomes subsidiary liable for party to the franchising agreement is a foreign en-
sub-franchisees before the franchisor. tity, any law may be chosen as the governing one.
Dispute Resolution and Applicable Law COVID-19

State commercial courts are entitled to solve The COVID-19 pandemic has had a huge eco-
disputes arising from franchising agreements re- nomic impact on all businesses, including
gardless of the subject and/or the claim amount. those operating on the franchise basis. There
are no special measures nor regulations relat-
Franchisor and franchisee may also agree on
ed to franchising agreements, including fees.
arbitration as the exclusive way of resolving dis-
putes between the parties. This may be favora- As healthcare restrictions prevented many
ble, as the parties may choose the language of places from operating in 2020 (shops, sport
the proceedings and have influence on the ar- clubs etc.,), many negotiations and disputes
bitrators selected. Also, arbitration proceedings arose on basis of frustration of contract, force
are, unlike proceedings before ordinary courts, majeure and material change in circumstanc-
not held in public. However, if the value in dis- es doctrines. While the legislation provided for
pute is rather low, arbitration may often be too special lease regulations, no such regulations
cost-intensive. Arbitration awards are often chal- were introduced for other purposes, including
lenged in Russian state courts by the dissatisfied franchising. Franchisees are left to negotiate
party in a separate procedure (if the award is not with franchisors and if unsatisfied, to sue for
final and conclusive) or during the enforcement alteration or termination of the agreement.At
(if the award is final and conclusive but is alleged the moment, there is no established case law.
195
Saudi Arabia
6
Legal professionals
Region
EMEA
Essentials
about Saudi Arabia’s franchising law
1 In Saudi Arabia, franchising arrangements are governed by the Commercial

Franchise Law (“CFL”) and its implementing regulations, which prescribe
strict requirements in connection with franchise agreements, including
mandatory terms that must appear in such agreements and the language
that such agreements must be drafted in;
2 Certain disclosure documents (which must be in Arabic) must be registered

with the Saudi Arabian Ministry of Commerce and Investment (“MOCI”) and
be given to the franchisee prior to entering into a franchise agreement; and
3 Franchise agreements must have a minimum term of five (5) years.

196
Relevant areas of law Under the Foreign Investment Law (“FIL”), any
foreign investor looking to do business in Saudi
Arabia must obtain a foreign investment licence
We understand that franchising arrangements
(“FI Licence”) from the Ministry of Investment of
in Saudi Arabia are governed by the CFL and its
Saudi Arabia (“MISA”). The FIL imposes stringent
implementing regulations, which are enforced
requirements which must be complied with, for
by the MOCI. However, as the CFL is still very
such a licence to be granted, such as requiring
new and further implementing regulations
minimum shareholding thresholds to be held
may be required, its implementation and en-
by Saudi nationals (usually 25% for companies
forcement in practice is likely to be an ongoing
engaging in trading activities) and prohibiting
and developing process.
undertaking business in certain ‘protected’
Under the CFL, we understand that a “franchise” sectors such as defence and fisheries. The CFL
is generally an agreement under which a fran- imposes further requirements on foreign fran-
chisor grants certain rights to the franchisee, chisors—for example, if a foreign franchisor
such as the right to operate a business or use does not carry on business in Saudi Arabia on
the franchisor’s intellectual property rights its own account but does so through a master
(“IPRs”), usually in exchange for the franchisee franchisee operating in Saudi Arabia, the mas-
providing monetary or other consideration. ter franchisee cannot enter into any sub-fran-
chising arrangements until it has operated in
Generally, in order to undertake franchising
Saudi Arabia for at least one (1) year.
operations in Saudi Arabia, foreign franchisors
must register their franchise with, among
Corporate Law
others, the MOCI.
The most common business structure in Saudi
In addition, many franchisors and franchisees Arabia is a limited liability company (“LLC”) incor-
are members of the Middle East and North porated in accordance with the Companies Law
Africa Franchise Association (“MENAFA”), a pri- of 1965. To incorporate an LLC in Saudi Arabia,
vate association which promotes best-practice the following requirements must be met:
franchising in Saudi Arabia and has formulat-
• Shareholders/directors: Generally, every
ed a code of ethics that its members are ex-
company must have a minimum of two
pected to follow (although this is not binding).
(2) shareholders (subject to the minimum
MENAFA’s members generally comprise fran-
share-holding requirements noted in
chisors, franchisees and master franchisees.
“Specifics Regarding Foreign Franchisors”
Specifics regarding Foreign Franchisors As above) and one (1) director. The director is
noted in “Legal Basis of Franchise Law” above, not required to be a Saudi national or resi-
foreign franchisors are generally required to dent although the general manager does.
register their franchise with the MOCI. For such • Corporate information: The names of the
registration, we understand that the MOCI typ- proposed directors/shareholders of the
ically requires the provision of two (2) years of company and the proposed local address of
notarized and audited accounts. the company’s office must be provided.
197
• Charter documents: The articles of asso- and whether the franchisee is obliged to work
ciation of the proposed company must be solely for the franchisor. Notwithstanding the
prepared and submitted (along with the above, given that a franchisee must typically
“Corporate information” above) to the MOCI. pay a franchisor for, among others, the use /
In addition, any proposed foreign shareholder exploitation of the franchisor’s IPRs and a fran-
must obtain an FI Licence from MISA in order chisor would not usually exercise a degree of
to hold shares in a Saudi Arabian LLC. control over a franchisee to the same extent as
an employer would have over their employees,
Many required filings with and payments to we understand that franchising arrangements
relevant authorities can be undertaken online, are generally unlikely to give rise to an employ-
and a company can generally be incorporated ment relationship under Saudi Arabian law.
within four (4) to six (6) weeks assuming an FI
Licence (if required) has already been obtained. To help mitigate the risk of characterization as an
employment relationship, a franchise agreement
Consumer Protection Law may also stipulate that the franchisee will be act-
Although there does not appear to be specific ing in their capacity as an independent contrac-
consumer protection legislation in Saudi Arabia tor and nothing in the agreement should be con-
there are Government related bodies (such as strued as creating an employment relationship
SIMAH and SAMAD under the auspices of the between the franchisor and the franchisee.
Central Bank) that have been set up to deal with
consumer complaints in certain areas. Law on commercial agents
Generally, the CFL states that a franchising ar-
Antitrust/Competition Law rangement will not give rise to any agency rela-
Franchising arrangements appear to be covered tionship between a franchisor and franchisee.
by the Competition Law of 2019, which generally
places restrictions on agreements that are tar- IP Law
geted at having and/or in fact have a significant Franchise agreements may allow the licensing
adverse effect on competition in any market for and/or transfer of all forms of IPRs, depend-
goods or services, abuse of a dominant market ing on the nature of the intended activity or
position and resale price maintenance, such as business of the franchisee. A franchisor may
a franchisor pressuring a franchisee not to sell control, supervise and impose conditions and
products below a certain price. limitations on the exploitation and use of their
IPRs by a franchisee.
Employment Law While Saudi Arabian law does not appear to re-
The question of whether a franchisee is an quire trademarks or licences to be registered
“employee” of a franchisor under the Labour in order to engage in franchising activities, un-
Law of 2005 appears to be principally a ques- dertaking relevant registrations with the Saudi
tion of fact, which is determined based on a Arabian Trade Mark Office is necessary in or-
variety of factors such as the degree of con- der to obtain statutory protection of such IPRs
trol exercised by the franchisor over the fran- under Saudi Arabian law.
chisee, how the franchisee is remunerated
198
199
Selected questions/aspects Legal restrictions
The CFL requires certain compulsory provisions
to be reflected in all franchise agreements -
Under the CFL, a franchisor/master fran-
such as certain prescribed obligations of the
chisee must provide any potential franchisee/
franchisor and franchisee and details of the
sub-franchisee respectively, with certain doc-
territorial rights granted to a franchisee - which
uments prescribed by the CFL’s implement-
cannot be contracted out of. Provisions pur-
ing regulations (e.g., background of the fran-
porting to do so will generally be deemed void.
chisor, details of the franchisor’s directors
and the franchisor’s audited financial state-
Confidentiality
ments for the past two (2) years) (“Disclosure
Confidentiality clauses are generally enforcea-
Documents”) at least fouteen (14) days before
ble under Saudi law.
signing the franchise agreement. Any fran-
chisor/master franchisee who fails to comply
Franchise fees
will commit an offence and may be liable to
The CFL requires franchise agreements to
monetary penalties (i.e. fines).
stipulate the franchise/technical fees which
The CFL requires franchise agreements and may be payable by a franchisee. Save for this
the Disclosure Documents to be drafted ei- requirement, the parties to a franchise agree-
ther (i) in Arabic, or (ii) in a language other than ment are generally free to agree on any mat-
Arabic but with a certified Arabic translation. ters in connection with franchise fees.
200
Amendments court or local arbitration regime). In the absence

The parties to a franchise agreement are gen- of a binding arbitration agreement expressly re-
erally free to agree on terms which allow for a flected in the agreement or otherwise agreed
franchisor to unilaterally amend the terms of by the parties, the parties may choose to com-
the franchise agreement. mence proceedings in a Saudi Arabian court.
Since Saudi Arabia is an Islamic state, its judicial

Termination
system is partly based on Islamic law principles
Generally, the CFL requires franchise agree-
(Shariah law) for both criminal and civil cases,
ments to have a minimum term of five (5)
and is broadly classified into three levels (in de-
years. Subject to this requirement, the parties
scending order of superiority):
to a franchise agreement are generally free to
agree on the length of a fixed-term franchise • Supreme Judicial Council (appellate jurisdic-
agreement. Such agreements will automatical- tion only);
ly terminate on the expiry of the fixed term. • Courts of Cassation; and
The CFL generally allows parties to a franchis- • First Instance Courts.
ing agreement to agree on the grounds for ter-
minating such an agreement, such as material Applicable Law
breach of contract and repudiation. Saudi Arabian courts will generally defer to the
law that parties have chosen to govern a fran-
Renewal and transfer chise agreement, and if the chosen governing
The CFL generally allows parties to a franchising law is foreign, a Saudi Arabian court will gen-
agreement to agree on provisions in connec- erally refer the case back to the courts of the
tion with the renewal and transfer of franchise relevant jurisdiction/parties agreed arbitration
agreements. However, if parties do not express- regime without looking into whether the parties’
ly include provisions relating to such renewal, choice of governing law should be upheld sub-
the CFL generally requires a franchisor to renew ject to certain ‘public policy’ nature exceptions.
the franchise agreement where the franchisee
gives at least six (6) months’ written notice of COVID-19
their intention to renew to the franchisor. Businesses in Saudi Arabia have been badly
impacted by the COVID-19 pandemic and the
Dispute Resolution and Applicable Law Saudi Arabian Government has introduced re-
lief measures in connection with tax payments,
Dispute resolution, court system corporate compliance, value-added tax, cus-
Cross-border franchising arrangements may be toms and excise, and deferral of loan payments.
governed by foreign laws, and the parties can As of 4 August 2021, there does not appear to be
opt for dispute resolution by arbitration in a any COVID-19 related legislation in Saudi Arabia
“neutral” location (rather than a Saudi Arabian that specifically relates to franchising matters.
201
Serbia
15
Legal professionals
Region Offices
EMEA Belgrade
Essentials
about Serbia’s franchising law
1 No specific regulation targeting franchising arrangements;
2 Poor court practice due to which the subjects entering in franchising

arrangements should consider some amount of legal uncertainty;
3 Various examples of franchising arrangements in practice result in

lack of adjusted and unified approach in resolving similar matters.

Stefan Antonic Law Office Antonic in cooperation with Deloitte Legal
Igor Dencic
202
Relevant areas of law an entrepreneur will have a treatment of “other

income” and would be subject to 20% tax and
25.5% social security contributions for pension
In Serbia, there is neither a legal definition
and disability. This is paid in addition to the tax
of “franchise”, nor a codified franchise law.
for independent activities and social security
Serbian “franchise law” is currently developing
contributions for independent activities.
mostly through the commercial practice and
in rare court decisions; its implications result
from many different areas of law, especially civ-
There is no separate law on commercial agents
il, commercial and corporate law.
in Serbia. However, similar concept of “com-
mercial representation” exists in local law on
Corporate Law
contracts and torts, which is not often used in
practice but may be confused for franchising ar-
business in Serbia is a limited liability company
rangement due to unclear concept of the latter.
(“DOO” in Serbian). It is easy to set up by one or
Commercial representation contract is a type of
more people and requires a minimum capital of
contract by which the commercial agent under-
approximately EUR 1. The company is liable to
takes to find third parties who would conclude a
the creditors with its property that is separate
contract with their principal. Commercial agent
from the shareholders’ property as a rule. The
may also be authorized to conclude a contract
formation costs for a limited liability company are
on behalf of their principal, provided that the
not high. Notwithstanding specifics of some in-
principal undertakes to pay them a certain fee
dustries, Serbian corporate law does not impose
for each concluded contract. In one resolution
any general restrictions on foreign operations in
of the Commercial Appellation Court from 2014,
Serbia, nor on franchise systems in particular.
the court stated that if a contract that is named
as “commercial representation contract” does
not contain provision on mandatory commis-
Under Serbian consumer protection law, indi-
sion but contains work instructions, information
viduals seeking to become franchisees would
on training for presentation and sales, it should
not qualify as consumers, as they would be op-
be considered as a complex contract such as
erating a business venture. If the franchisee is
franchising contract. Current court practice is
an entity such as a limited liability company or
not sufficiently developed in order to assess
entrepreneur, consumer protection rules are
the relation between commercial representa-
not applicable.
tions as regulated concept and franchising as
unregulated concept.
Employment Law
In case where an entrepreneur (natural per-
IP Law
son registered with the commercial registry)
is performing franchise services for the legal
third parties´ attacks or imitations, especial-
entity and fulfils five (5) out of nine (9) criteria
ly by registering their trademarks—either as
defined by the local law (so called “independ-
ence test”), this income which they receive as
203
204
Intellectual Property Organization (“WIPO”) or prohibition are possible under the local Vertical
as national trademark in Serbia only with the Block Exemption Rule (“V-BER”), provided that
Serbian Intellectual Property Office (“SIPO”). the respective parties to a franchise agreement
It is recommended to also carry out research do not have a market share of more than 25%
beforehand in order to prevent the potential each. The V-BER contains black clauses (“core
later loss of the trademark and corresponding restrictions”), rendering the entire agreement
claims for disclosure and damages. null and void, as well as grey clauses, rendering
solely the specific provision in an agreement
Real Estate/Tenancy Law null and void. As a rule prescribed in the V-BER,
Depending on the specific design of the fran- exemption is possible for the franchising agree-
chise arrangement, legal implications may ments. However, special attention should be
arise from real estate and tenancy law. In a paid to the black and grey clauses.
structure where the franchisor (sub-) leases
the locations to the franchisees, harmonizing Franchise fees
the termination rights of the (sub-) leasing and Since there are no separate laws regulating
the franchise is of essence. franchising fees, general rules would apply.
Among others, there is a statutory prescribed
Selected questions/aspects payment deadline of 60 calendar days that
cannot be contractually changed in a way to be
longer than 60 days between franchisor and
franchisee. In addition, special note should be
chisors and in a sub-franchising structure, mas-
paid to the foreign exchange rules in Serbia
ter franchisees should inform each potential fran-
since official currency in Serbia is Serbian Dinar
chisee accurately and with reasonable advance
(RSD) if the franchisor is a foreign entity.
about all circumstances recognizably relevant for
the conclusion of the franchise agreement.
Confidentiality
However, since the franchising relations are not Confidentiality clauses in franchise agreements
recognized as a separate and independent legal (often in combination with a contractual pen-
institute in Serbia, there are no specific precon- alty) are enforceable as in other agreements
tractual disclosure rules that would target fran- i.e., there are no special rules for franchising
chising in particular. General rules regarding agreements. The franchisor may file an inter-
negotiations to conclude a contract, business im injunction against an infringing franchisee,
secret, personal data and other applicable insti- claim damages occurred due to the breach,
tutes need to be taken into consideration. and possibly terminate the franchise agree-
ment extraordinarily.
Legal restrictions
Antitrust/Competition Law Amendments
Franchise agreements may contain restrictions According to general rules from the law on con-
that collide with local Competition Law and tracts and torts, if the (franchise) agreement
accompanying bylaws. Exemptions from the contains a precise and reasonable change
205
reservation clause, considering the franchisees Termination
interests, unilateral amendments of the agreed Franchise agreements are usually entered into
terms by the franchisor may be admissible as for a certain time and terminate with lapse of
an expression of the franchisor’s obligation to that time. A regular termination by one of the
continuously develop its franchise system ac- parties before that is not admissible, unless
cording to changing market conditions. Without both parties unanimously agree upon the
a respective provision, amendments of the same. However, franchise agreements may
franchise agreement may only be agreed unani- be terminated by each party without notice if
mously between franchisor and franchisee. it is unreasonable for the terminating party to
206
continue the contractual relationship until the court as second instance and supreme court
agreed time of termination (good cause). If the as the highest court in the country) and ad-
cause for termination is a breach of a contrac- ministrative court system for proceedings with
tual obligation by the other party, e.g., non-pay- the public entities such as ministries, agencies
ment of franchise fees, the termination is only and similar public institutions depending on
admissible after having issued a warning to the the specific subject matter (administrative pro-
franchisee to remedy the breach. Unjustified ceeding with a specific administrative body as
terminations by a franchisor might entitle the first instance, special body or ministry for the
franchisee to claim damages. Neither party to subject matter as second instance, administra-
the franchising agreement cannot terminate tive court and supreme court).
it because of the breach/non fulfillment of a
In principle, it is admissible for the parties to
small portion of the contractual obligation. In
a franchise agreement to agree on a choice of
one old (second instance) commercial court
law to be applicable on their contractual rela-
decision, the court assessed that the franchise
tionship. In commercial relations i.e., exclud-
agreement was (dully) terminated, because
ing consumers, the parties may agree on the
the conditions for termination were met, since
specific venue.
the franchisee did not perform the contract in
the agreed manner. In this particular case, the It is also admissible to agree on arbitration
“economic interest” was not satisfying as de- as the exclusive way of resolving disputes
fined in the franchise agreement. between the parties, thus waiving the due
process of law. This may be favorable, as the
Renewal and transfer parties may choose the language of the pro-
Franchisors are free to decide whether or not ceedings and have influence on the arbitrators
to renew a franchise agreement. If they do so, selected. Also, arbitration proceedings are,
renewals should be done explicitly and in writ- unlike proceedings before ordinary courts,
ing. It is admissible to contractually restrict a not held in public. However, if the value in dis-
franchisee´s ability to transfer its franchise, pute is rather low, arbitration may often be too
typically by requiring an explicit prior written cost-intensive.
approval of the franchisor.
COVID-19
Dispute Resolution and Applicable Law The COVID-19 pandemic has been having a
Serbia has 1) basic court system for gener- huge impact especially on some sectors such
al disputes (basic court in first instance, high as tourism and catering, including franchising
courts for high value cases, special subject in those sectors due to the government meas-
cases and second instance in some cases, ures, especially shutting down public life to
appellation court as second instance and su- contain the pandemic. Some of the measures
preme court as the highest court in the coun- provided by the government aimed at mitigat-
try), 2) commercial court system for disputes ing the situation in the affected sectors did
between commercial entities (commercial help but only up to a limited extent.
court as first instance, commercial appellation
207
Singapore
6
Legal professionals
Region Offices
APAC Singapore
Essentials
about Singapore’s franchising law
1 In Singapore, there is no specific legislation that regulates

franchising. Rather, franchising arrangements are generally
governed by contract law;
2 Also, there is no requirement for franchisors to make any

precontractual disclosures; and
3 Singapore has a strong Intellectual Property legislative

framework which allows for effective enforcement of trademarks.

208
Relevant areas of law (Cap. 50). To incorporate a company in Singapore,

the following requirements must be met:
There is no legal definition of “franchise” under • Shareholders/directors: Every company
Singapore law or a specific legislation addressing must have a minimum of one (1) director
franchising arrangements, which are generally who is a resident in Singapore and one (1)
governed by general principles of contract law. shareholder.
However, many franchisors and franchisees •

Corporate information: The names of the
are members of the Franchising and Licensing proposed directors/shareholders of the
Association of Singapore, which has formu- company and the proposed local address of
lated a code of ethics that is binding upon its the company’s office must be provided.
members. This code contains provisions re- •
Charter documents: A company constitu-
lating to disclosure requirements, selection of tion must be prepared and submitted (along
franchisees, provision of proper training and with the “Corporate information” above) to
business guidance, standards of conduct, no- the Accounting and Corporate Regulatory
tice of breaches, rights of termination and dis- Authority of Singapore.
pute resolution. Most required filings with and payments to
Specifics regarding Foreign Franchisors There relevant authorities can be undertaken online,
are no laws in Singapore which require a fran- and a company can generally be incorporated
chising agreement prepared by a foreign enti- within one (1) week.
ty or governed by a foreign law to be adapted There do not appear to be any restrictions
to a certain form in order to be enforceable in on foreign ownership of businesses under
Singapore. Singapore law, save for acquiring an interest
Generally, a franchisee in Singapore must within companies carrying on business in connec-
hold tax at a certain rate (usually 10%) on the tion with national defence, air transportation,
payment of royalties and technical fees to the public utilities, newspaper publishing and
overseas franchisor. However, if the franchisor shipping. Also, strict regulatory and licensing
is located in a jurisdiction that has a double tax- requirements are imposed on any market en-
ation avoidance treaty with Singapore, the pro- trants in certain sectors such as banking and
visions of that treaty will prevail over Singapore telecommunications.
tax law (so long as the treaty provisions, when
applied, produce a more beneficial outcome Consumer Protection Law
for the franchisor). Franchisees are not covered by the definition
of “consumer” under the Consumer Protection
Corporate Law (Fair Trading) Act (Cap. 52A) or Unfair Contract
The most common business structure in Terms Act (Cap. 396) (“UCTA”) and will not be
Singapore is a private limited company incor- protected by the consumer protection provi-
porated in accordance with the Companies Act sions of those statutes.
209
210

Franchising arrangements are covered by the We understand that a franchisee is generally
Competition Act (Cap. 50B), which generally not regarded as an “agent” under Singapore
places restrictions on agreements that have law as they would typically trade in their own
a significant adverse effect on competition, name, receive income on their own account,
abuse of a dominant market position and and be ultimately and directly responsible for
mergers that substantially reduce competition. any liability arising in connection with goods or
However, franchise agreements are generally services they supply.
deemed to be “vertical agreements” under the
To mitigate the risk of a franchisee being
Competition Act and may therefore be exempt
deemed an “agent”, franchise agreements
from some of these provisions.
should be drafted to expressly exclude any
employment and/or agency relationship.
Employment Law
The question of whether a franchisee is an “em-
IP Law
ployee” of a franchisor under the Employment
Franchise agreements may allow the licensing
Act (Cap. 91) is a question of fact, which will be
determined based on a variety of factors such
ing on the nature of the intended activity or
business of the franchisee. A franchisor may
control, supervise and impose conditions and
is remunerated and whether the franchisee
limitations on the exploitation and use of their
is obliged to work solely for the franchisor.
IPRs by a franchisee.
Notwithstanding the above, given that a fran-
chisee typically must pay a franchisor for the While Singapore law does not appear to re-
use/exploitation of the franchisor’s intellectual quire trademarks or licences to be registered
property rights (“IPRs”) and a franchisor does in order to engage in franchising activities,
not typically have a degree of control over undertaking relevant registrations with the
a franchisee to the extent that an employer Intellectual Property Office of Singapore is ad-
would have over their employees, we under- visable in order to obtain statutory protection
stand that franchising arrangements are gen- of such IPRs under Singapore law.
erally unlikely to give rise to an employment
relationship under Singapore law. Selected questions/aspects
To mitigate the risk of an employment relation- Precontractual disclosure

ship being established, a franchise agreement There are no laws in Singapore which require
may stipulate that the franchisee will be acting franchisors to disclose any matters to potential
in their capacity as an independent contractor franchisees prior to entering into a franchis-
and nothing in the agreement should be con- ing arrangement. Accordingly, potential fran-
strued as creating an employment relationship chisees should undertake due diligence on and
between the franchisor and the franchisee. evaluate any proposed franchise arrangement
as well as the franchisor before entering into
any franchising arrangement.
211
Legal restrictions Franchise Fees
While there are no specific legislation in As discussed in “Legal Basis of Franchise Law”
Singapore that imposes particular restric- above, the parties to a franchise agreement are
tions on provisions in franchise agreements, generally free to agree on any matters in connec-
franchisees may be protected under provi- tion with franchise fees subject to the provisions
sions of the UCTA that limit the effectiveness of the UCTA and general principles of contract law.
of limitation of liability clauses in connection
with breach of contract and negligence. For Amendments
example, if a franchisee enters into a franchis- The parties to a franchise agreement are gen-
ing agreement with a franchisor based on the erally free to agree on terms which allow for a
franchisor’s standard form terms and condi- franchisor to unilaterally amend the terms of the
tions, the UCTA may deem such limitation of franchise agreement, subject to the provisions of
liability clauses to be void unless they satisfy the UCTA and general principles of contract law.
certain reasonableness requirements based
on the circumstances of the case. Termination
Fixed-term franchise agreements will automat-
Confidentiality ically terminate on the expiry of fixed term, the
Confidentiality clauses are generally enforcea- length of which the parties to a franchise agree-
ble under Singapore law. ment are generally free to agree on, subject to
212
the provisions of the UCTA and general princi- Applicable law

ples of contract law. There are no limitations on Singapore courts will generally defer to the
the right of a franchisor to terminate a franchis- law that parties have chosen to govern a fran-
ing agreement under Singapore law. The parties chise agreement, subject to exceptions such as
to a franchising agreement are generally free to where the chosen governing law is contrary to
agree on the grounds for terminating such an public policy in Singapore.
agreement (e.g., material breach of contract, re-
pudiation), subject to the provisions of the UCTA COVID-19
and general principles of contract law. Businesses in Singapore have been severe-
ly impacted by the COVID-19 pandemic, and
Renewal and transfer the Singapore government has introduced
There are no laws in Singapore which require the COVID-19 (Temporary Measures) Act 2020
franchisors to renew a franchise agreement. (“C19 Act”) which seeks to offer temporary relief
The parties to a franchise agreement are gen- to businesses and individuals who are unable
erally free to agree on provisions in connec- to fulfil their contractual obligations because
tion with the renewal and transfer of franchise of COVID-19, with provisions in connection to
agreements, subject to the provisions of the leases /licenses for non-residential immovable
UCTA and general principles of contract law. property, construction, provision of and con-
tracts for the sale of goods and services, and
Dispute Resolution and Applicable Law loan agreements. The C19 Act also provides
temporary relief for businesses in financial
distress by increasing the monetary threshold
(of debt) required for creditors to commence
governed by foreign laws. Accordingly, parties
proceedings against a company and lengthen-
who wish to resolve disputes in connection with
ing the statutory period allowed for debtors
such arrangements may resort to arbitration
to respond to demands from creditors. As of
to avoid jurisdictional issues which may arise if
16 July 2021, there does not appear to be any
a claim were brought in a Singapore court. Of
COVID-19 related legislation in Singapore that
course, in the absence of a mandatory arbitra-
directly relates to franchising matters.
tion or mediation provision in the franchising
agreement or mutual consent by the parties to
such dispute resolution options, the parties may
commence proceedings in a Singapore court.
The Judicial system of Singapore is broadly

classified into two levels (in descending order
of superiority):
• Supreme Court of Singapore, comprising of

(i) the Court of Appeal (appellate jurisdiction
only) and (ii) the High Court; and
• State Courts of Singapore.
213
Slovenia
8
Legal professionals
Region Offices
EMEA Ljubljana
Essentials
about Slovenia’s franchising law
1 No legal codification and special regulation of franchise agreements;
2 Parties to the franchising agreement may regulate their contractual relationship

freely, as long as it does not contravene the Slovenian Constitution, mandatory
legal provisions, and moral principles;
3 Case law on franchise agreements is scarce. However, courts regularly uphold

provisions of franchise agreements (also those made in favour of the franchisor);
4 Confidentiality clauses are essential as this area is regulated by the mandatory

provisions of the 2019 Slovenian Trade Secrets Act.

Ana Kastelec Deloitte Svetovanje d.o.o.
Lilit Zavašnik
214
Relevant areas of Law records for certain felonies, absence of records

of unpaid tax obligations etc.), in order to be
able to be registered as a shareholder.
Franchise agreements are not codified in
Slovenian law, and there is no official legal As of 2020, the incorporation of LLCs by foreign
definition of “franchise”. In Slovenian legal the- natural persons or legal entities is also subject
ory, franchise agreements are considered as to a special interim legislation which regulates
“agreements sui generis”, which may contain Foreign Direct Investments (“FDI”). The legisla-
elements of various codified agreements (e.g., tion represents a transposition of the EU FDI
license, agency, sale and purchase, or lease Regulation (2019/452). However, as opposed to
agreements). Franchise law in Slovenia is pri- the EU regulation, Slovenian legislation consid-
marily developed by Slovenian courts, which ers foreign investors as also investors from EU
inter alia, decide in accordance with the prin- countries. Accordingly, an establishment of a
ciples of civil, commercial, and corporate law. subsidiary in Slovenia by an EU or third country
However, jurisprudence regarding franchise person, as well as an acquiring of at least 10%
agreements up till now is very scarce. Until share or voting rights in a Slovenian company,
now, the Slovenian courts upheld the content shall require notification of such investment
of franchise agreements, and have not found to the Ministry of Economic Development and
a respective clause to be null and void just be- Technology, if such a foreign investment can
cause it was in favour of the franchisor. have an impact on critical infrastructure in
Slovenia. The Ministry then considers whether
In 1998, the franchisors in Slovenia have es-
such an investment represents a threat to se-
tablished a Slovenian Franchise Association,
curity and public order in Slovenia, and issues a
which is a member of the European Franchise
decision on allowing or rejecting the foreign di-
Federation and the World Franchise Council
rect investment, or else (if the FDI does not af-
since 2001.
fect Slovenian critical infrastructure) issues an
opinion that a special decision is not necessary.
Corporate Law
Slovenian legislation does not prescribe a spe-
cific legal form of incorporation for franchisees.
The relationship between a franchisor and fran-
However, in practice, franchisees most com-
chisee is not considered as a consumer relation-
monly operate under the formation of a limit-
ship, as the franchisees’ activity with respect to
ed liability company (“LLC”; družba z omejeno
the franchise agreement is business-oriented.
odgovornostjo (d.o.o.)). The formation of an LLC
This stands true even if the franchisee is organ-
is quick and simple; an LLC can have one or mul-
ized as an “independent contractor” (samosto-
tiple founders (which are not liable for the obli-
jni podjetnik), i.e., a natural person performing
gations of the company), the minimum amount
business activity. The rules of consumer protec-
of share capital is EUR 7,500, whereas the costs
tion law shall thus apply only in respect of the
of incorporation are also reasonably low. Each
franchisee’s marketing and selling of products
shareholder must fulfil several conditions under
or services to consumers.
Slovenian Companies Act (absence of criminal
215
Employment Law IP Law
To enter into the franchise agreement, the fran- As a rule, the holder of the IP rights will be the
chisee shall be organized as a company or an franchisor, and the franchisee shall acquire a
independent contractor (samostojni podjetnik; license to use such IP for the duration of the
natural person, registered for performance of franchise agreement. In order for the fran-
business activities). Such set up means that the chisor’s IP to enjoy protection in Slovenia,
franchisee shall not be considered as an em- the IP shall be registered with the Slovenian
ployee of the franchisor, nor shall the employees Intellectual Property Office (SIPO), or EUIPO or
of the franchisee be considered as employees WIPO (with designation for Slovenia). The IP/li-
of the franchisor. Potential exception could exist cense relationship between the franchisor and
only if the franchisee would not be organized the franchisee shall entirely be regulated by
as a company (e.g., LLC) but as an independent the franchise agreement, whereas under the
contractor, and who would act as an employee Slovenian law the license agreements must be
of the franchisor (they would be economically concluded in written form.
dependent from the franchisor, the franchisor
would organize its business process, give man- Selected questions/aspects
datory instructions to the franchisee etc.).
There is no legal regulation on exactly which in-
formation need to be disclosed to the franchisee
It is generally accepted in Slovenian legal theory
prior to signing the agreement. There are also
that franchising agreements also contain some
no special guidelines by the Slovenian Franchise
elements of agency agreements. However, there
Association on the minimum information that
is no uniform position that provisions for agen-
need to be disclosed. Therefore, general provi-
cy agreements (which would include provisions
sions of the Code of Obligations shall apply.
of compensation upon termination of the fran-
chise agreement, legally prescribed notice peri- In this respect, the following provisions of the
od for termination of agreement etc.) should be Code of Obligations are particularly relevant: (i)
applied mutatis mutandis also for franchising in order for an agreement to be concluded, the
agreements. This is also reflected in the current- parties must agree on all important elements
ly existing Slovenian jurisprudence, which does of the agreement; (ii) if parties believe that
not apply agency agreement provisions in the they have reached an agreement, but in reality
Code of Obligations to franchising agreements. there exists a misunderstanding on the nature,
In this respect, the Higher Court of Ljubljana basis or subject of the agreement, it shall be
has in the Judgement case no. I Cpg 119/2014 deemed that the agreement was never con-
stated that the provisions on non-compete cluded; (iii) participants in contractual relation-
clauses, which are otherwise used for agency ships must obey principles of fair treatment
agreements, are not to be used for franchise and must avoid causing harm to one another;
agreements, but that general provision on con- and (iv) if one party misleads the other party
tractual penalty shall apply instead. into concluding an agreement, the other party
may demand rescission of the agreement.
216
It stems from the above listed provisions, that mandatory legal provisions, and moral princi-
both parties have a duty to disclose all infor- ples. Failure to comply with any of the preced-
mation which they can expect the other party ing, may render the agreement, or a respective
will consider relevant for the conclusion of the contractual clause, null and void.
franchise agreement. In case this obligation is
violated, the other party could demand the re- Antitrust/Competition Law
scission of the agreement and reimbursement Slovene national legislation does not provide
of incurred damages. any direct antitrust/competition law restrictions
in respect of franchise agreements. However, it
Legal restrictions should be noted that franchise agreements may
Parties to a franchise agreement may generally contain certain provisions which would contra-
regulate their contractual relationship freely, as vene Article 101 of the Treaty on the Functioning
most of the provisions of the Slovenian Code of of the European Union (“TFEU”), which sets
Obligations are dispositive (and can therefore forth competition-law rules applying to under-
be cordially amended). However, the parties to takings and certain restriction in that respect.
the franchise agreement are prohibited to act However, those restrictions may be declared
in contravention of the Slovenian Constitution, inapplicable by specific “safe harbour rules”
217
(e.g., Commission Regulation (EU) No 330/2010) mandatory (ius cogens). It shall be noted that,
which stipulates that Article 101 of the TFEU pursuant to the Slovenian Trade Secrets Act,
does not apply to vertical agreements, provided trade secrets are information which (i) are not
that both parties of the franchise agreement do generally known to the relevant public; (ii) have
not exceed 30% of the relevant market share, a market value and (iii) the holder of a trade se-
respectively (subject to additional conditions). cret has taken appropriate measures to keep it
a secret. The latter condition shall be fulfilled if
Law on general terms and conditions (“T&Cs”) the holder of the trade secret has designated
Most commonly, franchise agreements are con- the information as a trade secret in writing and
cluded as preformulated agreements, so that all has informed thereof all persons who come
franchisees in different countries are bound by the into contact with respective information (busi-
same contractual obligations. However, pursuant ness partners, employees, etc.). To protect the
to Slovenian Code of Obligations, any unclear pro- confidentiality of the franchisor’s trade secrets,
visions in such pre-prepared franchise agreements it is advisable that franchisors specifically de-
would be interpreted for the benefit of the fran- termine which information is considered as
chisee, whereas any clauses which could be con- trade secrets (e.g., in internally adopted Trade
sidered as significantly too harsh for the franchisee, Secret Rules) and have all relevant persons sign
could ultimately be declared null and void in judi- a non-disclosure agreement. Such diligence
cial proceedings. Since franchise agreements are offers franchisors remedies under the Trade
B2B agreements, the chance of a court declaring a Secrets Act, including requesting a cessation
contractual provision as being null and void based of violation, prohibition of distribution of goods
on it being too harsh on the other party, are signif- which are subject of violation (both claims may
icantly lessened. Generally, courts in Slovenia tend also be accompanied by a claim for temporary
to uphold the content of franchise agreements, injunction, to be issued before the final ruling),
including those which are made for the benefit as well as claim contractual penalties and dam-
of the franchisor (e.g., the High Court of Ljubljana ages resulting from the breach.
in the Judgement case no. I Cpg 119/2014 upheld
the contractually agreed penalty of EUR 20,000 for Amendments
respective violations of non-compete clause by the As a general rule, any amendments to franchise
franchisee, for violations made after the termina- agreements must be agreed upon by both par-
tion of the franchise agreement). ties to the agreement. The franchisor is enti-
tled to amend the franchise agreement unilat-
Confidentiality erally only if the franchise agreement contains
Confidentiality clause is one of the most im- a clause to that effect. Should the franchisor
portant part of the franchising agreement. The use this clause to impose upon the franchisee
courts will uphold the confidentiality clauses in disproportionately onerous obligations, such a
the franchising agreements, whereas during clause could be found null and void in case of
judicial review, courts also apply provisions of dispute (for more on this, see the section on
Slovene Trade Secrets Act, which are mostly General Terms and Conditions).
218
219
Termination contract, the terminating party may also claim
The parties to the agreement may always bi- damages from the wrongdoing party for the
laterally agree on premature termination of a damage it sustained as a result of a breach.
franchise agreement concluded for a definite
or indefinite term. However, unilateral prema- Renewal and transfer
ture termination of agreement without cause The parties to the franchise agreement may al-
is possible only if the franchise agreement ways bilaterally agree to renew an agreement.
contains a clause to that effect. Conversely, Since the franchise agreement usually contains
premature termination of agreement for cause elements of a license agreement, for which the
(i.e., due to breach of contract) is possible also Slovenian law requires a written form, also the
without a contractual clause, based on man- renewal of the franchise agreement must be
datory provisions of the Slovenian Code of concluded in writing. With respect to trans-
Obligations. In this case, the terminating party fer of the franchise agreement by one party
must first issue a notice to the other party, in to a third person, a general rule of the Code
which it explains the breach and awards the of Obligations is that a party may transfer an
other party a reasonable time to remedy the agreement to a third person only with consent
breach. If the breach is not remedied with- by the other contractual party. Without a spe-
in the set time, the party may terminate the cial clause to that effect, neither party shall be
agreement with immediate effect. Premature able to transfer (assign) the agreement to an-
unilateral termination of agreement results in other person without the consent of the other
both parties having to return what they have party. The parties may, however, always agree
received, whereas in the case of a breach of differently in the franchise agreement itself.
220
Dispute Resolution and Applicable Law principles of Slovenian law and Slovenian legal
system (the so called ordre public exception),
as the courts and arbitration bodies can disre-
In Slovenia, the court system consists of Local
gard such foreign-law rules.
Courts (for cases in which the value of the dis-
pute does not exceed EUR 20,000, and some
COVID-19
special types of cases), District Courts (for cases
In order to mitigate the impact of COVID-19
in which the value of the dispute exceeds EUR
pandemic on commerce, Slovenia adopted
20,000, and some special types of cases, in-
several interim COVID-19 acts. The measures
cluding all commercial disputes), Higher Courts
included, inter alia, state aids in the form of
(generally courts of appeal against decisions
direct grants, tax and payment benefits, loan
of local and district courts), and the Supreme
guarantees, wage subsidies (e.g., reimburse-
Court (which can in some cases also review
ment of wage compensation to employees on
decisions of Higher Courts). The parties may
temporary lay-off; reimbursement of paid sal-
agree upon the venue for dispute resolution
ary compensation due to part-time work) etc.
(Slovenian courts or courts of another coun-
Some of the measures also included moratori-
try). The parties may also opt for arbitration,
ums on bank loans, and (in certain cases) mor-
which is in principle a much more flexible and
atoriums on lease payments.
timely manner of dispute resolution than pro-
ceedings before Slovenian courts. Arbitration Namely, to help companies which were renting
proceedings in Slovenia are governed by the commercial real estate, and which could not
Arbitration Act, which sets out several ground use said real estate due to COVID-19 govern-
rules for arbitration proceedings, and which ment measures, interim legislation provided
also states that rulings in arbitration proceed- for new rules with respect to such leases. The
ings bear the same validity as final judicial de- lessees were granted the possibility to unilat-
cisions. In practice, more and more companies erally terminate the lease agreement, or else
thus opt for an arbitration clause instead of to request a deferral of payment of obligations
a judicial clause, in their commercial agree- under the lease agreement, as well as to de-
ments. The most common arbitration venue mand the extension of a fixed-term lease.
in Slovenia is the Permanent Arbitration before
No special moratoriums were imposed on
the Slovenian Chamber of Commerce.
payment of franchise fees. In general, it was
up to contractual parties to negotiate poten-
Applicable law
tial amendments to commercial agreements
Parties to the franchising agreement are, in
in the event that one party was harmed by
principle, allowed to freely determine the law
the COVID-19 pandemic. Legal remedies, pre-
which will govern their contractual relationship.
scribed in the Slovenian Code of Obligations
In case of judicial dispute, Slovenian courts or
(such as demanding the rescission of contract
arbitral bodies would be obliged to apply pro-
based on changed circumstances etc.) proved
visions of said law. The only exception are rules
to be very limited.
which would contravene certain fundamental
221
South Africa
6
Legal professionals
Region Offices
EMEA Cape Town,
Johannesburg
Essentials
about South Africa’s franchising law
1 Franchise agreements between franchisors and franchisees in South Africa are

highly regulated in terms of the Consumer Protection Act, 68 of 2008 (“CPA”).
2 The CPA sets out specific requirements for franchise agreements and any
provision which is in conflict with these requirements will be void.
3 Franchisees are afforded certain protections as they are treated as c

onsumers in terms of the CPA.

Katherine Jarvis Deloitte & Touche
Mia Heymann
222
Relevant areas of Law sale of foreign franchise systems in South Africa.

The CPA will be applicable to a franchise agree-
Legal basis of franchise law
ment entered into between a foreign franchisor
In South Africa, franchise relationships are
and a local franchisee. South Africa does, how-
governed in terms of common law and statute,
ever, have exchange control restrictions which
most notably the CPA. The law of contract, the
would be relevant in relation to a foreign fran-
Competition Act, 89 of 1998 (“Competition Act”)
chisor (see the corporate law section below).
and the Protection of Personal Information
Act, 4 of 2013 should also be noted.
Corporate Law
The term “franchise” is not specifically defined The most common form of business entity in
in our law. However, the CPA defines a “fran- South Africa is the private limited liability com-
chise agreement” as an agreement between pany (“(Pty) Ltd.”).
two parties, being the franchisor and the fran-
Incorporating a private company with a stand-
chisee, in terms of which:
ard form memorandum of incorporation (“MOI”)
• the franchisor grants the franchisee the right with the Companies and Intellectual Property
to carry on business in all or a specific part of Commission (“CIPC”) is relatively quick and easy,
South Africa, under a “system or marketing and is done through an electronic application.
plan substantially determined or controlled A company can also be incorporated with a
by the franchisor”, for which consideration is customized or non-standard MOI, but this pro-
paid by the franchisee to the franchisor (or cess generally takes longer than incorporating a
an associate of the franchisor); company with a standard form MOI.
• the operation of the franchisee’s business will There are no minimum share capital require-
be “associated with advertising schemes/pro- ments in South Africa for a private company.
grammes, or one or more trade marks/com- Foreign companies may opt to register as an
mercial symbols/logos/or any similar marketing, external company (i.e., branch) with the CIPC
branding, labelling or devices that are conduct- (as opposed to incorporating a private company
ed, owned, used or licensed by the franchisor” subsidiary).
(or an associate of the franchisor); and
South African resident companies (which in-
• the business relationship between the fran-
cludes external companies or branches) are
chisor and the franchisee is governed, includ-
subject to exchange controls administered by
ing the “relationship between them with re-
the Financial Surveillance Department of the
spect to the goods or services to be supplied
South African Reserve Bank (“SARB”) and au-
to the franchisee by or at the direction of the
thorized dealers (commercial banks) in terms
franchisor” (or an associate of the franchisor).1
of the Exchange Control Regulations of 1961
Specifics regarding Foreign Franchisors (“Exchange Control Regulations”).
There are no material additional laws which reg- Transactions between a local subsidiary and
ulate the implementation, offer and/or granting/ its holding company outside of South Africa
are regarded as being between a resident and
1 Section 1 of the CPA
223
a non-resident, and certain transactions are Antitrust/Competition Law
subject to the approval of the SARB. If a local Franchise agreements are regarded by the
subsidiary has a foreign holding company, the South African Competition Authorities (the
share certificate(s) issued to such foreign hold- “Competition Authorities”) as one of the most
ing company must be endorsed “non-resident” effective vehicles to facilitate the entry of new
by an authorized dealer for exchange control firms and/or products (which have efficiency
purposes. enhancing benefits) into the South African mar-
ket. Franchising is seen as being good for eco-
Consumer Protection Law nomic development and as a potential means
The CPA provides that, inter alia, the following to ensure that historically disadvantaged indi-
arrangements must be regarded as a transac- viduals and small and medium-sized enterpris-
tion between a supplier and consumer: es are able to participate in the economy.
• a solicitation of offers to enter into a fran- The Competition Act applies to all economic activi-
chise agreement; ty within, or having an effect within, South Africa. It
• an offer by a potential franchisor to enter will therefore apply to franchising activities within
into a franchise agreement with a potential (or having an effect within) South Africa.
franchisee; The structure of franchising, however, has
• a franchise agreement or an agreement sup- potential for collusion among competitors
plementary to a franchise agreement; and (franchisees) in respect of price and market
• the supply of any goods or services to a fran- allocation, which could substantially lessen
chisee in terms of a franchise agreement.2 competition. To comply with the Competition
Act and to avoid any anti-competitive conduct,
The CPA also defines the term “consumer” as
extreme care must be taken in relation to the
including a franchisee in terms of a franchise
following areas as there are potential competi-
agreement, to the extent set out above.3
tion implications:
The effect of a franchisee being regarded as a
• resale price maintenance;
consumer is that the CPA applies to all transac-
tions between a franchisor and franchisee. The • exclusive territories for the franchise business;
franchisee is entitled to rely on a wide range of • exclusive dealing;
consumer rights in the CPA, for example, the • tying of products; and
right to information in plain and understand-
• intellectual property rights.
able language4 , the right not to be furnished
with unsolicited goods or services by the fran- property rights and the need to maintain quality
chisor5 and the right to choose suppliers6. and consistency) and the interest of franchisees
and the public in ensuring adequate compe-
2 Section 5(6)(b) to (e) of the CPA tition is maintained. As all franchising agree-
3 Section 1 of the CPA ments involve a degree of cooperation amongst
4 Section 22 of the CPA franchisees, if not outright restraints in relation
5 Section 21 of the CPA to certain conduct, there is an inherent poten-
6 Section 13 of the CPA tial for anti-competitive conduct to occur.
224
The extent to which competition concerns provided in terms of statute. Unregistered

may arise in franchising would depend large- trade marks and know-how are offered some
ly on market definition. This is done by the protection in terms of the common law.
Competition Authorities on a case-by-case ba-
In terms of the Regulations to the CPA (published
sis, considering both geographic and product
in Government Notice No. 293 in Government
dimensions. The Competition Authorities pay
Gazette No. 34180 of 1 April 2011) (the “CPA
special attention to the restraint provisions in
Regulations”), a franchise agreement must in-
franchising agreements.
clude, inter alia, a description of the trademark
or any other intellectual property owned by, or
Employment Law
otherwise licensed to, the franchisor which is or
It is not likely that a franchisee would be re-
will be used in the franchise, and the conditions
garded as an employee of the franchisor, due
under which they may be used7.
to the inherent nature and structure of a fran-
chising arrangement.
To mitigate any risk of deemed employment,
the franchise agreement should be draft-
A franchisor must provide a prospective fran-
ed to ensure sufficient independence of the
chisee with a disclosure document at least 14
franchisee from the franchisor, such as con-
days prior to the signing of a franchise agree-
trol over working hours, management and di-
ment. The disclosure document must contain,
rection of work, obtainment of tools of trade
as a minimum:
and economic independence. In doing so, the
framework of the franchise model should be • the number of individual outlets franchised
separated from the level of control which may by the franchisor;
be exerted on the individual franchisee by the • the growth of the franchisor’s turnover, net
franchisor in the day-to-day running of the profit and the number of individual outlets
business (e.g., the franchisor may dictate the franchised by the franchisor for the financial
structure of the franchise business model, year prior to the date on which the prospec-
but should not supervise or manage the fran- tive franchisee receives a copy of the disclo-
chisee in their running). In the event of deemed sure document;
employment, the franchisor would be liable for
• a statement confirming that there have been
employment dues owed to the franchisee, in-
no significant or material changes in the
cluding basic conditions of employment (such
company’s or franchisor’s financial position
as various forms of leave, minimum wage etc.,)
since the date of the last accounting officer
and employment rights (such as fair reason
or auditor’s certificate and that the compa-
and procedure for termination).
ny or franchisor has reasonable grounds to
believe that it will be able to pays its debts as
IP law
and when they fall due; and
Franchisors usually register their trade marks
in terms of the Trade Marks Act, 194 of 1993 • written projections in respect of levels of
(“Trade Marks Act”) and protection is therefore 7 Regulation 2(3)(i) of the CPA Regulations
225
potential sales, income, gross or net profits or with jurisdiction (if there is such a consumer
other financial projections for the franchised court), the matter can be referred to another
business or franchises of a similar nature with alternative dispute resolution agent or a com-
particulars of the assumptions upon which plaint can be filed with the National Consumer
these representations were made8. Commission or (iv) approaching a court with ju-
The disclosure document must be accompa- risdiction over the matter (if all other remedies
nied by additional prescribed documentation available to that person in terms of national
including an auditor’s certificate, a list of cur- legislation have been exhausted)10. Damages
rent franchisees and outlets owned by the may be awarded to the complainant. Damages
franchisor and an organogram setting out the in South Africa are generally compensatory
support system in place for franchisees9. and not punitive.
The CPA does not specify the language in which In broad terms, if the franchisor is a company,
the disclosure document must be made availa- the assets and liabilities belong to the compa-
ble, but most franchise agreements (including ny, and not to the shareholders. Therefore, the
disclosure documents) in South Africa are in shareholders of a franchisor ordinarily cannot
English (as English is South Africa’s most com- be held liable for the liabilities of the franchisor.
monly used business language). The Companies Act, 71 of 2008 (“Companies
Act”) prescribes certain statutory duties (in
The CPA does not distinguish between the fran- addition to any common law ones) which are
chisor and the master franchisor when deter- placed on the directors of the company and
mining who is required to provide the disclosure the directors of a company may be held liable
document (i.e., the regulations simply refer to the for any loss, damages or costs sustained by the
franchisor providing the disclosure document). company as a consequence of any breach by
A franchisee may to seek to enforce any right the director of the duties contemplated in the
in terms of the CPA or in terms of a transac- Companies Act.
tion or agreement (including the failure to pro-
vide the required disclosure document) by (i) Legal restrictions
referring the matter to the National Consumer The CPA and the CPA Regulations set out the
Tribunal; (ii) referring the matter to the appli- International Franchise Handbook 2021
cable ombud with jurisdiction (if the supplier requirements for franchise agreements and
(i.e., franchisor) is subject to the jurisdiction of provide that such agreement must be in writ-
any such ombud); (iii) if the supplier (i.e., fran- ing and signed by or on behalf of the fran-
chisor) is not subject to the jurisdiction of an chisee, must include the prescribed informa-
ombud, the matter can be referred to the ap- tion set out in the CPA and must be in plain and
plicable industry ombud, application can be understandable language11.
made to the consumer court of the province
The following words must be included at the
8 Regulation 3(1) of the CPA Regulations top of the first page of any franchise agreement
9 Regulation 3(3) and 3(4) of the CPA 10 Section 69 of the CPA
Regulations 11 Section 7(1) of the CPA
226
227
(together with a reference to the relevant sec- – a description of the site or premises and
tion number and the CPA): location from which the franchisee is to
conduct the franchise;
“A franchisee may cancel a franchise agree-
ment without cost or penalty within 10 busi- – the conditions under which the franchisee or
ness days after signing such agreement, by its estate may transfer or assign the rights and
giving written notice to the franchisor.”12 obligations under the franchise;
– a description of the trade mark or any other
A franchise agreement must, amongst others:
intellectual property owned by or licensed to
• contain provisions which prevent (i) unrea- the franchisor;
sonable or overvaluation of fees, prices or – the master franchisor’s identity (if applicable);
other direct or indirect consideration; (ii)
– particulars of the initial training and assistance
conduct which is unnecessary or unreason-
provided by the franchisor;
able in relation to the risks to be incurred
by one party; and (iii) conduct that is not – the duration and the terms of renewal of the
reasonably necessary for the protection of franchise agreement;
the legitimate business interests of the fran- – specific information regarding the costs of
chisor, franchisee or franchise system;13 advertising, marketing or other similar funds
• contain a clause informing the franchisor (if the franchisee must directly or indirectly
that it is not entitled to any undisclosed contribute to such advertising or marketing);
direct or indirect benefit or compensation – the effect of the termination or expiration of
from suppliers to its franchisees or the fran- the franchise;
chise system (unless otherwise disclosed – extension or renewal terms (or whether there is
in writing with an explanation of how such no option to renew or extend the agreement);
benefit or compensation will be applied);14
– written explanation of any terms not fully
• include: understood by the prospective franchisee (if
– the name and description of the types of requested by the franchisee);
goods or services which the franchisee is – full details of the franchisor;
entitled to provide, produce, render or sell;
– full details of the franchisor’s directors or
– the obligations of the franchisor and franchisee; equivalent officers;
– a description of the franchise business system; – details of any proprietor, member or
– the consideration payable by the franchisee to shareholder of the franchisor;
the franchisor; – particulars of any restrictions imposed on the
– territorial rights; franchisee;
– the nature and extent of the franchisor’s
involvement or approval in the process of site
12 Regulation 2(2)(a) of the CPA Regulations, selection;
read with section 7(2) of the CPA
13 Regulation 2(b) of the CPA Regulations
14 Regulation 2(c) of the CPA Regulations
228
– the terms and conditions relating to agreement”, the maximum prescribed interest
termination, renewal, goodwill and assignment rate is currently 2% per month. In the event
of the franchise; that the NCA does not apply, the interest rate
– the main obligations of the franchisor in respect should be set out in the franchise agreement.
of initial and ongoing training to be provided; If the NCA does not apply and the franchise
agreement is silent on interest, the Prescribed
– confirmation that any deposits will be paid into
Rate of Interest Act, 55 of 1975 provides that
a separate bank account; and
interest should be charged at the prescribed
– full particulars of the financial obligations of rate, which is currently 7% per annum.
the franchisee.15
Payment of franchise fees by a local franchisee
Franchise fees to a foreign franchisor (including any loans) will
As noted above, a franchise agreement must be subject to the Exchange Control Regulations.
contain provisions which prevent unreason-
able or overvaluation of fees, prices or other Confidentiality
direct or indirect consideration.16 In addition, Confidentiality clauses in franchise agree-
full particulars of the financial obligations of ments are generally enforceable in terms of
the franchisee must be included in the fran- South African law, provided that such clause is
chise agreement, including (i) the initial fee pay- fair, just and reasonable.
able to the franchisor (including the purpose
for which it is to be applied); (ii) the funds re- Amendments
quired to establish the franchised business; (iii) Franchise agreements may not be unilaterally
the initial working capital and the basis for its amended by the franchisor and any amend-
calculation; (iv) the total investment required; ments must be agreed between the franchisor
(v) a clear statement as to whether or not any and the franchisee.
expenses, salary/wages of employees and the
costs of servicing loans are included in the pur- Termination
chase price; (vi) the amount of funding that is A franchisee is entitled to cancel a franchise
available from the franchisor and the applica- agreement without cost or penalty within 10
ble conditions; (vii) the total amount that the business days after signing such agreement,
franchisee must contribute towards the neces- by giving written notice to the franchisor.18
sary funding before borrowing and (viii) ongo-
In terms of our common law, an agreement
ing amounts payable to the franchisor.17
may be cancelled by either party for material
In the event that the National Credit Act, 34 breach (i.e., one which goes to the root of the
of 2005 (“NCA”) applies, and non-payment by contract). The CPA provides that the franchise
the franchisee results in an “incidental credit agreement must stipulate the terms and con-
ditions relating to termination19, and events or
15 Regulation 3(a) to (y) of the CPA breaches which constitute a material breach
Regulations
16 Regulation 2(b)(i) of the CPA Regulations 18 Section 7(2) of the CPA
17 Regulation 3(y) of the CPA Regulations 19 Regulation 3(v) of the CPA Regulations
229
(entitling the innocent party to terminate the apply to a consumer court of the province with
agreement) are usually expressly included in jurisdiction over the matter, if there is such a con-
the franchise agreement. sumer court.22 If an alternative dispute resolution
agent concludes that there is no probability of
Renewal and transfer the parties resolving their dispute through the
The franchise agreement must set out the process provided for, a complaint may be filed
duration and the terms of the extension and with the National Consumer Commission.23 If all
renewal of the franchise agreement, provid- other remedies available to that person in terms
ed that such terms and conditions are not in- of national legislation have been exhausted, a
consistent with the purpose and policy of the person may approach a court with jurisdiction
CPA.20 Therefore, if the franchise agreement over the matter.24
provides, for example, that the franchisee has
Arbitration is recommended to resolve disputes
an automatic right of renewal, the franchisor
in franchise agreements, although it should be
will not be entitled to refuse to renew the fran-
noted that arbitration can be quite expensive.
chise agreement. The franchise agreement
must also stipulate the terms and conditions At a high level, the judicial system in South
relating to the assignment of the franchise. Africa is made up of the Constitutional Court
Accordingly, a franchisor may21 generally re- (which is the highest court in South Africa),
strict a franchisee’s ability to transfer its fran- the Supreme Court of Appeal (which is an ap-
chise by agreement with the franchisee. pellate court), the High Courts of South Africa
(there are nine divisions of the High Court, one
Dispute Resolution and Applicable Law for each province) and the magistrates’ courts
(consisting of district and regional courts).
There are also special courts in South Africa
It is common for agreements in South Africa
such as the Labour Court and the Tax Court.
to state that disputes should, in the first in-
stance, be referred to mediation and thereaf-
Applicable law
ter to arbitration.
Parties to an agreement, including a franchise
The CPA provides that a consumer (which in- agreement, are free to choose the law which will
cludes a franchisee) may seek to resolve any dis- govern the agreement. It should, however, be
pute in respect of a transaction or agreement by noted that the CPA will nevertheless apply to a
referring the matter to an alternative dispute res- franchise agreement concluded between a for-
olution agent who may be (i) an ombud with ju- eign franchisor and a South African franchisee (in
risdiction; (ii) an accredited industry ombud; (iii) a respect of a franchise business in South Africa).
person or entity providing conciliation, mediation
or arbitration services to assist in the resolution COVID-19
of consumer disputes or (iv) the consumer may A national state of disaster has been declared
20 Regulation 3(l), read with regulation 3(o) of 22 Section 70(1) of the CPA
the CPA Regulations 23 Section 70(2) of the CPA
21 Regulation 3(v) of the CPA Regulations 24 Section 69(d) of the CPA
230
in South Africa in terms of the Disaster (“COVID-19 Regulations”)25 also prescribe de-
Management Act, 57 of 2002 as a result of tailed protocols to be followed in every work-
the COVID-19 pandemic. Various levels of replace to prevent the spread of COVID-19. A
strictions on movement of people and on the failure by an employer (such as a franchisee
economy (including restrictions on the sale of that employs employees) to adhere to these
certain products) have applied since March protocols will result in the employer contra-
2020, which has had a significant impact on the vening the COVID-19 Regulations, as well as the
South African economy. A curfew has also been Occupational Health and Safety Act, 85 of 1993
in place since the national state of disaster was (which requires employers to bring about and
announced, with the curfew times being varied maintain a work environment that is safe and
as and when COVID-19 cases increase and de- without risk to the health of the workers).
crease. The curfew, as well as social distancing,
and occasional bans on the sale of alcohol and
other products, have had a big impact on the
operation of businesses, especially in the retail
and food services sectors.
25 Government Notice No. 480 published in
The regulations issued under the DMA Government Gazette No. 43258 of 29 April
2020
231
Spain
266
Legal professionals
Region Offices
EMEA Alicante, Barcelona,
Bilbao, Las Palmas,
Madrid, Palma de
Mallorca, Seville,
Valencia
Essentials
about Spain’s franchising law
1 There is no specific franchise law in Spain regulating the commercial

relationship between franchisor and franchisee. Nevertheless, there are
several laws and other regulations in Spain applicable to franchising activity.
2 Franchisor must disclose to the potential franchisee the correct and non-
misleading information on the franchise, in writing, at least 20 business
days before execution of the franchise agreement, any pre-agreement or
payment by the potential franchisee to the franchisor of any consideration.
3 Since 8 December 2018, there is no obligation for franchisors operating in

Spain to register and update the information about their franchise network
in the Spanish Franchisor’s Registry.

Sharon Izaguirre Deloitte Legal S.L.P.
Francisco Mayor
Mario Gimaré Find and reach out to local contacts
in the Contacts section on page 288.
232
Relevant areas of Law Consumer Protection Law

Under Spanish law, franchisees or individuals
seeking to become franchisees should not be
Legal definition of “franchise” can be found in
considered as consumers, provided they nego-
article 62.1. of Spanish Law 7/1996 of 15 January
tiate and enter into the franchise agreement in
1996 on the Regulation of Retail Trade (subse-
the development of their commercial or profes-
quently amended) as the “commercial activity
sional activity. Therefore, in general terms, fran-
carried out by virtue of an agreement or contract
chisees will not be protected by Spanish con-
whereby a company, identified as the franchisor,
sumer protection laws and especiall the Royal
assigns to another company, identified as the
Legislative Decree 1/2007 of 16 November, ap-
franchisee, the right to exploit its own system
proving the revised text of the General Law for
for marketing products or services”. Additionally,
the Defence of Consumers and Users.
Royal Decree 201/2010 of 26 February 2010, pro-
vides a very limited regulation on the exercise of
commercial activity under franchise system.
Franchise agreements are subject to EU compe-
Apart from the above, there is no specific fran- tition law to the extent where they may contain
chise law in Spain regulating the commercial re- anticompetitive practices as foreseen in article
lationship between franchisor and franchisee. 101 of the Treaty on the Functioning of the EU
Therefore, Spanish case law and doctrine con- (“TFEU”). Examples of these restrictions are ver-
sider that there is no complete material regula- tical or horizontal price-fixing, sharing markets,
tion of the franchise agreement in Spanish and prohibiting passive sales or imposing a direct
consequently, franchise agreement must be or indirect ban on internet sales. In such an
considered as an “atypical” contract. In this re- event, the agreement is null and void and is un-
spect, Spanish Supreme Court has stated that enforceable, and a fine can be imposed on the
the franchise agreement “like any atypical con- franchisor. There are some franchise schemes
tract, in this case a commercial one”, must be that are exempt from EU competition law, for
governed by the will of the parties as expressed example, intercompany agreements, franchises
in the clauses of the relevant agreement. that are integrated within the franchisor’s group
of companies, activities that are not economic
Corporate Law activities and under certain conditions, where
The most common corporate form to set up each of the parties to a franchise have a market
business in Spain is the private limited liability share below 30% within the relevant market.
company (“sociedad de responsabilidad limita-
da” or “S.L.”). An S.L. can be incorporated by one Employment Law
or more shareholders and requires a minimum Conditions under which the franchise business
capital of EUR 3,000. Shareholders of an S.L. shall is developed should be analyzed in order to de-
not be held liable to S.L.’s creditors as the liability termine whether personal dependency concurs,
is limited to the capital contribution. An S.L. must as well as to confirm that the franchisee assumes
be incorporated by means of granting a public risks and benefits deriving from the franchise,
deed before a public notary and said deed must irrespective of the conditions agreed in the rel-
be filed with the competent commercial registry. evant contract. Pursuant to Spanish regulations,
233
234
self-employees should be free to design their limiting competition, the commissions lost by the
activities, working days and hours, holidays, hire agent or other circumstances that concur in the
their own employees and in addition to that, the termination. The rule also establishes that the
franchisee should assume exclusively the costs compensation may never exceed the average
and risks deriving from the franchise. annual amount of the remuneration received by
the agent during the last five years or during the
Should an individual franchisee’s working time
entire duration of the contract, whichever is less.
be determined by the franchisor, as well as re-
Legal doctrine and case law are divided on this
ceive instructions on a recurrent basis on the
issue. With this, the Supreme Court seems to be
way services are rendered or activity is per-
opening the door to the analogical application
formed and/or risks deriving from the activity
of Article 28 of the Agency Contract Act to the
be assumed by the franchisor, the nature of the
termination of franchise contracts. However, the
relationship could be an employment relation-
potential application of this provision should be
ship rather than a mercantile/civil relationship.
analyzed on a case-by-case basis, according to
In that scenario, the individual franchisee could
the specific terms and conditions of each fran-
be considered employee of the franchisor and
chise agreement and the specific business devel-
therefore all the guarantees and rights foreseen
oped under the franchise.
by the Spanish Workers’ Act would be applica-
ble (salary guarantees, dismissal under limited
IP Law
grounds, termination of the relationship could
Under Spanish Law:
be considered unfair dismissal with the obliga-
tion etc.). From a Social Security law perspective, • A franchise agreement must include, at least
the franchisor would be obliged to register the (and among others) the right for the fran-
individual franchisee with the Spanish Social chisee to use (i) the common brand names,
Security and pay the relevant contributions. trademarks, and other intellectual property
related to the franchise and (ii) the transfer of
Law on commercial agents specific know-how owned by the franchisor,
The possible analogical application of the com- substantial and unique.
pensation provided for in Article 28 of Spanish • As part of the precontractual information to
Law 12/1992 of 27 May 1992 on Agency be provided by the franchisor to the fran-
Contracts is subject discussion. chisee, the franchisor must provide evidence
The aforementioned rule provides for a com- of its ownership of (or license for) the intel-
pensation for the agent when (i) the agency lectual property rights to be licensed to the
contract is terminated; (ii) the agent has brought franchisee under the franchise agreement.
new customers to the principal (or significantly Franchisors are entitled to protect their trade-
increased operations with pre-existing custom- marks by registering them with the Spanish
ers); (iii) the agent’s previous activity may con- Patent and Trademark Office (Oficina Española
tinue to produce substantial advantages for the de Patentes y Marcas -OEPM-) or, in the case
principal; and (iv) the compensation is equitably of European Union trademarks, with the Office
appropriate due to the existence of agreements for the Harmonisation of the Internal Market.
235
As for the know-how, provided it meets several • identification details of the franchisor;
specific requirements, it could be protected under • evidence of the ownership (or license) of the
Law 1/2019 of 20 February 2019 on Trade Secrets. trademark and brands;
Additionally, the know-how could also be protect-
• description of the sector of activity that is the
ed by a Non-disclosure Agreement (“NDA”) to be
object of the franchise business;
entered by parties or by confidentiality clauses
agreed under the franchise agreement. • experience of the franchisor;
• content and characteristics of the franchise
Selected questions/aspects and its operation;
Precontractual disclosure • structure and extension of the franchise net-

Franchisor must disclose to the potential fran- work in Spain; and
chisee correct and non-misleading information on • essential terms and conditions of the franchise
the franchise, in writing, at least 20 business days agreement (e.g., rights and obligations of the
before execution of the franchise agreement, any parties, term of the agreement, termination
pre-agreement or payment by the potential fran- conditions, exclusivity commitments).
chisee to the franchisor of any consideration.
Franchise fees
The minimum information that the franchisor There are no laws in Spain regulating the calcu-
must provide in writing, according to current lation or payment of franchise fees.
Spanish regulations, is the following:
236
Confidentiality Dispute Resolution and Applicable Law

At a precontractual stage, the law empowers the
franchisor to impose a duty of confidentiality on
In Spain, the Court System is organized in different
the franchisee, regarding all precontractual in-
instances: the First Instance Courts, the Provincial
formation received or to be received by the fran-
Courts that resolve the appeals and the Supreme
chisee. At a later stage, it is common to include
Court, that resolve the extraordinary appeals.
confidentiality clauses in the franchise agreement.
It is also admissible that the parties agree on
Amendments solving their disputes by alternative methods of
In general, the relevant clauses may not be conflict resolution, such as the arbitration or the
modified unilaterally. However, according to mediation. These alternative methods should
several court rulings in Spain, the franchisor be specifically provided in the franchise agree-
could be entitled to make periodic modifica- ment. The main advantage of these methods is
tions or adaptations to the franchise manuals the time effectiveness, as the judicial proceed-
in order to adapt the business concept to the ings may last for years. On the other hand, the
trends and circumstances of the market. main disadvantage could be the cost, as these
alternative methods may be expensive.
Termination
The lack of substantive regulation of the franchise Applicable Law
agreement raises difficulties when dealing with its Spanish conflicts of law rules recognize a choice
termination. The franchise agreement has the term of governing law in a franchise agreement.
agreed between the parties. An indefinite duration Parties can therefore choose any governing
may also be agreed upon, but including unilateral law for a franchise agreement. Nevertheless,
termination clauses. In general, it is understood the chosen applicable law should have a link to
that the early termination or opposition to the auto- the parties and/or the franchise business to be
matic extension of the term of agreement must be developed under the agreement.
accompanied by a written notice with a reasonable
period of notice. Unless otherwise agreed, a peri- COVID-19
od of notice of one month per year of duration of The COVID-19 pandemic brought an abrupt
the agreement, with a maximum of six (6) months halt, especially during the period between
could be considered as reasonable. March to June 2020, in which a severe lockdown
restricted much of the economic activity and
Renewal and transfer social life in Spain. Notwithstanding this, no
Given that we are dealing with an atypical con- specific regulation regarding franchise agree-
tract, the possibility of extending or renewing the ments or franchising activity has been issued
contract will depend on what the parties have in Spain in the last year, since March 2020..
agreed in the franchise agreement. It is admis-
sible to contractually restrict franchisee´s ability
to transfer its franchise, typically by requiring an
237
Sweden
13
Legal professionals
Region Offices
EMEA Gothenburg, Malmo,
Stockholm
Essentials
about Sweden’s franchising law
1 In Sweden, there is no unambiguous legal definition of “franchise” or “franchising”, nor a

codified franchise law regulating franchising as a whole. Swedish franchising has instead
sprung out of standard-form contracts, analogies and general principles of contract law.
2 The only direct franchise-related legislation is a disclosure obligation for the franchisor
(Law no. 2006:484).
3 The Swedish Franchise Association (Sw. “Svenska Franchise Föreningen”) provides

guidelines regarding the minimum information to be disclosed. The guidelines are treat-
ed as a Code of Ethics. Even though these code/guidelines are only binding towards the
members of the association, they might be relevant to determine fair practice.

Jenny Friberg Deloitte AB
Johan Fjellström
238
Relevant areas of Law the law, the Market Court can prohibit a trader,
who sets contract terms in relation to another
trader which are to be regarded as unreasona-
Franchising is based on a franchise contract
ble, to continue to use the same or essentially
between two independent parties, who con-
the same conditions in similar cases. In assess-
tinue to be independent legally and economi-
ing whether a contract term is to be regarded
cally throughout the cooperation. In Sweden,
as unreasonable, special consideration is given
there is no unambiguous legal definition of
to the need of protection for those who occupy
“franchise” or “franchising”, nor a codified fran-
an inferior position in the contractual relation-
chise law regulating franchising as a whole.
ship, such as a franchisee.
Swedish franchising has instead sprung out of
standard-form contracts, analogies and gener- The fact that the franchise agreement content
al principles of contract law. Still, there is are often changes to some extent by allowing the
some relevant areas of legislation to consider. franchisor to alter the concept through chang-
The primary areas are contract law, intellectu- es in the handbook is also a matter of contract
al property law, agency law, competition law, law. What changes may be made? How should
commercial law and consumer protection leg- the changes be made? Does the franchisee
islation. The only direct franchise-related leg- have the right to refuse or terminate the agree-
islation is a disclosure obligation for the fran- ment? If these issues are clearly regulated, it
chisor (Law no. 2006:484). will be easier to solve the problems if they arise.
Contract Law Corporate Law

The Swedish Contracts Act (Law no. 1915:218) Starting a company in Sweden is a quite
regulates how agreements are entered into straight forward process. One of the most
as well as how they can be terminated. The common corporate form to set up business in
Contracts Act further contains provisions for Sweden is the private limited liability company
when agreements can be declared invalid, for (Sw. “Aktiebolag”). It is easy to set up by one or
example in case of coercion, usury and be- more people and requires a minimum share
trayal. The Contracts Act offers an important capital of SEK 25,000 or the equivalent sum in
possibility for adjustment or removal of unfair Euros.
contract terms according to section 36. This
The easiest and most common way to set up
section can be applied when a provision is con-
a private limited liability company in Sweden is
sidered unfair with regard to circumstances
to use an “off-the-shelf” solution provided by
existing at the time of the agreement or later.
a company agent or law firm. Notwithstanding
The Act on Contract Terms Between Traders foreign trade law regulations regarding foreign
(Law no. 1984:292) aims to be an instrument investments in certain sectors, Swedish corpo-
for reorganization of mainly small companies’ rate law does not impose any general restric-
contract terms, e.g., by strengthen the conditions on foreign operations in Sweden, nor on
tions for small business organizations in nego- franchise systems in particular.
tiations on contract terms issues. According to
239
Consumer Protection Law reserve the right, in a special contract term if
Under Swedish law, individuals seeking to be- certain specified conditions are met, to during
come franchisees are not qualified as consum- an agreement period change the price on the
ers, as the intention of their conduct is busi- goods sold to the franchisee, a so-called price
ness oriented. adjustment clause. Such clauses are valid, pre-
supposing that they are clear and that the sup-
Commercial Law plier/franchisor does not go beyond the scope
The franchisor’s sale of goods to the franchisee of such a condition.
for their resale of these goods to the custom-
er within the framework of the business con- Right of intermediaries
cept and the franchise agreement is regulated Franchising may be described as a right to
by the Sales of Goods Act (Law no. 1990:931). market and sell goods or services on behalf of
That is, if the parties have not already regulat- another, indicating that franchising includes el-
ed conditions for sale of goods separately in ements of distribution law or intermediary law.
the franchise agreement or in the operations Franchisees can act as an intermediary, which
manual. The Sales of Goods Act regulates how can vary significantly from proxy to commercial
buyers and sellers are to behave with regard agent. Different intermediary law relationships
to obligation to investigate and reject the re- naturally affect the franchise relationship and
ceived goods, how errors or deviancies are to the franchise agreement.
be dealt with, what sanctions can be enforced
The basic regulation appears from the gen-
and so on. In the franchise collaboration, it is
eral provisions for intermediaries are found
common to prescribe that the franchisee must
in the Agents Act, law no. 1991:351 and the
purchase certain goods and/or services from
Commission Act, law no. 1914:45. Unless the
the franchisor.
intermediary is not classified as either an Agent
The Sales of Goods Act states, among other or a Commissionaire, the relationship is not di-
things, that delivered goods must be in ac- rectly regulated in law. This is the case for retail
cordance with what the parties have agreed on and reseller agreements. However, it should be
regarding nature, quantity, quality, other char- emphasized that it is the actual circumstances
acteristics and packaging. If nothing has been in particular case areas that ultimately matters,
agreed, the product must be suitable for its regardless of what is written in the franchise
purpose and correspond to the samples that agreement.
the seller has shown. The buyer has a duty to
investigate and must immediately reject when Taxation and Employment Law
a defect has been discovered. The seller usual- Taxation and Employment Law are areas of law
ly has the right to re-do the delivery before the affecting franchising in terms of demarcation
buyer can cancel and claim damages. between employment and self-employment. If
you run a business in Sweden, you can be ap-
Since a franchise agreement, and related
proved for F-tax, after applying to the Swedish
purchase and delivery terms are long-term
Tax Agency,. If you show that you are approved
agreements, it is common for the franchisor to
for F-tax or state that you are approved for F-tax
240
on invoices, quotations, tenders or similar with The most common way to protect a trade-
a register extract, the payer shall not deduct mark in Sweden is to register it with the Patent
tax or pay social security contributions. In order and Registration Office. However, it is possi-
to receive an F-tax certificate, you need to be ble to achieve trademark protection through
considered a trader for which three conditions incorporation without the trademark being
must be met: independence, profit-making pur- registered. since the franchise collaboration
pose and duration. If these conditions are not revolves around a concept that is identified by
met, it is not considered a business activity but using one and the same sign throughout the
can instead be a matter of an assignment or an chain, it would entail great risks to not register
employment. Anyone who covers an employ- the sign (the trademark).
ment with a franchise agreement is likely guilty
The registration procedure is also a good test
of a violation of labor law. The exact criteria of
that the trademark can be registered. If a sim-
who is to be considered an employer or a trader
ilar trademark is already registered in Sweden
has not been decided in Swedish law but must
or through a so-called Community trademark
be tried from case to case.
(EU-trademark), there is an obstacle to registra-
The labor law regulations and the social benefit tion. In such a situation, one has to rethink and
system that currently exist in Sweden for em- narrow down or change/create a new brand. It
ployees do not include those who are self-em- is recommended to reach out to a lawyer to
ployed and thus does not consider them fran- get the registration correctly handled.
chisees either. Instead, as a franchisee, one has
As a franchisee, one gets the right to use the
to be an employer of the employees who, on
franchisor’s registered trademark during the
the other hand, are covered by the aforemen-
contract period. Such a right may be granted
tioned regulations and benefits.
separately through a trademark license, but
such a license is incorporated as a separate
IP Law
chapter in all franchise agreements.
Franchisors need to protect their Intellectual
Property (IP) against third parties’ attacks or The franchisee pays a license fee or royalty for
imitations, especially by registering their trade- the use of the trademark, but this fee is usually
marks—either as International Registration included as a subset of the service fee to the
(“IR”) with the World Intellectual Property franchisor. Since the license expires as soon
Organisation (“WIPO”), as EU Trademark as the agreement expires, the franchisee must
(“CTM”) with the EU Intellectual Property Office cease using the trademark immediately upon
(“EUIPO”) in all 27 EU member countries, or as termination of the agreement.
national trademark in Sweden only with the
Should the franchisee have any right to termi-
Swedish Patent and Registration Office (“PRV”).
nate the business for a certain period after the
The Trademarks Act (law no. 2010:1877) reg- contract period, a special agreement should be
ulates how protection arises for a trademark written about this.
and how one can grant the right for another to
use a protected trademark.
241
Real Estate/Tenancy Law • the goods or services that the franchisee is
The Swedish tenancy law is regulated in Chapter obliged to buy or rent;
12 of the Land Code (Law no. 1970:994). It is • the non-competition that shall apply dur-
the relationship between the landlord and ten- ing or after the period of the franchise
ant that is regulated, both in commercial con- agreemen;,
ditions and with regard to private housing. In
• the term of agreement, the conditions for
franchise collaborations, it is not uncommon
change, extension and termination of the
for the franchisor to own the premises or have
franchise agreement and the financial conse-
a first-hand lease for the premises in which the
quences of a termination; and
franchisee operates.
• a description on how a dispute due to the
A vast majority of the rules in the tenancy law agreement is to be tried and what is to apply
are mandatory. Therefore, it is important for in respect of cost liability for such dispute.
the parties to know how to regulate subletting
If a franchisor does not fulfill the information
and ensure that the lease agreement and the
obligation, the Market Court may, on the basis
franchise agreement are linked. Otherwise,
of a fine, order the franchisor to provide infor-
there is a risk that the franchisor cannot termi-
mation in accordance with what is stated in the
nate the lease in connection with terminating
legislation. The legislation covers all franchise
the franchise agreement.
contracts in Sweden: domestic and foreign
contracts; master franchise contracts and unit
Selected aspects
contracts; new contracts; and renewals of old
Disclosure obligation for the franchisor contracts.
Under the Swedish disclosure rules, a fran-
The obligation affects all data available (only) to
chisor must provide a prospective franchisee
the franchisor and necessary to enable the po-
with certain information about the meaning of
tential franchisee to generate own calculations
the agreement, and other considerations that
of profitability and to draw own conclusions
are necessary with regard to the circumstanc-
about the prospects of success regarding the
es, in good time before a franchise agreement
franchise. Furthermore, it also comprises gen-
signed.
eral information about the franchise system as
The information shall include: well as the basic content of the (master-, sub-,
or) franchise agreement. Notwithstanding the
• a description of the intended franchise
foregoing, the franchisor is not obliged to dis-
business;
close trade secrets.
• a description of other franchisees with whom
the franchisor is in business with, within the For reasons of proof, precontractual informa-
same franchise system; tion should be carried out in writing. In addi-
• the financial terms;
and examples when disclosing information in
• the intellectual property rights to be granted order to comply with the requirements of the
to the franchisee; General Data Protection regulation (“GDPR”).
242
Further, the Swedish Franchise Association According to the exemption, a franchisor may
(Sw. “Svenska Franchise Föreningen”) provides prescribe a non-compete obligation even
guidelines regarding the minimum information after the contract period. However, such a
to be disclosed. prohibition may only apply for one year af-
ter the agreement has expired and is limited
Legal restrictions to the premises and the land where the fran-
Antitrust/Competition Law chisee has conducted the business during the
A franchise relationship might involve certain agreement period.
anti-competitive moments, primarily by giv-
ing the franchisee an exclusive right to sell
Franchise agreements as preformulated agree-
goods or services in a certain area or by the
ments significantly limit the other party´s con-
franchisee feeling obligated to follow the fran-
tractual freedom, which is why their T&Cs are
chisor’s price recommendations. The rules of
subject to a judicial effectiveness control. This
the Competition Act (Law no. 2008:579) are
is lessened in b2b-only agreements such as
therefore, in principle, applicable to franchise
franchisor-franchisee-relationships. However,
agreements. However, under certain circum-
still, such T&C-clauses are ineffective that un-
stances, the franchise agreements fall under a
reasonably disadvantage the other party.
group exemption. The group, or block-, exemp-
tion in Swedish law is a direct implementation
Franchise fees
of the European regulation text and is there-
fore structured in the same way. Franchise
laws in Sweden regulating the payment of fran-
agreements may contain restrictions that
chise fees.
collide with art. 101 Treaty on the Functioning
of the EU (“TFEU”). Exemptions from the prohi-
Confidentiality
bition in art. 101 TFEU are possible under the
EU-Vertical Block Exemption Rule (“V-BER”),
(often in combination with a contractual pen-
provided that the respective parties to a fran-
alty) are common and enforceable in Sweden.
chise agreement do not have a market share
The franchisor may file an interim injunction
of more than 30 percent each. The V-BER con-
against an infringing franchisee, claim damages
tains some clauses (“core restrictions”), ren-
occurred due to the breach, and possibly ter-
dering the entire agreement null and void, as
minate the franchise agreement. Furthermore,
well as grey clauses, rendering solely the spe-
a confidentiality clause is advisable in order to
cific provision in an agreement null and void.
adequately protect existing trade secrets.
Examples for black clauses are provisions dic-
tating fixed prices or prohibiting passive sale There is nothing preventing the franchisor
outside a designated territory (including sale from requesting the potential franchise to sign
via the Internet), whereas provisions prohibit- a confidentiality agreement to protect the re-
ing competition for more than five years or for cipient, in order to protect the business con-
an unlimited time are grey clauses. cept information with confidentiality.
243
Amendments termination for good cause is only admissible
Simply put, if the franchise agreement contains after having issued a fruitless warning (advisa-
a precise and reasonable change reservation bly in writing), and within a reasonable period
clause, considering the franchisee’s interests, of time after learning about the circumstances
unilateral amendments of the agreed terms by for the termination. Unjustified terminations
the franchisor are admissible as an expression by a franchisor might entitle the franchisee to
of the franchisor’s obligation to continuous- claim damages.
ly develop its franchise system according to
changing market conditions. Without a respec- Renewal and transfer
tive provision, amendments of the franchise Franchisors are, generally speaking, free to
agreement may only be agreed unanimously decide whether or not to renew a franchise
between franchisor and franchisee – an almost agreement. If they do so, renewals should be
impossible task in terms of uniform regulations done explicitly and in writing. It is admissible
once a franchise system has reached a size to contractually restrict a franchisee´s ability to
with a large number of franchisees. transfer its franchise, typically by requiring an
Termination
Franchise agreements are entered into for a Dispute Resolution and Applicable Law
certain time and terminate with lapse of that Most disputes in business are optional, i.e.,
time. A regular termination by one of the par- the parties themselves choose how to resolve
ties before that is not admissible, unless both the dispute. In principle, it is admissible for the
parties unanimously agree on the same. It is, parties to a franchise agreement to agree on a
for example, common that the franchisor re- choice of law to be applicable on their contrac-
serves the right to terminate the franchise tual relationship, and if the franchisee is a mer-
agreement with a notice period of three chant, to agree on a venue clause. The most
months if the franchisee does not achieve a common factor would be to let either a court
turnover amounting to a minimum turnover or an arbitration tribunal decide the dispute.
amount. If the franchisor wants damages for
An arbitration tribunal is generally faster, judged
the early termination of the franchise agree-
by experts in the specific field and confidential.
ment due to non-fulfilment of minimum com-
An arbitration tribunal could be expensive, but
mitments, this must be clearly stated in the
so can a dispute in an ordinary court procedure
since the losing party normally is obligated to
However, franchise agreements may also be pay for the lawyers of the winning part.
terminated by each party without notice if it
is unreasonable for the terminating party to COVID-19
continue the contractual relationship until For two periods of time, the Swedish govern-
the agreed time of termination (good cause). ment has presented a regulation on a discount
If the cause for the termination is a breach for fixed rental costs in vulnerable industries as
of a contractual obligation by the other par- a way of mitigating the economic consequenc-
ty, e.g., non-payment of franchise fees, the es of the virus outbreak. This has included, for
244
example, retail, accommodation, restaurants • Deferment of tax payments;

and arrangements of fairs, as well as consum- • Government loan guarantee for small and
er services such as dentists, physiotherapeu- medium-sized enterprises;
tic activities, hair and body care. The support
• Expanded loan opportunities via Almi, EKN and
means that the landlord who reduces the fixed
SEK;
rent for tenants during the periods of 1 April
to 30 June 2020 and/or January-March 2021 in • Increased space for Almi Invest as an active in-
these vulnerable industries has been able to vestor in innovative companies;
apply for support to compensate for part of • Increased investment power for Almi Invest;
the reduction. The compensation was given a • Tax reduction for investments in equipment;
maximum of 50 percent of the reduced fixed
• Reduces employer and deductibles for young
rent, i.e., the discount itself, however, a maxi-
people;
mum of 25 percent of the original fixed rent.
The compensation was to be sought by the • Temporarily abolished benefit taxation for gifts
landlord via the county administrative board to employees.
and covered all landlords. Other current measures and support for spe-
cific industries:
For a period of time, there were also support
in the form of: • Government loan to organizers of package
tours for repayment to travelers;
• Temporarily reduced employer contributions
and deductibles; • Reimbursement for costs for competence ini-
tiatives in short-term work;
• Increased provision for accruals fund.
• New time-limited basis for entrepreneurs’
• Other, still current support are:
unemployment;
• Sales support to sole traders and trading
• Increased opportunity for unemployment in-
companies;
surance for dormant companies;
• Adjustment support to companies based on
• Temporary rules shall facilitate annual general
turnover loss;
meetings;
• Short-term layoffs for reduced wage costs;
• Measures in health insurance due to the new
• Rental support; coronavirus.
• Event support; Franchise fees, however, were not cov-
• Increased state responsibility for sick pay costs; ered by these and therefore, had to be paid
• Shutdown support; continuously.
245
Switzerland
22
Legal professionals
Region Offices
EMEA Geneva, Zurich
Essentials
about Switzerland’s franchising law
1 Franchise agreements are not explicitly regulated by Swiss law. A franchisor

and franchisee are free to determine the content of the agreement, but any
mandatory law will override the agreement.
2 Switzerland is politically and economically a stable country leading to legal

certainty. Franchise agreements are therefore often concluded under Swiss law.
3 The WIPO Arbitration and Mediation Center (WIPO Center) headquartered in

Geneva offers specialized mediation, arbitration, expedited arbitration and
expert determination in cases of franchising disputes related to IP.

Urs Sturzenegger Deloitte AG
Barbara Buetler
246
Relevant areas of Law person’s nationality). Alternatively, a foreign fran-

chisor can also set up a branch or incorporate a
subsidiary in Switzerland. Whereas a branch of-
Swiss legislation and particularly, the Swiss
fice acts on behalf of its head office and the latter
Code of Obligations does not explicitly regulate
thus remains liable for the actions undertaken
franchise agreements and there is accordingly
by the branch, a subsidiary is liable for its own
no legal definition of “franchise” in Switzerland.
actions. There are no fundamental restrictions
A franchisor and franchisee are free to deter-
under Swiss company law in the area of franchis-
mine the content of the agreement, but any
ing. However, when establishing a company, the
mandatory law will override the agreement.
founder must fill in a standard form confirming
As with any other contract in Switzerland, the
compliance with Swiss law with respect to the
general contract law applies to a franchise
purchase of real estate (called “Lex-Friedrich-
agreement. Furthermore, the specificity and
Declaration”). Further, as taxation in Switzerland
typicality of a franchise agreement is qualified
varies from each canton to another, the domicile
by general doctrine and case law as a contract
of a legal entity should be considered from a tax
that has various elements of several types of
point of view. It is therefore recommended to
contracts. Franchise agreements can touch
closely coordinate an entity’s establishment with
on a number of different areas of law, ranging
both legal and tax advisers.
from corporate law, agency law, copyright and
trademark law, real estate and tenancy law to
Employment Law
antitrust and competition law, and in some
The decisive criteria for the delimitation of
cases also to employment law.
the franchise agreement to an employment
contract is the personal dependence of the
Corporate Law
franchisee on the franchisor. Whereas the
Two primary types of companies are suitable
employee is personally, organizationally, tem-
for the incorporation of a franchise business
porally and economically dependent on the
in Switzerland: a share corporation (“AG” or
employer, the franchisee acts, apart from the
“Ltd.”) and a limited liability company (“GmbH”
right of franchisor to issue instructions, fully in-
or “LLC”). For the incorporation of an AG, a
dependently from the franchisor. However, in
minimum capital of CHF 100,000 is necessary
very limited cases of a so-called subordination
(GmbH: CHF 20,000).
franchising, if the franchisee is personally and
Principally, under both forms, liability is limited economically dependent on the franchisor, it
to the share capital. Directors and managing of- may well be justified to apply individual pro-
ficers are only personally liable to the company, visions of employment law analogously to the
its creditors and if applicable, its shareholders franchise agreement (e.g., provisions relating
for damages resulting from an intentional or neg- to social security), if the franchisor is a natural
ligent breach of their duties. At least one director person and the application appears to be ap-
or managing officer (with single signatory power) propriate and consistent.
must be a Swiss resident (irrespective of that
247
Law on commercial agents agreement. In Switzerland, the Swiss Federal
An agent is a direct representative of the Institute of Intellectual Property (“IPI”) is the
principal, whereas the franchisee acts on center of competence regarding the protection
its own name and for its own account (and of IP rights. An IP right related to a trademark is
risk). Opinions differ as to whether the fran- protected by its registration in the Swiss trade-
chisee is entitled, in analogy to the agency mark register (“Swissreg”). The application for
contract, to a compensation for clientele af- a registration can be made online. Protection
ter termination of the franchise agreement in other countries can be obtained by filing an
(“Kundschaftsentschädigung”). Certain au- application in the country concerned.
thors argue that the analogous application of
Furthermore, the “Madrid system” allows for an
agency law regulations concerning the com-
extension of the Swiss trademark protection to
pensation for clientele is justified and agency
other contracting states and organizations. A
law should be applied analogously if the fran-
franchisor who has filed a registration applica-
chisee is firmly integrated into the franchisor’s
tion of an IP right in Switzerland may accord-
sales system and the franchisor retains the
ingly request that its IP right is also protected
clientele after the franchise agreement is
in other member countries on the basis of a
terminated.
single application with the World Intellectual
Furthermore, in cases where the parties Property Organization (“WIPO”). Additionally,
agree on a post-contractual non-compete in order to obtain international protection in
clause, subject to the general limits of the le- all member countries of the EU, an application
gal order and by analogy with agency law, may be made at the EU Intellectual Property
the franchisee may have an inalienable en- Office (“EUIPO”) in Spain.
titlement to adequate special remuneration
(“Karenzentschädigung”). It is therefore rec- Real Estate/Tenancy Law
ommended to explicitly include corresponding Often, franchise agreements contain real es-
rules in the agreement as to whether compen- tate and tenancy law elements, namely if the
sation for clientele and a special remuneration purpose of the franchise agreement is the dis-
are owed or not. tribution of the franchisor’s products by the
franchisee. If the location of the franchisee’s
IP Law business is particularly important to the fran-
The franchisor grants a license to use its know- chisor, the franchisor may buy or rent a loca-
how and other Intellectual Property (IP) rights tion itself and (sub-) lease it to the franchisee.
(e.g., trademarks, designs or patents) to the In this case, the franchisor acts as a landlord to
franchisee so that the latter can distribute the the franchisee. Since the lease element of the
franchisor’s products or services under the franchise agreement has a dominant role, the
franchisor’s IP rights. IP rights have a great termination rules under tenancy or lease law
monetary value and it is therefore, of utmost should be coordinated with the overall termi-
importance that the franchisor registers its IP nation rules of the franchise agreement.
rights and protects them against unauthor-
ized use prior to the conclusion of a franchise
248
Selected questions/aspects the private autonomy of the parties can be re-

stricted under certain conditions. In particular,
it must be examined whether inadmissible ver-
Swiss law does not stipulate a general (pre-
tical agreements on competition exist.
contractual) obligation for a party to regular-
ly inform the other party about all and any Amongst others, agreements between actual
information that is available. However, in the or potential competitors to fix prices or agree-
precontractual relationship, the principle “cul- ments to allocate markets geographically or
pa in contrahendo”, derived from the princi- according to trading partners are presumed to
ple of good faith, may be violated if a party to lead to the elimination of effective competition.
the contract negotiations culpably breaches In case a party holds a dominant position in the
precontractual obligations, such as the duty relevant market, its business conduct must be
to negotiate seriously or the duty to explain. examined in more depth.
The association Swiss Distribution (www.
swissdistribution.org; formally known as Swiss
In order to ensure uniformity in the franchise
Franchise Association (“SFV”)) aims to promote
system, franchise agreements are usually
distribution organizations such as licensing,
standard form contracts accompanied by
franchise or agency systems. Whereas there is
T&Cs issued by the franchisor. The franchisee’s
no formal franchise law in Switzerland, mem-
ability to negotiate the agreement is therefore
bers of Swiss Distribution undertake to comply
rather limited. In contrast to some other juris-
with the Code of Conduct of Swiss Distribution.
dictions, Switzerland does not have a codified
Clause 3 of the Code stipulates that prior to
law regarding T&Cs. The T&Cs are subject to
the signing of a binding agreement, informa-
a limited content control only by the courts,
tion and documentation relevant to the co-
according to which unusual provisions in the
operation shall be available to prospective
T&Cs are not considered part of the contract
distributors to enable them to enter into any
and as a result, the corresponding statuto-
binding agreement in full knowledge of the
ry law applies (“Ungewöhnlichkeitsregel” or
facts. However, there is no definition included
“Unusual rule”) and ambiguous clauses are
of what information and documentation is rel-
interpreted against the party who drafted the
evant to the cooperation. As in any other con-
contract—the franchisor (“Unklarheitenregel”
tract negotiation, data protection laws must
or “Ambiguity rule”). According to the Federal
be complied with. Furthermore, to ensure the
Act against Unfair Competition, any behavior
confidentiality of negotiations and informa-
or business conduct that is unfair and unlawful
tion shared, it is recommended to sign a Non-
or otherwise contrary to the principle of good
Disclosure Agreement (NDA).
faith may be punished. Particularly T&Cs that
provide for, to the detriment of consumers, a
Legal restrictions
significant and unjustified imbalance between
Antitrust/Competition Law the contractual rights and the contractual ob-
Even if there are no specific regulations in Swiss ligations between the parties are qualified as
antitrust law regarding franchise agreements, unfair. However, as franchisees are generally
249
not considered to be consumers, such control (e.g., renewal for periods of two years each), if
is normally not applicable to the relationship not terminated ordinarily by either party upon
between franchisor and franchisee. written notice to the other party. The extraor-
dinary termination of a franchise agreement is
Franchise fees possible for good cause at any time and with
It is the franchisee’s obligation to pay fran- immediate effect (e.g., in case of a permanent
chise fees, which usually consists of an entry neglect of sales promotion obligations or re-
fee that compensates the franchisor for plan- peated disregard of information obligations
ning and setting up the franchise system, as by the franchisee), if the continuation of the
well as an ongoing, turnover-dependent fee, agreement is unreasonable for the terminat-
which compensates for the rights arising from ing party. A good cause for the franchisor may
the franchise agreement. The amounts of the often simultaneously be considered to be a
franchise fees are not regulated by law. Where material breach of the agreement by the fran-
the franchise fee is not paid, the usual default chisee. The franchisor may therefore demand
interest rate is 5% per annum. compensation for the damage caused by the
premature termination of the franchise agree-
Confidentiality ment, provided that the franchisee is responsi-
Confidentiality clauses in franchise agreements ble for the cause.
are considered to be must-haves, due to the
sensitive nature of the information shared (e.g., Renewal and transfer
know-how, business secrets and technology) Under Swiss law, the parties are free to renew
and the associated high contract value. The a franchise agreement. Further, unless ex-
confidentiality clauses should also explicitly sur- press-ly prohibited in the franchise agreement,
vive the termination of the agreement. A breach the transfer of agreement to another party is
of confidentiality can result in certain contractu- permitted. However, one often sees that the
al penalties, which can be claimed by the fran- assignment is only allowed with the prior writ-
chisor in addition to any liquidated damages ten consent of the franchisor.
the franchisor may claim for damages incurred.
Furthermore, a breach of confidentiality is usu- Dispute Resolution and Applicable Law
ally considered to be a material breach of the It is important to note that in Switzerland,
agreement, which gives the franchisor the right the courts are organized on a cantonal level.
to terminate the franchise agreement for good Accordingly, depending on the canton in which
cause with immediate effect. the competent ordinary court has its seat, the
language of the court is different (e.g., German
Termination or French). However, the rules on civil proce-
Franchise agreements are usually entered dure are the same throughout Switzerland.
into for a minimum fixed term, during which The parties to a franchise agreement can free-
an ordinary termination is not possible. After ly choose the law to be applicable to the fran-
expiry of the minimum term, the agreement chise agreement. Switzerland is politically and
is often renewed for certain periods of time economically a stable country leading in legal
250
certainty. Franchise agreements are therefore monitor developments both on a Federal and
often concluded under Swiss law. Switzerland a cantonal level.
is also well known for international dispute
Regarding business rental costs, several cantons
settlement particularly because of its globally
provide support for businesses. In Zurich, for ex-
-oriented economy. The advantage of arbi-
ample, tenants who rent commercial premises
tration is that the parties can choose the lan-
from the city of Zurich receive rent reductions
guage of the court and the judges themselves.
if they are affected by orders in connection with
In addition, specific expertise of the judges can
the containment of the COVID-19 pandemic.
be drawn upon. In the case of franchising dis-
putes related to IP, the WIPO Arbitration and According to the principle “pacta sunt serv-
Mediation Center (WIPO Center) headquar- anda”, contracts must still be honored de-
tered in Geneva, an independent and neutral spite the COVID-19 pandemic and the parties
international institution in the field of dispute must therefore perform their obligations in
resolution, offers mediation, arbitration, expe- accordance with the contract. As a contract
dited arbitration and expert determination. may be adversely affected by the COVID-19
pandemic, there exist, however, exceptions
COVID-19 to this principle. In case the contract doesn’t
Overall, it can be stated that especially in times provide for an exception based on a force
of lockdown and closed stores and restaurants, majeure clause or other contractual clauses
franchisors and franchisees were (and still are) (e.g., clauses on delivery dates or respectively
badly affected by the COVID-19 pandemic and their non-observance), the remedies under
requested to adapt their sales model, their plan- the general provisions of Swiss contract law
ning and implementation to the circumstances. still apply. Accordingly, for example, an obliga-
COVID-19 global distruption not only affected tion is deemed extinguished where its perfor-
one sole franchise business but a whole fran- mance is made impossible by circumstances
chise system has been challenged. not attributable to the obligor. Further, a fun-
damental change of the circumstances after
In light of the COVID-19 pandemic, the Swiss
conclusion of a contract (meaning a change,
Federal Council took certain measures to pre-
which was neither reasonably foreseeable nor
vent COVID-19 related bankruptcies. A tem-
avoidable at the time of the conclusion of the
porary relief from the obligation to report
contract and results in a serious disruption of
over-indebtedness, which would usually lead
equivalence for one party; “clausula rebus sic
to immediate bankruptcy, was introduced. The
stantibus”) may allow the contract to be adapt-
measures of the Federal Council apply to the
ed. The consequences for a contract and the
whole of Switzerland and in view of the chang-
parties (e.g., right to adjust the contract, right
es in the pandemic, are regularly adjusted.
to adjust the price or even right to extraordi-
Cantons adopt additional stricter measures
narily terminate contract) will always depend
where the number of cases in their area in-
on an assessment of the contract and the cir-
creases (e.g., ban on large events). As a result,
cumstances of the individual case.
the measures in place can differ from one can-
ton to another. Overall, it is recommended to
251
Taiwan
30
Legal professionals
Region Offices
APAC Kaohsiung, Taipei
Essentials
about Taiwan’s franchising law
1 Franchisors shall follow the Guideline of Franchisor’s

Business Behavior announced by the Fair Trade Commission,
especially regarding its precontractual disclosure obligation.
2 There are no specific rules or regulations stipulated for the

details of a franchise agreement.
3 When using the Franchisor’s standard form of franchise

agreement, ensure that provisions in the franchise
agreement do not violate Article 247-1 of the Civil Code.

Justin Chen DTT Attorneys-at-Law
Emily Lee
252
Relevant areas of law Employment Law

Under the Taiwan Labor Standards Act, ‘employ-
er’ means a business entity which hires workers,
There is no codified franchise law in Taiwan.
the responsible person of business operations,
Therefore, the franchise agreement plays an
or the person who represents the business
important role between the Franchisor and
owner in handling labor matters. To that end,
Franchisee. Several different areas of law, such
the decisive criteria is the level— of person-
as Civil Code, Company Act, and Fair Trade Act
al dependency of the franchisee. Pursuant to
shall be complied with when operating a fran-
Taiwan jurisdiction, a person is an independent
chise business in Taiwan.
businessperson who is—contractually as well
as factually free to design their activities and set
Corporate Law
their own working hours, and who assumes a
self-entrepreneurial risk. Since the franchisee is
business in Taiwan is the company limited by
not under direct command and supervision of
shares. It is a relatively easy process and can
the franchisor, the franchisee is not regarded as
be set up by one or more people without min-
an employee of the franchisor.
imum capital requirement. The shareholder is
only liable in the amount of its contribution,
IP Law
and not the shareholders personally. The cost
Protection of trademarks and trade secrets is
for forming such a company is very moderate.
crucial for franchisors. In Taiwan, the franchisor
For a foreigner to invest and set up a compa-
can register its trademark with the Taiwan
ny in Taiwan, government approval is required
Intellectual Property Office (“TIPO”). It is rec-
under the Statute for Investment by Foreign
ommended to also carry out a research for the
Nationals. Once the company is set up after
trademark to be registered before its applica-
the relevant authority’s approval, the Taiwan
tion in order to avoid possible infringement or
Company Act does not impose any general re-
lawsuits, which may result in loss of the trade-
strictions on foreign operations in Taiwan nor
mark and corresponding claims for disclosure
on franchise systems, in particular.
and damages. In addition, some franchisors
may hold trade secrets of their business mod-
els, ingredients, manufacturing procedures or
Under Taiwan laws, individuals seeking to
other know-how. Such trade secrets can be pro-
become franchisees are not qualified as con-
tected under the Trade Secrets Act. IP licensing
should be covered in detail in the franchising
business-oriented. However, if the franchisor,
agreement to avoid uncertainty or ambiguity.
when using its own standard form of franchise
agreement, leaves no room for the franchisee
to negotiate the terms of the franchise agree-
ment which are obviously unfair, such pro-vi- Precontractual Disclosure
sions shall be treated as void according to Prior to signing a franchise agreement, fran-
Article 247-1 of the Civil Code. chisors have the duty to inform each potential
franchisee accurately and in advance about
253
all circumstances recognizably relevant for Failure to disclose the precontractual information
the conclusion of the franchise agreement. shall be regarded as unfair practice. If such failure
However, the abovementioned obligation is not affects the market order, it will violate Article 25 of
specifically promulgated in the statute. Instead, the Fair Trade Act. Consequently, the authority can
it is stipulated in the Guideline of Franchisor’s impose a fine from NTD 50,000 to NTD 25,000,000.
Business Behavior (“Guideline”) announced by The Guideline and Fair Trade Act are administrative
the Fair Trade Commission in Taiwan. laws that protect market order. On the other hand,
the contractual relationship is not stipulated in such
According to the Guideline, the franchisor shall
laws. However, the franchisee can claim damages
provide the following information to the fran-
against the franchisor on the grounds that the fran-
chisee at least 10 days prior to the franchise
chisor has violated the regulation.
agreement’s execution:
• Details of expense or fees prior to operation: Legal restrictions

this includes franchise fee, educational training Antitrust/Competition Law
fee, price of products that must be purchased If franchise agreements contain restrictions on
from the franchisor, raw materials, equipment, the resale prices, it will be in violation of Article
construction and renovation expenses, etc.; 19 of the Fair Trade Act. The authority can im-
• Details of expense or fees during the franchise pose a fine of NTD 50 million or imprisonment
operation: calculation methods of royalty, man- of two (2) years or under. Refraining from com-
agement instruction, sales marketing, purchas- peting in price coercion, inducement with inter-
ing of products or material that are payable to est, or other improper means are also prohibit-
the franchisor or its designated person; ed under the Fair Trade Act.
• Names, scopes and limitations of licensing fran- Civil Code: Franchise agreements as preformu-
chisor’s trademarks, patent rights or copyrights; lated agreements significantly limit the other
• Details of operational assistance and party´s contractual freedom, which is why such
training guidelines; agreements are subject to a judicial effective-
• Business plan or estimated plan for estab- ness control. According to Article 247-1 of the
lishing the franchise store located within Civil Code, if the franchise agreement contains
the territory; either of the following provisions which are ob-
viously unfair, such provision shall be void:
• During the term of franchise agreement, lim-
itations on the franchising relationship; and • to release or to reduce the franchisor’s
• Conditions or methods of amendment, responsibility;
termination or revocation of the franchise • to increase the franchisee’s responsibility; or
agreement. • to make the franchisee waive their right or to
For reasons of proof, precontractual informa- restrict the exercise of their right.
tion should be carried out in writing or in elec-
tronic means such as email, electronic device
or social media.
254
255
Confidentiality by the other party, e.g., non-payment of fran-
Confidentiality clauses in franchise agreements chise fees, the termination for good cause is
(often in combination with a contractual pen- only admissible after having issued a fruitless
alty) are common and enforceable in Taiwan. warning (advisably in writing), and within a rea-
The franchisor may file a claim against an in- sonable period of time after learning about the
fringing franchisee for damages occurred due circumstances for the termination. Unjustified
to the breach, and possibly terminate the fran- terminations by a franchisor might entitle the
chise agreement extraordinarily. Furthermore, franchisee to claim damages.
a confidentiality clause is advisable in order
to adequately protect existing trade secrets. Renewal and transfer
According to the Taiwan Trade Secrets Act, a Franchisors are free to decide whether or not
trade secret is only protected if the (alleged) to renew a franchise agreement. If they do so,
owner of the secret has taken appropriate renewals should be done explicitly and in writ-
measures to maintain secrecy. ing. It is admissible to contractually restrict a
franchisee´s ability to transfer its franchise,
Updating material information of typically by requiring an explicit prior written
Franchise Agreements approval of the franchisor.
Since the franchisor has advantage status
over the information regarding the franchise Dispute Resolution and Applicable Law
relationship, if there is any material informa- In Taiwan, adjudication adopts the “three-lev-
tion regarding the franchise agreement being el and three-instance” system in general; and
changed or updated, the franchisor shall noti- “three-level and two-instance” as an exception.
fy the franchisee—whether through bilateral Civil cases are heard by the District Courts, High
amendment agreement or unilateral amend- Court and Supreme Court. Please note that in
ment—of franchisor’s franchising policy. case the litigation amount is less than NTD 1.5
million, such a case cannot be appealed to the
Termination Supreme Court. In principle, it is admissible for
Franchise agreements are entered into for a the parties to a franchise agreement to agree
certain time and terminate with lapse of that on a choice of law to be applicable on their con-
time. A regular termination by one of the par- tractual relationship, and if the franchisee is a
ties before that is not admissible, unless both merchant, to agree on a venue clause.
parties unanimously agree on it or unilateral
termination right has been agreed upon and It is also admissible to agree on arbitration
written in the franchise agreement. However, as the exclusive way of resolving disputes
franchise agreements may be terminated by between the parties, thus waiving the due
each party without notice if it is unreasonable process of law. This may be favorable, as the
for the terminating party to continue the con- parties may choose the language of the pro-
tractual relationship until the agreed time of ceedings and have influence on the arbitrators
termination (good cause). If the cause for ter- selected. Also, arbitration proceedings are
mination is a breach of a contractual obligation quicker, cheaper and unlike proceedings be-
fore ordinary courts, not held in public.
256
COVID-19 circumstances where there are unpredictable

From early 2020 until now, the COVID-19 pan- events after execution of the franchise agree-
demic has been having a huge impact especially ment and request the court for increasing or
on the franchise sector. Recently, the Taiwan gov- reducing the payment, or altering the original
ernment has imposed strict measures to contain obligation, it is strongly suggested to insert or
the pandemic. Some legislations were passed in amend the Force Majeure clause to cover this
Taiwan to address labor issues and relief pack- pandemic situation into the franchise agree-
ages to alleviate the impact of the pandemic. ment. Otherwise in practical terms, the court
However, franchise fees are not covered by these will be more discreet and careful when decid-
and therefore, has to be paid continuously. ing to allow a change of circumstances under
the article to change what has already been
Even though under Article 227-2 of the Civil
agreed between the franchisee and franchisor.
Code, a party is allowed to assert change of
257
Thailand
17
Legal professionals
Region Offices
APAC Bangkok
Essentials
about Thailand’s franchising law
1 No specific law on franchise in Thailand.
2 Franchisor is required to disclose essential information to the

franchisee prior to conclusion of the franchise agreement.
3 No specific law specifying the amount and payment method

of franchise fees.

Anthony Visate Loh Deloitte Touche Tohmatsu Jaiyos Advisory Co., Ltd.
Sutthika Ruchupan
Vipawa Sinhaseni
258
Relevant areas of law foreigners) are restricted from conducting cer-

tain businesses in Thailand, unless a license is
obtained or otherwise permitted by other laws.
As of date to this guideline, Thailand does
Foreign franchisor granting franchise business,
not have specific law on franchise. However,
in general, is unlikely to be subject to the FBA.
Thailand has a Guideline for the Assessment
However, if the foreign franchisor sends its per-
of Unfair Trade Practices in Franchising
sonnel to Thailand to provide certain services
(“Guideline”), issued by the Trade Competition
to its franchisee e.g., ad-hoc training (with ad-
Commission (“TCC”). The Guideline defines
ditional fee and not part of the start-up pack-
“franchise” as a business involving an under-
age prior to business operation), advice on
taker which is called ‘a franchisor’ entering into
business operations, quality check on franchise
a written agreement with another undertaker
business operations, it can be regarded as con-
which is called ‘a franchisee’ to do business us-
ducting “service business” in Thailand, which
ing the franchisor’s business method, model,
requires a foreign business license from the
system, procedure, and Intellectual Property
Department of Business Development, Ministry
(IP) rights or those the franchisor has a right
of Commerce (“MOC”).
to license within a specific period of time or
location, and that business operation is under The process of applying for the license can
support and a business plan of the franchisor take approximately four to six months and the
and the franchisee has a duty to pay fee(s) to license is granted based on the MOC’s discre-
the franchisor. Nevertheless, the Guideline is tion on a case-by-case basis.For franchisees,
not a specific rule and franchise businesses to- it is more likely that they will be in a form of
day are rather regulated by several set of laws, partnership or individuals rather than a pri-
such as the Civil and Commercial Code (“CCC”), vate/public company like the franchisor. Under
Trademark Act 1991, Unfair Contract Terms Act the CCC, there are two types of partnership: (i)
1997, and Trade Competition Act 2017 (“TCA”). ordinary partnership and (ii) limited partner-
ship—and both types of partnership require
Corporate Law two or more persons to form the partnership.
For franchisors, the two most common form of However, the latter requires registration and
business entity in Thailand are (i) private limited the liability is limited.
company and (ii) public limited company. Private
limited company is a recommendable form of Consumer Protection Law
business entity in Thailand as the requirement Since franchisees are business operators, they will
and application process are much simpler than unlikely be treated by law as a consumer under the
that of public limited company. To set up a pri- Consumer Protection Act 1979. This Act defines
vate limited company, the minimum number of “consumer” as a person who buys or has been of-
shareholders is three (3) and each shareholder fered or invited to obtain services from a business
must own at least one share—each share hav- person even if they are not a person who pays
ing the amount of not less than THB 5. Under the remuneration. Nevertheless, the Consumer
the Foreign Business Act 1999 (“FBA”), foreign Protection Act 1979 still governs the relationship
entities (fully owned or majority-owned by between the franchisee and the consumer.
259
The TCA, as a general law, restricts business The law on agency in Thailand is governed by
operators from jointly undertaking a con- the Civil and Commercial Code (“CCC”). This
duct which monopolizes, reduces or restricts defines an agency as a contract whereby a
competition in different ways, such as to fix person, called the agent, has authority to act
(whether direct or indirectly), purchasing or for another person, called the principal, and
selling price, or any trading conditions that af- agrees so to act. Once again, the CCC is not
fect the price of goods or services. Failure to a specific law on franchise and by nature of
comply with the TCA could result in penalties the franchise agreement, it is unlikely that the
of a fine of not more than THB 1,000,000 or franchisee will be deemed as the agent of the
an imprisonment of at least two (2) years, or franchisor.
both. If the business operator wishes to con-
The relationship between the franchisor and
duct a business that has dominant power in
the franchisee is a relationship between two
the market, the business operator must inform
business operators rather than a relationship
TCC for consideration prior to conducting such
between an agent and a principal. To reduce
business.
the risk of misinterpretation, it is recommend-
ed that there should be a clause in the contract
Employment Law
clearly stating that any act of the franchisee,
Thailand does not have an employment law
arising from the franchise agreement, shall be
that directly governs the franchisor’s and fran-
not be deemed as an act of an agent and the
chisee’s relationship. The Labor Protection Act
franchisor shall not be deemed as a principal.
1998, and as amended, defines “employer” as
a person who agrees to accept employee for
IP Law
work by paying wage, and “employee” as a per-
The franchisors trademarks and know-how
son who agrees to work for an employer in re-
are protected under the Trademark Act 1991
turn for wages. In reliance on the definition of
and Trade Secret Act 2002. The know-how of
“employer” here, where the franchisee neither
the franchisor, if itfalls under the definition of
work nor receive wages from the franchisor,
“trade information”, is automatically protected
the franchisee will not be deemed as the em-
under the Trade Secret Act 2002.
ployee of the franchisor.
However, in order to protect the franchisors’
Even though the franchisor must oblige to the
mark from third party infringement, it is critical
terms of the franchise agreement, the fran-
that the franchisors’ trademarks are registered
chisor still has no direct control over the fran-
with Thailand’s Department of Intellectual
chisee. To reduce the aforementioned risk, it is
Property before entering into any franchise
recommended that there should be a clause
agreement. Depending on the type of mark be-
in the contract explicitly stating that the rela-
ing registered, the process and application fee
tionship between the franchisor and the fran-
may differ. It is recommended that interested
chisee will not be deemed as an employment
applicant conduct research before applying.
relationship
260
Since Thailand is part of the Madrid Protocol disclose essential information, the TCC has the
for the International Registration of Marks with right to make an order in writing to instruct that
the World Intellectual Property Organization business operator to suspend, stop, or correct
(“WIPO”), interested applicant can also register the wrongful conduct.
the mark via the international trademark system
Aside from the Guideline, the CCC also states
and choose Thailand as the designation country.
that a declaration of intention is void if it is made
under a misunderstanding as to an essential ele-
ment of the juristic act. Although the CCC doesn’t
Precontractual disclosure explicitly require precontractual disclosure, the
Generally, there is no law that forces business CCC still provides protection to the parties, if an
entities to make precontractual disclosure. undue advantage of that party is taken.
However, the Guideline established by TCC,
Regarding the language of the franchise agree-
which has been made in reference to the TCA,
ment, there is no legal requirement on which lan-
does require precontractual disclosure from
guage must be used. Nevertheless, if the docu-
the franchisor. One of the requirements in the
ments were to be used with the Thai authority or
Guideline requires that the franchisor must
the Thai courts, if the the document is in a foreign
disclose essential information on the nature
language, it must be translated in Thaii.
and operation of the franchise system to the
franchisee prior to a conclusion of a franchise
Legal restrictions
agreement. The essential information includes
(i) information on fees (e.g., franchise fee, royalty Trade Competition Act
fee etc.) and expenses (e.g., training, equipment, Franchisors should not, without justifiable rea-
calculation of expenses etc.) to operate a fran- sons, (i) set conditions on franchisee’s right,
chise, (ii) franchise business plan, (iii) informa- (ii) set additional conditions after the execu-
tion concerning rights on relevant intellectual tion of franchise agreement, (iii) prohibit fran-
property, and (iv) renewal, revision, termination, chisee from purchasing products or services
or withdrawal of the franchise agreement. from other sources, (iv) prohibit franchisee
from selling perishable goods at a discounted
Under the TCA, if the franchisor fails to disclose price, (v) set different standards for each fran-
any essential information, the franchisee has chisees; and (vi) set inappropriate contractual
the right to file a lawsuit for damages and the conditions on franchisees that does not aim to
franchisor will be subject to an administrative maintain the reputation, quality and standards
fine of not more than 10 percent of the turnover in accordance with the franchise agreement.
in the year of offence. In a case where it is an of- These are restrictive guidelines issued under
fence committed in the first year of business op- TCA by the TCC with a purpose of preventing
eration, the person committing the offence shall the use of unfair trade practice against fran-
be subject to an administrative fine of not more chisees. Failure to comply will cause a fine up
than THB 1,000,000 under the TCA. In addition to 10 times the company’s income in the year
to an administrative fine, if the TCC has sufficient of breach.
evidence to believe that the franchisor fails to
261
Unfair Contract Terms Act Amendments
As the franchise agreement is likely to be draft- The CCC does not prohibit amendments made
ed in favor of the party who initiates it, the to agreement(s) based on the mutual inten-
agreement should contain the restriction by tion of contractual parties. The TCC Guideline
specifying the terms in a manner that either provides that amendment to the Franchise
party should not bear more burden than what Agreement after being executed by both par-
a reasonable person in normal circumstance ties, which may create unfair terms and damag-
could anticipate. The terms should not render es to the franchisee (subject to penalty under
an advantage only to one side. For instance, the TCA), unless such amendment is for (i) jus-
franchisees should not be obligated by the tifiable reasons for business purposes or (ii) to
unfair term to be liable and to bear all respon- maintain reputation, quality, and standard of
sibilities to compensate the damages of both franchise business. In any case, such amend-
criminal and civil cases, including attorney’s ments should be made in writing.
fees and other expenses incurred in the event
of contractual breach. Termination
There are no specific statutory limitations on
Franchise fees the right of a franchisor or franchisee to ter-
The law does not specify the amount and minate franchise agreement. The termination
payment method of franchise fees. However, can be governed by the terms of the agree-
franchisors are required to disclose the de- ment where the end date is as agreed upon.
tails of franchise fees, including expenses and However, if termination period is not fixed, the
remuneration from running their business to agreement can be ended when a party unilat-
franchisees prior to entering into the franchise erally terminates the agreement at any time
agreement as specified by the Guideline. There by providing advance notice to the opposing
is no specific regulation on payment currency. party.
However, the CCC provides that interest being
charged on monetary debt during default to be Renewal and transfer
5% per year, unless agreed otherwise. There are no statutory provisions providing
franchisee a right to renew and to transfer its
Confidentiality rights. Right of renewals are usually included as
Confidential clause in franchise agreement a term in franchise agreement where, in com-
is a common practice and enforceable in mercial practice, the agreement will set out
Thailand. The franchise activities generally in- the franchisee’s material obligations to fulfil
volve aspects that may include recipes, earn- the initial terms of agreement as a condition
ings projections, proprietary products, and of renewals and it is common for a renewable
sales techniques disclosed to franchisees with fee payable on renewal. As for the franchisor’s
the confidential information. It is necessary to right to restrict a franchisee’s ability to transfer
clearly define the scopes and details of confi- its franchise, the agreement would be draft-
dential information to prevent a risk where the ed in a way to restrict a franchisee’s ability to
information may be publicly disclosed. transfer the rights thereunder to third parties
262
(unless with certain conditions and subject to state of the New York Convention is recog-
prior consent of the franchisor), as granting of nized and enforceable in Thailand. In addition,
the franchisee’s rights reliesupon the specific Thailand has adopted the choice of law rule
qualifications/conditions of such franchisee. which, in commercial practice, a foreign fran-
chisor’s choice of law is mostly upheld by the
Dispute Resolution and Applicable Law Thai courts in governing a master franchise
There are three dispute resolution options agreement. However, since there is no spe-
available under Thai law which are litigation, cific law governing franchise businesses in
mediation and arbitration. Most franchise dis- Thailand, the disputes between franchisor and
putes that are usually resolved by the litigation franchisee must therefore consider the legal
process includes but are not limited to intellec- rights and obligations of the parties in deter-
tual property infringement. These disputes are mining the resolution.
filed with the Central Intellectual Property and
International Trade Court (IP&IT Court) where COVID-19
a specialized court hears the matters relating The spread of Coronavirus disease 2019
to intellectual property law and IP licensing. (“COVID-19”) caused an immense financial in-
However, after the case is filed, the IP&IT Court stability on national and worldwide economies.
regularly encourage parties to mediate dis- Thus, the CCC was amended to aid SMEs and
putes and either party can also file a request individual debtors by (i) reducing the interest
with the Office of Mediation at the IP and IT from 7.5% per year to 3% per year, (ii) reducing
Court to arrange mediation process with the the interest rate during default from 7.5% per
opposing party. year to 5% per year, and (iii) setting an appro-
priate calculation method of the default inter-
For arbitration process, it is enforced by the
est rate, where if debt is agreed to be paid in
Thailand Arbitration Act under the competent
installments, interest rate will apply only on the
court of jurisdiction or the Arbitration Rules
defaulted installment, as oppose to interests
of the Thai Arbitration Institute, Office of the
on the whole principle amount. Furthermore,
Judiciary under the Thai Arbitration Institute.
the Government has also announced other
This process may be preferable for the fran-
relief measures to support and remedy the
chise agreement where confidentiality must
business owners.For instance, the measure to
be maintained with the foreign franchisor, as
postpone corporate income tax payment and
Thailand is a party to the New York Convention
the arrangement of loan project to help SMEs
on the Enforcement of Arbitration Awards.
affected by the COVID-19 virus outbreak.
Here, any arbitral award made in a member
263
Turkey
8
Legal professionals
Region Offices
EMEA Istanbul
Essentials
about Turkey’s franchising law
1 No specific form or procedure prescribed by law regarding franchise

agreements.
2 Because of their sui generis nature, franchise agreements are governed by

the general principles of contract law and provisions applicable to typical
agreements. These are considered as having similar elements with them
such as sales agreements, mandate agreements and agency agreements.
3 Franchisees may be entitled to compensation payment upon termination

of the franchise agreement.

Nalbantoglu, Lerzan DL Attorneys at Law
Tumer, Burcu
264
Relevant areas of law they will not be deemed as consumers and can-
not benefit from the rights granted to consum-
ers under the applicable legislation. However,
There is no specific legislation directly govern-
franchisees are bound by the obligations under
ing franchise agreements. They are considered
the relevant legislation if consumers benefit
as sui generis type of agreements, containing
from products provided by franchisees while
aspects of various agreements specifically de-
conducting the business activities.
fined under the Turkish Code of Obligations no.
6098 (“TCO”) such as sales agreements, man-
Employment Law
date agreements and agency agreements. In
Both franchisor and franchisee conduct com-
terms of Turkish franchise agreements, the pro-
mercial activities to gain profits. In this regard,
visions specific to these agreements within the
the relationship between these parties is purely
scope of the TCO and the Turkish Commercial
commercial and does not contain any employ-
Code no. 6102 (“TCC”) will be applied according
ment–related items. Accordingly, employment
to the nature of the agreement’s provisions.
law legislation is not applicable to franchise
As Turkish law does not include a definition, the agreements and does not generate a risk in spe-
Court of Appeals defines franchise agreement cific for the parties of the franchise agreements.
as “long-term and continuous contractual rela-
tions whereby franchisee has the right to market Law on commercial agents
a product or service on its own by using fran- As indicated above, there is no particular law
chisors’ trademark or trade name, and operation that directly regulates franchise agreements in
methods and franchisor undertakes to provide Turkey. As a sui generis agreement, franchise
support and information to organization and ad- agreement is mainly subject to the general
ministration of the relevant business”. principles and rules of contract law as in the
scope of TCO, which are applicable to certain
Corporate Law kind of agreements that have similarities with
There is no restriction regarding the form of the franchise agreements.
entity for the parties of the franchise agree-
Turkish scholars believe that certain provi-
ments. In this respect, any form of an entity
sions of the TCC regulating agency agreements
(even sole proprietorship and ordinary part-
should be applied both to distribution and
nership of real persons) can become party of
franchise agreements since there are similari-
a franchise agreement. There is no specific
ties between these three types of agreements,
restriction of foreign business entities for con-
such as “continuous relationship between
ducting the franchise business in Turkey.
the parties, grant of right (either exclusive or
non-exclusive) to sell products in a defined
territory, and obligations to protect principles’
Under Turkish law, consumer is defined as an
commercial interests and promote business in
individual or a legal entity that benefits from a
the defined territory.” Apart from these similar-
product and/or a service without any commer-
ities, franchise agreements could differ from
cial purpose. As both franchisor and franchisee
agency agreements with the use of know-how,
carry out commercial activities as merchants,
operation system, and trademarks.
265
IP Law
One of the most important features of franchise
agreements is the use of intellectual property
rights and the transfer of know-how. For this
reason, a franchise agreement will be subject
to intellectual property laws and rules in the
fields of license requirements, registration, in-
fringement etc. Accordingly, franchisors should
register their intellectual property rights with
the Turkish Patent Institute (the “TPI”) for pro-
tection. The trademarks can be registered for
a period of ten years, which may be renewed
consecutively. Since Turkey is a party to Madrid
Protocol and the Patent Cooperation Treaty,
foreign franchisors may register their intellec-
tual property rights before the TPI in an expe-
dited way accordingly.

Some legal implications may arise from real es-
tate and tenancy law depending on the nature of
the parties’ franchise system. In case f the fran-
chisor subleases the property to the franchisees,
the franchisor can restrict the franchisee’s right
to sublease the property in any case.
Under Turkish law, there is no precontractual
disclosure requirement regulating franchise
agreements. Accordingly, the parties are enti-
tled to freely determine the term of the confi-
dentiality clause. In most of the cases, a breach
of the confidentiality clause would result in a
penalty payment in the scope of the agreement.
266
Legal restrictions Amendments

Antitrust/Competition Law If the franchise agreement contains a precise
Since franchise relations are based on mar- and reasonable change reservation clause,
keting and distribution of a product or ser- considering the franchisees’ interests, unilat-
vice, these agreements are deemed vertical eral amendments of the agreed terms by the
agreements in respect to the competition franchisor are admissible. Without a respective
law. The prohibitions stipulated under the provision, amendments of the franchise agree-
Law on Protection of Competition no 4054 ment may only be agreed unanimously by and
(“Competition Law”) will apply to franchise rela- between the franchisor and the franchisee.
tions. Accordingly, franchise agreements will be
assessed as to whether they cause prevention, Termination
distortion, or restriction of competition direct- Franchise agreements can be arranged for a
ly or indirectly in a specific market. Franchise definite or indefinite period. In an indefinite
agreements or their provisions violating the franchise agreement, the agreement may be
Competition Law will be deemed invalid and a terminated (i) upon notice of termination with
monetary fine up to 10% of the infringing en- reasonable time, or (ii) for justifiable reasons
tity’s turnover generated in the previous year (e.g., if the franchisee fails to compensate for
may be imposed by the Competition Authority. the breach within a reasonable time despite
If franchisor’s market share does not exceed the breach of the agreement). In the absence
40%, the relevant agreement will be entitled of a contractual arrangement between the
to benefit from the block exemption. Another franchisor and the franchisee regarding the
condition to benefit from such block exemp- termination, the relevant party must provide
tion is that the non-compete clauses under appropriate termination notice prior to the
franchise agreements must not exceed a pe- date on which the termination is requested.
riod of five years. The fixed-term franchise agreement expires at
the end of the contract period, unless the par-
Franchise fees ties stipulate a special arrangement for spon-
Turkish law does not include any laws regarding taneous renewal. However, in any case, the
the franchise fees since franchise agreements parties can rely on the “existence of justifiable
are deemed as a sui generis type of agreement reasons” for the contract’s termination.
and does not classify or regulate the elements
of the franchise agreements in such way. In the event that one of the parties terminates
the contract without good cause, the other
Confidentiality party may claim damages that can be proved
Under Turkish law, the parties of a franchise such as material damage (e.g., direct material
agreement are free to decide on the confiden- damages, loss of earnings, return of products
tiality conditions in respect to the scope and left in stock, etc.,) and/or intangible damage
the duration. (e.g., loss of commercial reputation).
267
Renewal and transfer located in Turkey. However, certain scholars ar-
Franchisors are generally free to decide wheth- gue that the parties can also agree on a foreign
er or not to renew a franchise agreement. In law to be applicable, provided that there is a
such a case, renewals should be done explic- foreign element in the franchise relationship. In
itly and in writing. In practice, franchise agree- case one of the parties is a foreign entity, the
ments contain a transfer prohibition clause parties are free to choose the governing law in
stating that the agreement cannot be trans- franchise agreements.
ferred without the permission of the fran-
chisor. The prohibition clause generally covers COVID-19
the change in management and shareholding The global COVID-19 pandemic has severely
structure of the franchisee company, as well. impacted especially the franchise sector along
with other wide range of sectors due to the
Dispute Resolution and Applicable Law governmental measures. In order to mitigate
All disputes arising from franchise agreements the negative impacts of the pandemic, all en-
are held by civil courts. Civil litigation is gov- forcement and bankruptcy proceedings at exe-
erned under the Civil Procedure Law and the cution offices have been suspended to prevent
International Private and Procedure Law, de- the spread of the COVID-19 epidemic from 22
pending on whether or not the nature of the March 2020 until 30 April 2021.
claim has a foreign element. The Turkish legisla-
An additional judiciary measure has been im-
tion allows disputes to be brought before a liti-
posed by the Grand National Assembly of
gation or arbitration proceeding. If parties can-
Turkey which enacted Law No. 7318 (“Law”) on
not agree on the jurisdiction of an arbitration
29 April 2021, regarding the suspension of (i) the
tribunal regarding the dispute, as a general rule,
deadlines for submission of checks and (ii) the
such dispute would be subject to a litigation
enforcement proceedings of bills of exchange in
procedure to be carried out before the compe-
order to prevent any prejudice to affected peo-
tent court. Considering the fact that the litiga-
ple/entities during the nation-wide curfew.
tion procedures carried out before the Turkish
courts can be time-consuming, determining the However, those suspensions did not have the
of jurisdiction of an arbitration tribunal can be characteristics of temporary payment mora-
more time-efficient for the parties. toria. The franchise fees and other payments
arising from the franchise agreements have
In principle, Turkish law will be applicable to
been paid during the COVID-19 pandemic.
franchise agreements, if both of the parties are
268
269
United Arab Emirates

6
Legal professionals
Region
EMEA
Essentials
about United Arab Emitares’ franchising law
1 There does not appear to be any specific legislation that

regulates franchising in the UAE;
2 Franchise agreements may be registered under the Federal

Law No. 18 of 1981 on the Organization of Commercial Agencies
(“CAL”), which grants numerous benefits to franchisees; and
3 Trademarks should generally be registered with the relevant

local authority to be enforceable under UAE law.

270
Relevant areas of law UAE which require a franchising agreement pre-

pared by a foreign entity or governed by a foreign
law to be in or substantially in any prescribed
There does not appear to be either a legal defi-
form in order to be enforceable in the UAE.
nition of “franchise” under UAE law or specific
legislation addressing franchising arrange-
Corporate Law
ments. Such arrangements are governed by
Generally, save for entities registered in desig-
general principles of contract law as codified
nated “free zones” under UAE law (where each
in the UAE Civil Code and legislation of general
have their own tax, customs and import regime
application, such as the CAL, which relates to
distinct from the rest of the UAE), all UAE entities
agency relationships and agreements.
must be at least 51% owned by UAE nationals.
We understand that the CAL’s definition of
The most common business structure in the UAE
“agent” will likely apply to franchisees and there-
is a limited liability company incorporated in ac-
fore to franchise agreements, too. If so, such
cordance with the relevant company law regime,
agreements may be registered in the commercial
as administered by the Departments of Economic
agencies register, which is maintained by the UAE
Development of the respective emirates and in
Ministry of Economy. To undertake such registra-
the Free Zones, the relevant Free Zone Authority
tion, among other requirements, the franchise
(“Relevant Corporate Regulators”).
agreement must be prepared in (or be notarized
and go through a certified translation into) Arabic To incorporate a company in the UAE, the follow-
and the franchisee must be one of the following: ing requirements (among others) must be met:
• a UAE national; • Shareholders/directors: Every company must

• a UAE public joint stock company (“PJSC”) have a minimum of one (1) individual director
which is at least 51% owned by UAE nationals; (who does not need to be resident in the UAE)
and two (2) shareholders (subject to the re-
• a UAE private entity owned by a PJSC which is
quirement for UAE entities to be at least 51%
at least 51% owned by UAE nationals; or
owned by UAE nationals as noted above).
• a UAE private entity that is 100% owned by
• Corporate information: Among others, the
UAE nationals.
names of the proposed directors/shareholders
Registration confers numerous benefits upon of the company and the proposed local address
franchisees, including limiting a franchisor’s of the company’s office must be provided.
right to terminate the franchise agreement and
• Charter documents: A memorandum of associ-
providing franchisees with a right to unilateral-
ation must be prepared in Arabic, notarized and
ly renew such an agreement.
submitted (along with the “Corporate informa-
tion” above) to the Relevant Corporate Regulator.
Apart from the language requirements relating We understand that most required filings with
to the registration of the franchise agreement and payments to relevant authorities must be
as noted in “Legal Basis of Franchise Law” above, made in person, and a company can generally
there do not appear to be any specific laws in the be incorporated within approximately six weeks.
271
Consumer Protection Law Law on commercial agents
Franchisees do not appear to be covered by the As noted in “Legal Basis of Franchise Law” above,
definition of “consumer” under the Federal Law a franchisee is likely to be an “agent” of a fran-
No. 24 of 2006 on Consumer Protection and chisor under the CAL, which as noted earlier,
are unlikely to be protected by its provisions. confers numerous benefits on a franchisee in
respect of their relationship with the franchisor.
We have noted earlier that while there do not IP Law
appear to be any specific laws in the UAE ad- Franchise agreements may allow the licens-
dressing franchising arrangements, general ing and/or transfer of all forms of Intellectual
principles of contract law as codified in the Property Rights (“IPRs”), depending on the na-
UAE Civil Code would apply and in this regard, ture of the intended activity or business of the
the provisions of the Federal Law No. 4 of 2012 franchisee. A franchisor may control, supervise,
on The Regulation of Competition, which gen- and impose conditions and limitations on the ex-
erally places restrictions on, among others, ploitation and use of their IPRs by a franchisee.
agreements that substantially reduce compe-
While UAE law does not appear to require
tition, territorial restrictions and resale price
trademarks or licences to be registered to en-
maintenance (e.g., a franchisor pressuring a
gage in franchising activities, undertaking rele-
franchisee not to sell products below a certain
vant registrations with the Ministry of Economy
price), may also apply to such arrangements.
is necessary to help obtain statutory protec-
tion of such IPRs.
Employment Law
Franchisees do not appear to be covered by
the definition of “worker” under the Federal
Law No. 8 of 1980 regarding The Organisation Precontractual Disclosure
of Labour Relations and are unlikely to be pro- There do not appear to be any laws in the UAE
tected by its provisions. These provisions pro- which require franchisors to disclose any mat-
vide a “worker” with, among others, rights to ters to potential franchisees prior to entering
minimum notice periods and severance pay- into a franchising arrangement.
ments in circumstances where their employ-
It would therefore be advisable for potential
ment contract is terminated.
franchisees to undertake some due diligence
To help mitigate the risk of characterization as in terms of the franchisor and the proposed
an employment relationship, a franchise agree- franchise arrangement before entering into
ment may also stipulate that the franchisee any franchising arrangement.
will be acting in their capacity as an independ-
ent contractor and nothing in the agreement Confidentiality
should be construed as creating an employ- Confidentiality clauses are generally enforcea-
ment relationship between the franchisor and ble under UAE law.
the franchisee.
272
273
Franchise Fees Termination
The parties to a franchise agreement are gen- The parties to a franchise agreement are gen-
erally free to agree on any matters in connec- erally free to agree on the length of a fixed-
tion with franchise fees, subject to the provi- term franchise agreement, which would then
sions of the UAE Civil Code. automatically terminate on the expiry of such
fixed term, subject to the provisions of the UAE
Amendments Civil Code.
Where the franchise agreement is registered
erally free to agree on terms which allow a fran-
under the CAL, a franchisor or franchisee can
chisor to unilaterally amend the terms of the
only terminate a franchise agreement before
franchise agreement, subject to the provisions
the expiration date for a “material reason”—this
of the UAE Civil Code.
term does not seem to be defined in the CAL
and we understand it will likely be interpreted
274
narrowly by UAE courts, such as only egregious The UAE is a federal state and thus, its le-
breaches by the franchisee, abandonment of gal structure comprises a dual system: (i) the
the franchise business, may constitute a “mate- Federal Judiciary and (ii) the local judicial de-
rial reason”. Otherwise, there do not appear to partments of the individual Emirates which have
be any limitations on the right of a franchisor to elected not to participate in point number (i).
terminate a franchising agreement under UAE
Generally, courts in both judicial systems are
law and parties are free to agree on the grounds
broadly classified into three (3) levels (in de-
for termination such as material breach, repu-
scending order of superiority):
diation and others—again, subject to the provi-
sions of the UAE Civil Code. • Federal Supreme Court/Courts of Cassation
(for (i) and (ii) respectively, appellate jurisdic-
Renewal and transfer tion only);
Where the franchise agreement is registered • Courts of Appeal; and
under the CAL, we understand that a fran-
• Courts of First Instance.
chisor must renew the franchise agreement
unless they have a “material reason” not to do Applicable Law
so, which will likely be difficult to prove—see our As noted in “Dispute resolution, court System”
comments on this term in “Termination” above. above, UAE courts will have exclusive juris-
Otherwise, there do not appear to be any laws diction over disputes arising out of franchise
in the UAE which require franchisors to renew agreements registered under the CAL.
or transfer a franchise agreement and parties
are free to agree on such terms subject to the In respect of unregistered franchise agree-
provisions of the UAE Civil Code. ments, UAE courts will defer to the law that
parties have chosen to govern a franchise
Dispute Resolution and Applicable Law agreement, subject to exceptions such as
Dispute resolution, court system public policy in the UAE.
Cross-border franchising arrangements may
be governed by foreign laws, and the parties COVID-19
can opt for dispute resolution by arbitration Businesses in the UAE have been severely
in a “neutral” location (rather than a UAE court impacted by the COVID-19 pandemic, and
or local arbitration). In the absence of a bind- the UAE Government has offered financial
ing arbitration agreement expressly reflected support for businesses, including reductions
in the agreement or otherwise agreed by the in Government fees, moratoriums on certain
parties, the parties may choose to commence loan repayments and refunds of certain cus-
proceedings in a UAE court. However, please toms duties. As of 4 August 2021, there does
note that arbitration clauses in a franchise not appear to be any COVID-19 related legisla-
agreement registered under the CAL will gen- tion in the UAE that specifically relates to fran-
erally not be enforceable under UAE law, which chising matters.
we understand provides that any disputes aris-
ing out of such an agreement will fall under the
exclusive jurisdiction of the UAE courts.
275
United Kingdom
169
Legal professionals
Region Offices
EMEA Birmingham, Leeds,
London, Manchester,
Reading
Essentials
about United Kingdom’s franchising law
1 There are various franchise business models which, due the flexibility of English
common law, can be combined to form hybrid structures.
2 There is no requirement to be registered with a professional or regulatory body

before entering into a franchising arrangement; it is a self-regulated industry.
3 There are no laws that confer compensation rights on the franchisee on the
expiry, or non-renewal of a franchise agreement.

Paul O‘Hare Deloitte LLP
Michael Rhead
276
Relevant areas of law special regulatory requirements for foreign

franchisors seeking to establish a franchise in
the United Kingdom, and there is no require-
In the United Kingdom, there is no legislation
ment to register a franchise.
that applies specifically to franchising relation-
ships. Franchising agreements will be subject
to general UK laws relating to contracts, real
Under the laws of England and Wales, fran-
estate, intellectual property and competition
chisees, and individuals seeking to become
law. In addition, franchisors and franchisees
franchisees, are recognized as businesses
need to be aware of the potential application
and as such, are not subject to consumer pro-
of the Trading Schemes Act 1996 and the
tection legislation.
Trading Schemes Regulations 1997. The Act
and Regulations relate to the practice of ‘pyr-
Employment Law
amid selling’ and potentially apply to certain
As there is no statutory recognition of the legal
multi-tier franchise arrangements. Where they
and financial independence of the franchisor
apply, the franchisor, and any franchisee that
and its franchisees, care needs to be taken to
appoints sub-franchisees, will need to comply
ensure that a franchisee does not qualify as an
with certain obligations including the provision
employee of the franchisor. Under English law,
of certain information in advertisements, a
it would be difficult for a deemed employer/
right for participants to return goods on termi-
employee relationship to override express pro-
nation of the agreement, and a 14 day cooling
visions to the contrary in the franchise agree-
off period during which participants may termi-
ment. To that end, the parties should always en-
nate the agreement. The regulations do not ap-
sure that the franchise agreement makes it clear
ply to franchising relationships where the fran-
that the relationship between the franchisor
chise operates as a single-tier trading scheme
and franchisee is one of legal and commercial
(i.e., the relationship involves the franchisor
independence and does not give rise to either
and one level of franchisees below it) and for
an employment or a partnership relationship.
multi-tier franchising arrangements, their ap-
plication can be avoided if all franchisees in the Law on commercial agents
network are VAT-registered at all times during Under the Commercial Agents (Council
the term of the franchising agreement. Directive) Regulations 1993 (implementing
In addition, the British Franchise Association Directive 86/653/EEC on self-employed com-
requires its members to comply with its code mercial agents), commercial agents can be enti-
of ethical conduct. tled to compensation on the expiry or termina-
tion of the agency agreement. However, under a
Corporate Law typical franchise arrangement, where the fran-
The most common corporate form to set up chisee sells products or provides services in its
business in the United Kingdom is a private own capacity, and not as an agent on behalf of
limited liability company. The formation costs the franchisor, the Regulations do not apply.
are low. English law does not impose any
277
278
IP Law A franchisor that leases its premises to a fran-

Applicable IP should be registered to protect the chisee, needs the ability to remove the fran-
franchisor’s interests and provide a platform for chisee at the end of the term of the franchise
entering into franchising arrangements. The agreement. It is vital that the sub-lease does
franchisee will need to ensure that its rights to not provide security of tenure to the franchisee
use any applicable IP is properly secured and under the Landlord and Tenant Act 1954. In or-
documented in the applicable franchise agree- der to contract out of security of tenure pro-
ments. This should also include the right to use tection, the franchisor needs to document it
any new and/or substitute intellectual property clearly, and the franchisee needs to formally
rights as and when created by the franchisor. confirm that it is aware that it is waiving its
rights under the 1954 Act.
Under the British Franchise Association’s Code
of Ethical Conduct, the franchisee’s rights to
use the franchisor’s IP must be:
• referred to in the franchise agreement; and
There are no legal precontractual disclosure
• capable of verification. requirements in the UK. English law adopts the
principle of “buyer beware”, and as such there
Data protection
is no obligation on the franchisor to inform
Care needs to be taken to ensure that the
each potential franchisee accurately and with
franchise agreement deals with both the fran-
reasonable advance notice about all circum-
chisors’ and franchisees’ obligations and liabili-
stances relevant for the conclusion of a fran-
ties in relation to the transfer and protection of
chise agreement.
information and data.
Having said that, the British Franchise
Real estate Association’s code of ethics does require its
With the exception of short-term leases, most members to disclose certain information in
leases will generally permit the tenant to enter advance of entering into a franchise agree-
into a sub-leasing arrangement with a third ment. A prudent franchisee would also look to
party. In a structure where the franchisor carry out some form of due diligence on the
sub-leases the premises to a franchisee, har- potential franchise arrangement, which may
monizing the termination rights of the sub- lead to precontractual questions and disclo-
lease with those detailed in both the head sures. In those circumstances a franchisor may
lease and the franchise agreement is critical. wish to make certain formal precontractual
disclosures to prevent any potential misrep-
It is common for landlords to impose controls
resentation claims. In addition, the franchisor
on the sub-leasing process designed to pro-
can mitigate these risks via the use of appro-
tect the financial interests of the landlord. For
priate limitation of liability, entire agreement
example, the current tenant may be required
and non-reliance clauses being included in the
to guarantee the financial obligations of the in-
coming tenant. Where such requirements ex-
ist, the franchisor and franchisee can manage
the risk in the applicable franchise agreement.
279
Legal restrictions Competition Law
Acting in good faith Franchise agreements may contain restrictions
It is likely that English judges will take the view (clauses that prevent, restrict, or distort competi-
that, where the franchise agreement does tion within the common market) that conflict with
not expressly confer certain rights, bene- principles of the Competition Act 1998. However,
fits and protections on the parties, then the provided that duration of the non-compete obli-
parties should not be subject to an implied gation does not exceed the duration of the fran-
obligation to subordinate their own commer- chise agreement, non-compete obligations are
cial interests to those of the other party. The not restricted where the obligation is necessary
British Franchise Association’s Code of Ethical to maintain the common identity and reputation
Conduct requires the parties to exercise fair- of the franchised network.
ness in their dealings with each other, however,
Local law provisions
unless provisions to that effect are detailed in
There are currently no legal requirements un-
the franchise agreement, they do not consti-
der English law to include certain provisions in
tute contractual terms.
franchise agreements for them to be enforce-
able. The primary test under English law is the
one which applies to all contracts, in that the
content of such agreements needs to be clear
and concise with no vague or ambiguous terms.
Franchise fees
There are no legal restrictions on the range
of fees or payments that can be agreed to be-
tween the parties. Case law sets the require-
ments for contractual penalties, which in a nut-
shell, must not be unconscionable in order for
them to be enforceable.
Confidentiality
are common and enforceable in England and
Wales. The franchisor may file an interim in-
damages arising from the breach, and possibly
terminate the franchise agreement where such
breach is drafted as a termination event.
280
Amendments Choice of law and jurisdiction.

Unless otherwise agreed between the par- Subject to the application of mandatory public
ties, no variations to the franchise agreement policy, the parties to a franchise agreement are
will be effective unless the variations are free to choose the governing law. If applicable,
in writing and signed by the parties (or their local courts will recognize a foreign jurisdiction
authorized representatives). if selected by the contracting parties.
Termination Dispute Resolution and Applicable Law

The terms of the franchise agreement will gov-
Dispute resolution
ern what, if any, grounds a party has for ter-
Most formal claims are resolved by mediation
mination—for example, insolvency, specified
or litigation as opposed to arbitration. However,
defaults etc. If the cause for termination is a
the parties are free to agree on arbitration as the
breach of a contractual obligation by the oth-
exclusive way of resolving disputes if they wish.
er party, e.g., non-payment of franchise fees,
This is more common with international agree-
then the parties should follow the contractual
ments. This may be favorable, as the parties
provisions (e.g., notification in writing to reme-
may choose the language of the proceedings
dy the breach) to ensure the termination right
and have influence on the arbitrators selected.
is enforceable. Unjustified terminations by a
Also, arbitration proceedings are—unlike pro-
franchisor might entitle the franchisee to claim
ceedings before ordinary courts—not held in
damages and potentially obtain an injunction,
public. In England and Wales, where courts have
or an order of specific performance. The law
jurisdiction, before issuing court proceedings,
does not generally provide for compensation
the parties should follow the pre-action proto-
to the franchisee in the event of legitimate ter-
cols detailed in the Civil Procedure Rules.
mination, either on contractual expiry or on le-
gitimate non-renewal of the agreement.
COVID-19
The COVID-19 pandemic has had a significant
impact on the franchise sector due to the
Franchisors are, generally speaking, free to
government measures, especially shutting
decide whether or not to renew a franchise
down public life to contain the pandemic and
agreement.If they choose to, renewals should
there are many lessons to be learned from
be done explicitly and in writing. It is permissible
the COVID-19 crisis. Areas of key focus have
to contractually restrict a franchisee´s ability to
included:
transfer its franchise, typically by requiring the
explicit prior written approval of the franchisor. • insurance and the need for franchisees to
obtain business interruption insurance;
Exclusion and entire agreement clauses • the use of online channels to distribute prod-
Provisions in franchise agreements, which seek to ucts and services; and
exclude/limit the liability of either party, must be
• the need for flexibility, so that the franchise
reasonable and satisfy the ‘reasonableness test’
relationship can adapt during a crisis, e.g.,
set out in the Unfair Contract Terms Act 1977.
waiving performance targets or reducing fees.
281
Uruguay
5
Legal professionals
Region Offices
AMERICAS Montevideo
Essentials
about Uruguay’s franchising law
1 No specific legislation regarding franchise agreements in Uruguay.

However, it may be assimilated to various types of contracts, such as
distribution, license, supply agreements, among others.
2 Franchisees may be entitled to compensation payment upon

termination of the franchise agreement.
3 Recent Law N° 19.920 modified the Uruguayan Civil Law and

individuals may freely choose the applicable law of an agreement
whose parties are domiciled in different countries.

Dr. Juan Bonet Dr. María José Graziani Deloitte S.C.
Dr. Javier Domínguez Dr. Guillermo Lorbeer
Dr. María José Echinope
282
Relevant areas of law “SA”, or as an “SAS”). These are easy to set up by

two or more people (save for the SAS that can
be set up by one or more person) and does not
In Uruguay, there is neither a legal definition of
require a minimum capital. The formation cost
“franchise” nor a codified franchise law.
for an SA/SAS is very moderate. The SAS for-
In Uruguayan legislation, the franchising agree- mation process is much quicker and requires
ment is known as an “unnominated agreement” less audit controls, therefore it is much simpler
(agreements with no specific regulation in law), constituting an SAS than an SA.
and therefore governed by the autonomy of
the will of the agreement’s parties. Consumer Protection Law
The definition of consumer is set forth in ar-
By virtue of art. 16 of the Uruguayan Civil Code,
ticle 2 of Law 17,250, which establishes that a
and since there are no specific rules to be ap-
consumer is any person who acquires or uses
plied in these agreements, therefore: i) anal-
products or services as the final recipient in a
ogous legislation may be applied, ii) general
consumer relationship or as a function there-
law principles, and iii) most recognized doc-
of. Therefore, in Uruguay, people seeking to
trine and iv) uses and customs (art. 297 of the
become franchisees would typically not qualify
Commercial Code).
as consumers, since the intention of their con-
Different regulations may be applied, especial- duct is business–oriented.
ly civil, commercial and corporate law.
The franchising agreement is assimilated to dif-
In Uruguay, Antitrust/Competition Law is regu-
ferent types of contracts such as distribution,
lated under Law N° 18.159. In such a law, there
license, concession, and supply agreements,
are no specific provisions for franchise agree-
among others. Therefore, by virtue of art. 16 of
ments. The main aspects regulated by this law
the Uruguayan Civil Code, and since there are
are the following:
no specific rules for the franchising agreement,
the rules applicable to such contracts may be • Prohibited practices: refers to a non-exhaus-
applied by analogy. tive set of practices that the law typifies as
prohibited, when an enterprise has a domi-
It is worth mentioning that in our country, the
nant position in the market.
registration of the license that necessarily con-
tains franchising is not compulsory. However, if • Relevant M&A requirements: certain merg-
registered, it constitutes proof of the contract’s ers and share purchases (considering an-
existence , and therefore, protects both par- nual revenue of both companies) are sub-
ties of the agreement. ject to prior control of Commission for the
Promotion of Competition Defense.
Corporate Law
Franchise fees
The most recommended corporate form to set
up business in Uruguay is a corporation or a
laws in Uruguay regulating the payment of
corporation of simplified shares (known as an
franchise fees.
283
However, these payments may become sub- Law on Commercial Agents
ject to transfer prices if it is determined that Typically, the franchisor grants the use of a
there is a relationship between the parties. trademark, logo, design, and “know-how” to
Please note that Uruguay follows the OECD the franchisee. In exchange, like a commercial
guidelines for transfer pricing. There are no ex- agent, the franchisee may be entitled to a com-
change restrictions for payment. pensation payment that may be fixed (initially
or periodic), percentual (royalty) or combined
Employment Law (fixed and percentual).
Under Uruguayan Law, the franchisee is not
qualified as an employee of the franchisor. IP Law
Personal independence is the primary criteria For companies acting as franchisors, their
to determine the labor relationship between technology, industrial property and intellectual
the parties. (i.e., an independent businessper- property are an essential part of their assets.
son is—contractually as well as factually—free Therefore, it is necessary to safeguard the in-
to design its activities, set the working hours, tegrity of these rights in the agreement.
and assume an own entrepreneurial risk).
In franchise agreements, the franchisee is typ-
From a Labor Law perspective, courts under- ically granted with the right to use the trade-
stand that the franchisor is not responsible mark, trade name, logos and designs, which
when it has no control of the franchisee’s per- characterize and identify the commercial activ-
sonnel. Uruguayan courts understand that ity of the franchisor and its products.
there might be management power over the
Franchisors must consider protecting their in-
employees of the franchisee, for the franchisor
tellectual property against attacks or imitations
to become liable for responsibility (Court de-
by third parties, especially by registering their
cision N° 16/2021 Appeals Labor Court, 3rd.
trademarks, either in international registries,
turn, February 4, 2021).
or as a national trademark in Uruguay in the
In this sense, courts have condemned fran- Trademark Registry of the National Directorate
chisors in cases where the franchisor controls, of Industrial Property.
among others:
• the clothing of the franchisee’s personnel;
• when the franchisor participates in the fran- Pre-contractual disclosure
chisee’s personnel selection process; Master franchising is a form of the fran-
chisor-franchisee relationship, in which the
• when it gives instructions on the franchisee’s
master franchisee essentially becomes a mi-
employees’ leave regime, overtime and dis-
ni-franchisor for a specified territory. Within
tribution of working hours, among others.
that territory, the master franchisee recruits,
In conclusion, to avoid any risks and/or liabilities trains, and provides ongoing support to each
regarding Employment Law, the franchisor must franchisee that they sign. In exchange, the other
be an independent company of the franchisee. party typically pays some price as well as agree-
ing to take on some or all of the responsibility to
284
train and support new franchisees in their area. about the franchise’s prospects for success.
Because the role of a master franchisee within In addition, it also includes general informa-
their territory is similar to that of a franchisor, tion about the franchise system, as well as
they are often referred to as sub-franchisors. the basic content of the franchise agreement.
Notwithstanding the above, the franchisor is
The master franchisee acts as an interme-
not obliged to disclose trade secrets.
diary between the franchising chain and the
final franchisee, so that its functions are simi- Non-compliance by the franchisor shall be reg-
lar to those performed by the franchisor with ulated by empowering the franchisee to termi-
respect to the franchisees in the domestic nate the agreement with the imposition of the
market: search and selection of franchisees, penalty clause provided for, and in this case
hiring and subsequent control of the same, it may also be agreed to terminate the agree-
transmission of know-how, etc. In return, the ment by operation of non-compliance law.
master franchisees’ remuneration is usually
A breach of the pre-contractual duty to inform
fixed through a negotiated percentage of the
may entitle the franchisee to terminate the fran-
royalties paid by the franchisees in the new
chise agreement for good cause, as well as give
market. In addition, the master franchisee usu-
rise to claims for damages by the franchisee. To
ally keeps a percentage of the purchase price
that end, the franchisee may elect to terminate
of the brokered product, in many cases.
the franchise agreement and claim the entire
Before signing a franchise agreement, fran- franchise fees paid and all expenses incurred in
chisors must inform each prospective fran- connection with the franchise business.
chisee accurately and reasonably in advance of
The rights and obligations of each party, in the
all circumstances recognizably relevant to the
event of breach of contract by either party,
conclusion of the franchise agreement.
must be agreed upon in the agreement. This
That said, there is no statutory list of which implies establishing a series of style clauses,
information should be made available and in such as the penalty clause, outstanding mon-
what form, nor is there a standard procedure etary obligations, expiration of the term if ap-
for compliance. plicable, restitutions if any, clause of judicial
or extrajudicial expenses originated by the
In Uruguay, there is no legal obligation to con-
non-fulfillment, etc.
tinuously update the pre-contractual informa-
tion. However, such obligation may arise during In this sense, article 1341 of the Civil Code al-
the term of the franchise agreement (or even lows the non-default party to claim for damag-
before the signing) if certain circumstances oc- es only in case of contract resolution.
cur or change, being recognizably relevant to
The customers of the sub franchisees could
the franchisee.
claim indemnification from the sub franchisor,
If pre-contractual information is provided, it provided that the sub franchisor is the one
should refer to data necessary for the poten- who caused the damage for which indemnifica-
tial franchisee to generate its own profitabili- tion is sought. Likewise, such customers could
ty calculations and draw its own conclusions eventually allege a liability of the principal
285
franchisor, if it was an omission of the latter Amendments
that caused the negligent action of the sub Unless parties agree otherwise in the agreement,
franchisor and thus, the damage of the sub without a respective provision, amendments
franchisee’s customers. of the franchise agreement may only be jointly
agreed between franchisor and franchisee.
There is no special liability provided for these
parties, therefore, this shall be subject to the
Termination
general liability regime or to what the parties
The termination clauses shall depend on the
have convened in the agreement, provided that
agreement of the parties stipulated in the con-
it does not violate any general principles of law.
tract. However, franchise agreements are en-
tered into for a certain time and terminate with
Legal restrictions
lapse of that time. A regular termination by one
There are no specific legal restrictions apart
of the parties before that term is not admis-
from the ones stipulated in each row of the
sible, unless both parties unanimously agree
present questionnaire.
on it. Nonetheless, franchise agreements may
be terminated by each party without notice if
Confidentiality
it is unreasonable for the terminating party to
continue the contractual relationship until the
agreed time of termination, generally in case
of breach of a contractual material obligation
Uruguay. The franchisor may claim damages
by the other party, e.g., non-payment of fran-
occurred due to the breach, and possibly ter-
chise fees, the termination for good cause is
minate the franchise agreement immediately
only admissible after having issued a fruitless
and extraordinarily.
286
warning (advisably in writing), and within a rea- Depending on the amount of the case and
sonable period of time after learning about the some other requisites, the case may go to
circumstances for the termination. Unjustified the third instance and will be decided by the
terminations by a franchisor might entitle the Supreme Court of Justice.
franchisee to claim damages.
Arbitration procedures in Uruguay are used
mainly in cross‑border and/or important
agreements. Parties could benefit with arbitra-
Franchisors are, generally, free to decide
tion procedures in privacy matters and in some
whether or not to renew a franchise agree-
cases, in a fast-paced process (depending on
ment. In case of non-renewal, this should be
the arbitration rules they choose). However, if
done explicitly and in writing. It is admissible
both parties are located in Uruguay and it is
to contractually restrict a franchisee’s ability to
not a cross-border transaction, we believe the
ordinary courts will be the best choice, consid-
ering the cost of an arbitration process.
Dispute Resolution and Applicable Law
Applicable Law
Dispute resolution, court system Recent Law N° 19.920 modified the Uruguayan
Uruguay is not divided in states. Therefore, Civil Law and individuals may freely choose the
there are no federal courts in this country. applicable law of an agreement whose parties
are domiciled in different countries.
Uruguay has two authorities regarding jurisdic-
tional activity:
COVID-19
• The Supreme Court of Justice for all judicial There were no specific rules/legislation with
matters such as crime law, civil law, commer- direct impact for franchising agreements. The
cial, labor, and bankruptcy law. core legislation set forth on this period was fo-
• High Administrative Court that has exclusive cused on shutting down the circulation of in-
jurisdiction in administrative acts in one sin- dividuals. However, Uruguay did not impose a
gle instance. strict lockdown, being permissible to shopping
centers, restaurants, etc., to remain open.
The judicial process has three instances. For
the first instance, Civil Law claims are pre- This particular scenario is related to the strict
sented in “Juzgados Letrados” or “Juzgados de concept of force majeure that Uruguayan
Paz” depending on the amount claimed in the courts have adopted. In Uruguay, parties could
complaint (prior a constitutional requisite of a invoke force majeure for the non-compliance
conciliation process among the parties). For of the agreement. (This was of course applica-
non- Civil Law claims, first instance is always ble if the agreement does not regulate some-
presented at “Juzgados Letrados”. thing different).
Above these courts, there are Appeal Courts Force majeure is configured if there is a strange,
that are divided in toLabour Appeal Courts, irresistible and unforeseeable event.
Civil Appeal Courts and Crime Appeal Courts.
287
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288
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1 The franchisor must be the exclusive owner of all the intellectual

2 The franchisor cannot have a direct or indirect controlling sharehold-

3 Franchises are exclusive for both parties unless otherwise agreed.

Authors Deloitte Legal Entity

Relevant areas of law Specifics regarding foreign franchisors

Legal basis of Franchise Law Corporate Law

Corporation Limited liability company

Shareholders/ Minimum: 2 shareholders (unless Minimum: 2 partners.

Shareholders/ The shareholders’ liability is limited, in The quota holders/partners liability is

In the case of foreign entities participating in

Law. The Argentine Association of Brands and

In case the franchisor must provide economic

1 Franchisees may be entitled to indemnity after termination of the

2 Franchise agreements usually contain vertical restraints and should be

3 In general, franchisees qualify as businesses but can – under certain

Authors Deloitte Legal Entity

Relevant areas of law resale of goods and services within franchising

Consumer Protection Law Employment Law

IP Law Franchise Fees

Amendments to franchise agreements Dispute resolution and applicable law

1 In Bangladesh, there does not appear to be any specific dedicated

2 There do not appear to be any laws in Bangladesh which require

3 Trademarks should generally be registered with the relevant authority

Authors Deloitte Legal Entity

Relevant areas of law • Shareholders/directors: Every company

Amendments reflected in the agreement or otherwise agreed

Termination • Supreme Court, comprising of (i) the Appellate

1 There is also a detailed arbitration regime in

3 Franchisees may be entitled to compensation payment upon termination of the

Authors Deloitte Legal Entity

Relevant areas of law Consumer Protection Law

precontractual information obligations applies – ‘Information that is deemed necessary’ in

a clear imbalance between the parties’ rights

The black list prohibits clauses:

• that provide for an irrevocable obligation

• grant a party the right to unilaterally change

Renewal and transfer Dispute resolution and applicable law

1 There is no specific regulation for franchises in Chile, being such activities

Authors Deloitte Legal Entity

Specifics regarding foreign franchisors Corporate Law

Consumer Protection Law

The main criterion to determine if an individu-

their own working hours, and who assumes an Termination

Authors Deloitte Legal Entity

Relevant areas of law the business according to a uniform business

applicant may have preemptive rights within

1 Franchise agreement is classified as an atypical contract under Colombian law.

2 It is an agreement in which the autonomy of the will plays a relevant role.

3 The franchise consists of taking advantage of the experience of an already positioned

Authors Deloitte Legal Entity

Relevant areas of law commercial, administrative, and criminal lia-

However, it is important to mention that in

Commercial lease agreement • Avoid transferring financial risks that arise

In particular, Law 256 of 1996 states that is an

• Clear identification of the parties.

• Identification of the goods and assets that Termination

1 There is no legal definition of “franchise agreement“ in the Czech

2 The provisions of the Czech Civil Code may apply.

Authors Deloitte Legal Entity

Relevant areas of law Corporate Law