On September 23, 2025, the Korea Fair Trade Commission (“KFTC”) announced its comprehensive plan to strengthen franchisee rights (the “Plan”). Chairperson Biung-Ghi Ju stated that “franchisees are structurally disadvantaged in negotiations with franchisors and often lack sufficient access to critical information,” emphasizing that addressing this imbalance will be “the first step toward substantively enhancing the rights and interests of franchisees.”
The Plan is built around three key pillars:
(1) improving stability and transparency during the franchise start-up stage,
(2) strengthening franchisee bargaining power and legal oversight during the operation stage, and
(3) ensuring that franchisees have greater flexibility in deciding whether to close or renew their businesses.
Together, these initiatives are intended to provide stronger institutional protection for franchisees throughout the entire business cycle, from establishment to operation and closure. With the expansion of its franchise-related workforce, the KFTC is expected to actively advance the implementation of these measures in the coming months.
The following sections summarize the key details of the KFTC’s Plan.
I. START-UP STAGE: REFORM OF THE FRANCHISE DISCLOSURE DOCUMENT SYSTEM
As a first step, the KFTC plans a comprehensive reform of the Franchise Disclosure Document (“FDD”) system, which franchisors are required to provide to prospective franchisees before entering into a franchise agreement. The reform is intended to fundamentally address the information imbalance between franchisors and franchisees and enhance stability in the franchise start-up process.
Under the current Fair Transactions in Franchise Business Act (the “Franchise Act”), franchisors must provide an FDD that has been pre-reviewed and registered with a designated authority (either the Korea Fair Trade Mediation Agency (authorized by the KFTC) or a local government). However, because the pre-screening process often takes considerable time, franchisors have faced delays in providing timely information to prospective franchisees.
To address this issue, the KFTC plans to introduce a self-disclosure system that allows franchisors to publish their FDDs immediately under their own responsibility, without prior review by the registration authority. The KFTC will then conduct post-disclosure reviews and impose strict sanctions on franchisors found to have made false or misleading disclosures. For newly registered FDDs, the existing pre-approval system will remain in place, while the self-disclosure system will apply to subsequent updates and amendments.
In addition, the KFTC plans to revise the format of the FDD to focus on information that is genuinely useful for prospective franchisees. The revised FDD will be organized according to the franchise business lifecycle, improving both usability and readability. The KFTC also intends to expand the scope of required disclosures to include information that reflects changes in the franchise business environment and enables a more accurate assessment of a franchisor’s brand credibility. The proposed new disclosure items are as follows:
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New Disclosure Item
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Details to Be Disclosed
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Purpose
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Franchisee’s payment options
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Whether credit cards are accepted and availability of installment (deferred) payments
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Enables franchisees to establish financial plans for costs that arise on a long-term or recurring basis
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Information on franchisors owned by private equity funds (“PEFs”)
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Name of PEF and management company, shareholding ratio, and date of acquisition of controlling interest
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Addresses concerns that PEFs, in pursuit of short-term returns, may shift costs onto franchisees
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Long-term survival data
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Number (and percentage) of long-standing franchise stores, survival rate of the stores, and average operating period of closed stores
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Helps prospective franchisees assess long-term business viability
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Details of partnership agreements
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Key terms of arrangements with delivery apps/mobile voucher platforms, including contract period, cost, and partnership conditions
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Prevents financial strain caused by unexpected or hidden costs
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Information on overseas expansion
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Countries, number of directly operated and franchised stores, year of initial entry, and cities of operation outside Korea
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Demonstrates brand competitiveness to prospective franchisees and encourages franchisors’ overseas expansion
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Average penalty for early termination
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Average penalty or fee imposed for mid-term termination of franchise agreements
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Improves transparency regarding potential costs of early termination
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Furthermore, the KFTC plans to extend the current requirement for franchisors to operate at least one directly managed store for a minimum of one year, which currently applies only at the time of new FDD registration, so that it also applies when the franchisor changes its business category. This measure is intended to prevent franchisors without sufficient operational know-how from using business category changes to circumvent the existing requirements and launch new franchise businesses.
II. OPERATIONAL STAGE: ENHANCING FRANCHISEE BARGAINING POWER AND STRENGTHENING LAW ENFORCEMENT
The KFTC also announced a series of measures aimed at enhancing franchisees’ bargaining power and ensuring fair business practices during the operational stage. The key initiatives are as follows:
1. Introduction of a Franchisee Association Registration System
Although the Franchise Act recognizes franchisees’ rights to form associations and to request consultations with franchisors, many franchisors have refused to engage, claiming that such associations lack sufficient representativeness. To address this issue, the KFTC plans to introduce a registration system that allows franchisee associations that meet certain criteria to obtain official recognition. Registered associations will be granted representative status and subject to structured oversight by the KFTC.
2. Mandatory Consultations with Registered Franchisee Associations
To ensure that franchisee associations’ right to request consultations is meaningful in practice, the KFTC plans to require franchisors to engage in consultations when formally requested by a registered association. Franchisors that refuse to participate without justification may be subject to corrective orders. At the same time, to prevent excessive administrative burdens on franchisors, the KFTC intends to include safeguards, such as allowing refusals for legitimate reasons and limiting the number of consultation requests each association may make.
3. Stronger Enforcement Against Unfair Practices by Franchisors
The KFTC will strengthen monitoring and enforcement to curb unfair practices by franchisors, such as forcing franchisees to purchase unnecessary products or shifting unreasonable costs onto them. The KFTC will also review whether last year’s reforms concerning mandatory items (goods or materials that franchisors require franchisees to purchase exclusively from them or designated suppliers) are being properly implemented. These reforms require franchise agreements to specify the types of mandatory items and the methodology for calculating their supply prices, and they require franchisors to consult with franchisees before changing transaction terms.
III. CLOSURE/RENEWAL STAGE: ENSURING FRANCHISEE’S FLEXIBILITY IN TERMINATION AND RENEWAL
At the closure or renewal stage, the KFTC seeks to protect struggling franchisees by ensuring greater flexibility in deciding whether to continue or close their businesses and by improving the procedural safeguards surrounding contract termination and renewal.
First, the KFTC plans to amend the Franchise Act to explicitly grant franchisees the right to terminate their franchise agreements without incurring excessive penalties. While the Korean Commercial Code already provides a general right of termination under certain circumstances, the provision is broadly worded and has had limited practical effect. The amendment aims to clarify the scope and conditions of this right, making it more readily exercisable by franchisees facing economic hardship.
Second, the KFTC intends to strengthen procedural safeguards to prevent franchisees from being disadvantaged during contract renewal or termination. To this end, franchisors will be required to (i) notify franchisees in advance of upcoming renewals to prevent unintended automatic renewals, (ii) provide clearer information about potential termination penalties before contracts are signed, and (iii) allow franchisees to review the original version of the FDD before deciding whether to renew.
IV. IMPLICATIONS
The KFTC is expected to proceed with amendments to the Franchise Act, its Enforcement Decree, and related regulations to implement the Plan, while concurrently strengthening enforcement in the franchise sector. Since the new Chairperson took office, the KFTC has taken a more proactive stance, including conducting on-site investigations in cases of suspected violations. Franchisors are therefore encouraged to reinforce their internal compliance programs to mitigate potential enforcement risks.
In addition, given the KFTC’s plan to reform the franchise disclosure system, franchisors would be well advised to review the types of information that may become subject to disclosure, as well as their internal procedures for collecting, verifying, and publishing such information, to ensure timely compliance once the reforms take effect.
[Korean version]
