The Fair Trade Commission announced on Tuesday that it will be establishing new measures to eradicate unfair practices in the franchise restaurant sector in an effort to protect smaller businesses.

Head of Korea‘s antitrust watchdog Kim Sang-jo announced that the FTC will create a healthy franchise market by enforcing fair affiliate transactions. The FTC will revise its policies in order to expand the disclosure of information, such as the list of essential items that a franchisee must purchase from the franchiser.

A franchiser will also be obliged to disclose names of all companies and the amount of revenue involved in operating the franchise business including incentives and rebates it acquired from suppliers.

The announcement comes amid turbulent times for franchise businesses, who have been under heavy government scrutiny regarding allegedly unfair business practices, such as the case that led to the arrest of founder and chairman of Mr. Pizza upon accusations of ripping off food suppliers and retaliating against smaller chains by opening shops next to competing businesses. 

Kim said that in the future, executives of affiliated headquarters who have damaged a brand’s image due to immoral acts should be required to compensate for the sales loss by the merchant.

The FTC also announced on Monday that the commission plans to strengthen the enforcement of fair trade laws by expanding civil actions against rule-breaking companies. Under the current Fair Trade Act, only the FTC is permitted to bring a fair trade case to court. However, this law has received widespread criticism as businesses have been demanding the government also allow private entities to file suits against companies committing unethical or illegal acts.

The number of franchise brands and companies have increased by roughly 9 percent compared to last year, with more than 5,000 franchise brands now being operated throughout the country.

By Julie Jackson (juliejackson@heraldcorp.com)