New Regulation on Unfair Practices in Franchise Businesses

In order to prevent franchisees from being unfairly treated by franchisors and to promote freedom to compete, fairness and transparency, the Office of Trade Competition Commission (“OTCC”) recently issued a notification setting out the guidelines for unfair trade practices in franchise businesses pursuant to the Trade Competition Act B.E. 2560 (2017). The notification was published in the government gazette on December 6, 2019 and will come into effect on February 5, 2020.

The notification outlined the following 3 guidelines applicable to franchisors.

1. Franchisors to disclose key terms of the franchise agreement to franchisees prior to entering into the franchise agreement.

Franchisors are required to disclose the following key terms to franchisees:

  • remuneration and business operation expenses, e.g. franchise fee, royal fee, marketing expenses and other necessary expenses or payments relating to the franchise business;
  • franchise business plans;
  • information on trademark rights, patent and the relevant copyright; and
  • the terms in respect of renewal, amendments, termination and revocation of the franchise agreement.

2. Right of first refusal to franchisees whose branch is in the vicinity.

If a franchisor intends to open and manage a branch by itself, the franchisor must provide the right of first refusal to franchisees who are already operating in the vicinity.

3. Franchisors are prohibited from carrying out the following trade practices that may prejudice franchisees.

  • Imposing conditions that restrict franchisees’ rights without valid reasons, such as requiring franchisees to purchase goods or services unrelated to franchise operation from the franchisors or imposing minimum quota on the goods or raw materials to be purchased by franchisees which are in excess of the amount actually needed by them.
  • Imposing additional conditions on franchisees after entering into the franchise agreement except with valid business reason and such additional conditions must be made known to franchisees in writing.
  • Imposing unreasonable restrictions on franchisees’ purchase of products or services from other manufacturers, distributors or service providers that sell products or services of equal quality at a lower price.
  • Imposing unreasonable restrictions on franchisees’ discount of perishable goods or products that are approaching expiration.
  • Imposing different conditions among franchisees, leading to discrimination.
  • Imposing any other inappropriate conditions with objectives other than maintaining the reputation, quality, and standards of the franchisors in accordance with the franchise agreement.

Any franchisor who violates any of the above guidelines shall be subject to the penalty under the Trade Competition Act.

This article was written by Samantha Liew and Wethaka Saenprom of the Corporate and Commercial Practice Group of Pisut & Partners