Under the Fair Franchise Transactions Act of Korea (“Franchise Act”), a franchisee has the right, under Korean Law, to request the renewal of a Korean franchise agreement after ten years of successful operation of a franchise. In some cases this reality leads to a Former Franchisee continuing the franchise in competition with your new franchisee.
We wrote about termination of a Korean franchise in other articles including: Termination of a Franchise in Korea. Also, you can view other articles on Korean Franchise Law at: Korean Franchise Law Archives
Korean Courts on Injunctions Against Franchisees
Courts in Korea are increasingly apprehensive to grant injunctions against operating of competing businesses filed by franchisors against franchisees. The situation, often, occurs where a franchise is terminated and the franchisee operates a like or the same business in the same location as the authorized franchise. Of course, all professionally drafted franchise agreements in Korea will have a prohibition against operating a competitive business during the operation of the franchise and during a period of time after termination of the franchise agreement. Korean courts, in some cases, shall not enforce these clauses.
The Korean Courts are reluctant to enforce these clauses as evidenced by a case handed down a few years ago at the Seoul Central District Court. The Court opined that if any fault in failure of the franchise or termination of the franchise agreement is attributable to the franchisor, enforcement of a covenant not to compete will be interpreted as a clause that is against public policy and, thus, invalid. However, a solution to this issue exists. You need to establish that non-renewal of the franchise agreement we because of the actions of the franchisee and not merely for the convenience of the franchisor.
The solution to this issue is, often, proactive measures pre-termination of the franchise agreement. We advise, prior to terminating any franchise agreement, to, immediately, contact your franchise attorney in Korea. Some attorneys in Korea shall be unable to advise on pre-termination strategy because of the lack of real world experience, thus, make sure you have a proactive attorney with a background in advising foreign companies in Korea. Strategy is the solution to this and all good proactive attorneys are capable of assisting in safely and efficiently terminate a franchise agreement in Korea.
If you would like a consultation with an attorney in Korea, please schedule a call at: Schedule a Call with a Franchise Lawyer.
- Require a Injunction in a Korean Court Against your Former Korean Franchisee for Competing Against your New Korean Franchisee?
- Termination of a Franchise Agreement in Korea: Korean Franchise Law Basics
- Korean Franchisors’ Obligations in Korea to File Annual Report to Korean FTC
- Material Omissions in Korean Franchise Disclosure Documents in South Korea
- Korean Franchise Law Basics: Korea’s Act on Fairness in Franchise Transactions
- Expiration Versus Termination of a Distribution Agreement in Korea: Korean Distributor Basics
- Privity of Contract in Franchise Agreements in Korea: Korean Franchise Law Updates
- A Franchisor may be Unable to Prosecute a Franchisee for Embezzlement in Korea
- A “Franchise” Defined under Korean Law: Franchise Law Basics
- Enforcement of Sales Promotions by Franchisors under Korean Franchise Law