BBQ Chicken Franchise Sanctions by the KFTC Upheld by Korean Court: Korean Franchise Law Updates

Seoul High Court Upholds FTC Sanctions Against BBQ for Unfair Treatment of Franchisee Council Members

In a recent remand trial, the Seoul High Court upheld corrective measures and fines imposed by the Fair Trade Commission of Korea (KFTC) against Genesis BBQ Co., a leading Korean BBQ Franchise. The court concluded that the franchisor engaged in unfair business practices by targeting franchisees who were involved in collective activities through the formation of a franchisee association. The court held, in short, that BBQ’s refusal to renew franchise agreements and its imposition of “humiliating conditions” constituted a violation of the Korean Franchise Business Act, which prohibits explicitly retaliatory actions linked to group activities.

BBQ Chicken Franchise Sanctions by KFTC
Upheld by the Seoul High Court

Background Korean BBQ Franchise Case

The case dates back to December 2018 and November 2019, when BBQ notified four franchisees, who were leading members of the National BBQ Franchise Business Association (established in November 2018), that their franchises would not be renewed. BBQ cited “differences in corporate management policies” and “non-acceptance of standardized business policies” as justifications for non-renewal. The affected franchisees had been actively advocating for more franchisee-friendly terms in their franchise agreements with BBQ.

As contract expiration neared, BBQ declined to renew agreements and also required franchisees to submit memoranda that included clauses pledging not to defame the company or encourage other franchisees to do so. These documents also required franchisees to cease association-related activities and agree to disciplinary measures in the event of any violations. BBQ temporarily extended contracts upon receipt of the memoranda, but it eventually requested new versions, prompting franchisees to abandon renewal efforts altogether.

Additionally, BBQ allegedly compelled franchisees to purchase excessive quantities of promotional materials from a designated supplier, warning of potential disadvantages for non-compliance. Furthermore, the company inserted clauses into contracts that allowed for termination without notice.

Korean Fair Trade Commission Sanctions

In 2021, the Korean FTC imposed a corrective order and a fine totaling KRW 1.76 billion. The Commission cited multiple violations, including:

• Coercing franchisees to purchase marketing materials exclusively from selected vendors.
• Forcing the acquisition of promotional items in quantities exceeding operational needs.
• Unilaterally establishing or altering contract clauses in ways that undermine franchisee protections, contrary to the Enforcement Decree of the Franchise Business Act.

Korean Supreme Court Ruling

An appellate court initially upheld parts of BBQ’s claims, ordering the cancellation of approximately KRW 495 million of the fine and modifying some elements of the FTC’s order. However, in July 2024, the Supreme Court of Korea reversed that decision. It held that BBQ’s actions, including refusal to renew contracts, demands for contract termination extensions, and imposition of the memoranda, were collectively intended to suppress the activities of the franchisee association. The Court determined these acts violated Article 14-2, Paragraph 5 of the Korean Franchise Business Act, which prohibits retaliatory conduct against franchisee collective activities.

Consequently, the case was remanded to the Seoul High Court for reconsideration in line with the Supreme Court’s interpretation.

Seoul High Court Ruling on Remand

On May 29, 2025, the Seoul High Court’s 3rd Administrative Division, presided over by Judge Yoon Kang-yeol, reaffirmed the legality of the FTC’s actions. The court concluded that BBQ’s conduct significantly disrupted fair trading practices within the franchise industry. It emphasized that:

• The refusal to renew contracts and the demand for memoranda imposed undue pressure on franchisee council members.
• Such actions led to the effective suppression of collective representation among franchisees.
• BBQ’s behavior served to weaken the franchisees’ ability to negotiate on equal terms, consolidating the company’s dominance in future dealings.

The ruling also acknowledged broader implications, noting that BBQ’s practices may deter the formation of similar associations in the future, further limiting franchisees’ capacity to defend their rights.

The Seoul High Court opined that: “BBQ’s series of actions, including refusing to renew the contract, requesting a postponement of contract termination, and demanding a memorandum of understanding, significantly hinder the fair trade order of franchise businesses . . .It is difficult to see any deviation or abuse of discretion in the Fair Trade Commission’s decision to impose a fine for this. . . The council executives suffered disadvantages such as restrictions on group activities or virtually giving up group activities due to BBQ’s refusal to renew the contract, requesting a postponement of contract termination, and demanding a memorandum of understanding.” The court further noted that: “BBQ’s actions have discouraged the activities of franchisee associations that may be formed in the future, and franchisees, who are relatively disadvantaged, will inevitably be placed in a disadvantageous position in protecting their rights and interests against the franchisor, while BBQ will be able to preemptively secure the high ground in future negotiations with franchisees.” In addition, the court opined that “BBQ’s violation of the Franchise Business Act weakened the franchisees’ bargaining power regarding transaction conditions and further solidified BBQ’s superior position as the franchise headquarters, thereby significantly damaging the fair transaction order of the franchise business.”

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