- An administrative order and an 80 million KRW fine imposed on the franchise headquarters of Hanam Pig House for unjustifiably halting meat supply and terminating franchise contracts –
The Korea Fair Trade Commission (Chairperson Han Ki-jeong, hereinafter “KFTC”) has decided to issue a corrective order and impose a fine of 80 million KRW on Hanam F&B Co., Ltd. (hereinafter “Hanam F&B”), the franchisor operating the pork-based dining franchise brand Hanam Pig House. The penalty was imposed for (1) halting the supply of meat and other goods to franchisees and (2) terminating franchise contracts without just cause. In addition, the company received a warning for unfairly restricting franchisees to designated suppliers for certain essential items.
Hanam F&B, after signing franchise agreements with a franchisee operating two outlets in March 2015 and March 2016, newly designated certain goods—such as 22 types of private brand (PB) products (e.g., kimchi broth) and four types of delivery containers (e.g., plastic bags)—as “mandatory purchase items” around July 2020. The company then forced the franchisee to procure these items exclusively from designated suppliers, despite the fact that neither the original Franchise Disclosure Document nor the contract specified these items as mandatory.
Under the Franchise Business Act, mandatory items can only be legitimately designated if (1) they are essential for operating the franchise business, (2) necessary to protect trademark rights and maintain product uniformity, and (3) disclosed in advance in the Franchise Disclosure Document at the time of contract signing.
However, Hanam F&B failed to either conclude new agreements or reach additional written consent with franchisees regarding these newly designated mandatory items. Instead, it only provided vague notations such as “possibility of additional mandatory items” in disclosure documents and notified franchisees afterward via certified mail.
Subsequently, beginning October 5, 2021, Hanam F&B halted the supply of pork and other essential items necessary for store operations to the franchisee, on the grounds that the franchisee did not purchase the newly designated mandatory items. When the franchisee resorted to procuring meat independently for store operations, Hanam F&B terminated the franchise contracts in February 2022, citing a breach of the contract’s prohibition on self-purchasing.
This decision strictly sanctions Hanam F&B for (1) coercing franchisees to purchase items not incorporated into the contract as mandatory and (2) unjustly halting essential supply and terminating contracts based on such unlawful practices. It highlights the importance of strict written requirements and procedural safeguards in franchise agreements, reaffirming fair trade practices within the franchise sector.