Corrective order issued for conducting advertising in which the entire franchise made cost-bearing payments without obtaining proper consent from franchisees prior to the advertisement
2026. 7. 22.
The Korea Fair Trade Commission (KFTC, Chairperson Biung-Ghi Ju) issued a corrective order against Nexcube Corporation, the franchisor of 'Eduplex/Educoach,' for conducting advertising and imposing costs on all franchisees without obtaining proper consent from franchisees regarding the cost-bearing arrangement prior to the advertisement.
Under the Franchise Business Act, a franchisor that intends to run advertising in which franchisees bear all or part of the cost must obtain the consent of at least 50% of all franchisees regarding the cost-bearing arrangement in advance.
However, Nexcube Corporation conducted a consent survey without providing sufficient information to franchisees about the costs they would bear in relation to the advertising it intended to run, and calculated the consent rate in an arbitrary manner.
Specifically, since 2018, instead of splitting advertising costs equally between the head office and franchisees, Nexcube Corporation adopted a method of collecting costs from franchisees in proportion to advertising effectiveness. Initially, this method was applied only to voluntary participants, but in November 2022, the company decided to expand it to all franchisees and proceeded with the prior consent process.
In the course of obtaining franchisees' consent, Nexcube Corporation proposed a method of recovering costs by charging a set amount per student enrolled through the advertising, but did not provide information on matters such as which advertisement the costs were allocated to.
As a result, franchisees lacked the information necessary to decide whether to consent to the cost-bearing arrangement.
The KFTC determined that this could not be considered a valid consent as defined under the Franchise Business Act, and thus ruled it a violation of the law.
In addition, Nexcube Corporation presented performance-based advertising cost-sharing methods to franchisees in two types — namely, a method of charging a flat 110,000 won per new student regardless of advertising effectiveness, and a method of charging 220,000 won only for new students attracted through advertising, differentiated by effectiveness — and calculated the consent rate by aggregating the affirmative votes obtained under each type.
Regarding these legal violations by Nexcube Corporation, the KFTC issued a corrective order and a notification order, but did not impose a fine (penalty surcharge), taking into account the fact that there appeared to be no malicious intent, that there was no unjust enrichment, and that the proportion of costs borne by franchisees had since continued to decline.
This action is the first case of sanctions since the advertising prior-consent system was introduced in January 2022, and holds great significance in that it presented the standard that, in order to obtain franchisees' consent as to whether or not they agree, the franchisor must sufficiently provide advertising-related cost information — such as the cost scale by advertising content and the degree of cost-bearing — and that the calculation of franchisees' consent ratio must be conducted in an objective and reasonable manner.