Franchise regulation on the government’s agenda

Franchise agreements in Poland

A franchise agreement is a so-called unnamed agreement, the basic features and assumptions of which have been shaped by business practice and not by the provisions of the Civil Code; its purpose is to regulate the cooperation between the franchise giver (franchisor) and its recipient (franchisee). The most important features of franchise agreements are:

1. the franchisor grants the franchisee permission to use its name, business name, emblem, symbols, trademarks, patents, know-how, business concept and techniques, with an obligation to provide assistance
2. The franchisee undertakes to carry out his/her own activities in accordance with the instructions of the network organiser and to pay the remuneration.

Over the past several years, it has become a very popular way of establishing business cooperation: according to data provided by the Association of Entrepreneurs and Employers, there are around 1 300 chains in Poland, with around 80 000 franchisees.

Criticism of the franchise model in Poland

Despite its popularity, the system of franchise agreements and the lack of any regulation of the rules of cooperation in franchising, has been criticised by both lawyers and market participants themselves. Attention is often drawn to the excessive imbalance of the parties within a franchise agreement and the numerous difficulties in their operation in practice. The most common problems include:

• excessive weakness of the franchisee’s position vis-à-vis the franchisor, manifested, for example, in the impossibility to negotiate individual provisions of the franchise agreement – they are imposed in advance on the basis of so-called adhesion (accession),
• failure to provide the franchisee with reliable information on the risks and consequences of entering into the agreement,
• imposing non-market prices for goods or channels for the receipt of goods,
• hidden charges,
• lack of flexible exit options from the franchise agreement in case of unprofitability,
• no correlation between the amount of franchise fees and the franchisee’s profit.

As a result, for many years there have been calls for the basic features and principles of franchise agreements to be regulated by law, although it has also been claimed that any codification would reduce the flexibility of the market for franchise agreements, which is their main feature, determining their attractiveness.

Basic design

As the Ministry of Justice points out, the basic premises of the project are as follows:

1. regulation of the essential elements of a contract and its form (documentary form)in the Civil Code,
2. The franchisor is to be required to provide the franchisee with an information document containing information about the mutual obligations of the parties, the manner in which the franchisee will carry out its business under the franchise agreement, the costs necessary to be incurred in connection with the performance of the agreement and the projected revenues of the franchisee from the franchise business, the template of the franchise agreement and other elements, together with the consequences of the information document not being in accordance with the agreement,
3. regulating the grounds for termination of the agreement by the franchisee and the franchisor,
4. introducing restrictions on the imposition of contractual penalties, non-compete obligations and the provision of excessive security.

According to the information available on the government’s website, the bill also provides for changes to the pond – Industrial Property Law, but there are no other details on this as yet.

We will keep you informed of the progress of this important regulation on a regular basis.The planned adoption date is Q3 2023

Our industrial property law specialists have been involved in structuring and negotiating franchise agreements for a number of industries for years.

More: new law on franchise in Poland.