Franchise in 2024

Franchise agreements are a popular way of cooperation for entrepreneurs from various industries. Operating under a well-known brand can simplify business management and bring significant benefits. Franchise cooperation in Poland is constantly evolving. This is why the legislator decided to clarify its regulations. Below we present key information about proposed solutions.

Table of Contents

• Franchise in 2024 – Reasons for changes
• Proposed Changes for franchise in 2024
• Franchise in 2024 – formal solutions
• Disclosure obligation in franchise agreements in 2024
• Responsibilities of the franchise parties with regard to the disclosure obligation
• Other changes related to franchise in 2024
• Franchise in 2024 – Summary

Franchise in 2024 – Reasons for changes

One significant motivation for clarifying franchise agreement regulations was data from a 2020 report. The report referred to  “Actual inequality of the parties to the franchise agreement.” It highlighted inequality in franchise relationships, particularly with regard to:

• the lack of awareness of the franchisee as to his actual obligations. For example – the obligation to sell goods at prices set by the brand, compliance with product recipes, etc.
• disparities between franchise fees and franchisee profits,
• the risk of franchisees facing substantial contractual penalties and hidden fees.
• the long-term nature of franchise agreements,
• asymmetrical termination rights.

Proposed Changes for franchise in 2024

The legislator intends to protect the weaker position of franchisees compared to franchisors by:

1. Regulating essential elements of franchise agreements and their form in the Civil Code. This concerns the so-called documentary form.
2. Preparing an information document containing key details of the agreement.
3. Defining termination of franchise agreement, including punitive measures for missing or inaccurate information.
4. Granting franchisee’s right to proportionally reduce franchisor’s pay when income drops significantly.
5. Imposing restrictions on the enforceability of contractual penalties and specifying their timeframes.
6. Determining the scope of permissible non-competition clauses.
7. Allowing the establishment of bill of exchange security for claims under the franchise agreement.

Additionally, the proposed changes provide for the introduction of dispositive norms related to:

• obligation to keep the secrecy of the know-how on which the franchise business is based,
• the possibility of transferring rights and obligations from the franchise agreement.
• the possibility for franchisees to terminate a contract for specified period.

Franchise in 2024 – formal solutions

Franchise agreements will be clearly regulated in the Civil Code. Previous classification included it as an unspecified contract, indicating further reference to other regulations. The legislator has defined franchise agreements based on their key features, including:

• The professional nature of the parties and their independent actions.
• The transfer of rights allowing for business continuity and unity within the brand.
• Contractual payment.

The franchisor is to provide the franchisee with know-how. It is defined as the concept/technique of running a business.

Franchise agreements must be in written form (documentary form) under penalty of nullity. This should improve the process of concluding and operating a franchise agreement. The rigour of invalidity will ensure an adequate level of security in civil law transactions.

With the introduction of the written form, it will be necessary to adapt the form of the license agreement referred to in the Intellectual Property Law to maintain systemic coherence and uniformity of requirements.

Disclosure obligation in franchise agreements in 2024

The franchisor’s disclosure obligation covers, among others:  

• The franchisor’s identity
• Information about the scale of activities
• A description of the scope of business offered to franchisees.
• Estimated revenues and costs associated with operating under the franchise.
• The scope of the parties’ obligations, including the method of determining franchisor compensation.
• Significant obligations regarding third-party contracts for goods and services.
• Supervision of the execution of agreement.
• Access to the company’s trade secrets.
• Transfer of rights and obligations, non-competition clauses, contractual penalties, and termination periods.

This is a key obligation of the franchisor, as it ensures the protection of the interests of the franchisee as the weaker party in this relation. It will eliminate the lack of accurate information about key collaboration aspects. Especially the ones that might affect the decision to enter into a franchise agreement.

Responsibilities of the franchise parties with regard to the disclosure obligation

The franchisee can terminate the franchise agreement with immediate effect if:

• the contract would be concluded without prior disclosure of the information document or
• the data in the information document is found to be unreliable or false, and these inaccuracies are significant.

The justified assumption that if the franchisee had been properly informed, he wouldn’t have signed the agreement is crucial. One can exercise this right within 30 days of discovery, or up to 1 year from the date of concluding the franchise agreement.

If false data in the document harm the franchisee financially, the franchisor can be held responsible for damages.

Other changes related to franchise in 2024

Other proposed changes to franchise agreements include:

1. Prohibiting franchisees from transferring or contributing their rights to other people or companies.
2. Allowing franchisees to seek a proportional reduction in compensation if their income significantly decreases due to circumstances beyond their control.
3. Differentiating termination notice periods, depending on which party wishes to end the agreement.
4. Permitting non-competition clauses in franchise agreements only with regard to creating a competitive franchise system. Also, limiting them to a period not exceeding 1 year from the termination of the agreement.
5. One-year deadline for formulating claims for payment of contractual penalties by the franchisee. It starts when the franchisee learns or, with due diligence, could have learned about the reasons for imposing contractual penalty.
6. The in blanco house bill given to the franchisee should contain a “not to order” or equal phrase.

Franchise in 2024 – Summary

The changes to franchise agreements in 2024 aim to balance the legal rights of both parties of the contract. Even in the business area, one professional’s position may be weaker than the other’s. Opinions on this project within legal doctrine are diverse and present various viewpoints. What the franchise market will look like in 2024? Only time will tell. Yet, it is worth keeping an eye on the progress of planned changes in this regard.

If you find the above topic interesting and want to learn more, we invite you to cooperate with us. Our legal experts in Łódź are at your disposal. Contact us today. If you need help in establishing a family foundation, send us a message – we will contact you back.