Last May, unfair dealings between the head office of Namyang Dairy Product Co. and its distribution stores occurred. A salesman from Namyang Dairy Product Co. supplied more products than the owner of the franchise ordered. Therefore, the owner refused these products. However, the salesman forced the owner to purchase the products and verbally abused the owner. This situation caused a deterioration of the company’s image, and consumers boycotted the products of Namyang. In July, the head office agreed to compensate the franchise for the damage, but the amount of compensation was not decided. However, unfair dealings happen not only in Namyang, but in other businesses. Head offices deal unfairly with franchises in many businesses.
Unfair dealings in many businesses give the owners of franchises difficulties. In the example of Namyang, the owner of the franchise ordered a regular amount, but to attain sales targets, the head office supplied more than ordered. However, if products pass the expiration date, the products have to be thrown away, and the owner of the franchise suffers damage. Moreover, if the franchise refuses a demand from the head office, the head office sometimes threatens the owner with canceling the contract. Unfair dealings between the head office and its franchises ignore businesses’ rights, and because of the superior position of the head office, the owners of its franchises suffer damage.
Unfair dealings between head offices and their franchises are becoming a social issue. Because consumers boycotted the products of the company that unfairly dealt with the franchise, this is influencing many companies. Also, in the National Assembly, the Namyang Dairy Product Co. Prevention Act is being debated so that franchises don’t suffer damage. In this law, the superior position of the head office is not specified in the contract between the head office and the franchise, and the definition of the relationship has to be specific. Moreover, if there are unfair dealings between the head office and the franchise, the damage to the franchise will be decreased through a damage compensation system. In addition, because of the unfair dealings of Namyang, since early June the Fair Trade Commission has investigated 8 types of business such as dairy and cosmetics. The purpose was to eradicate unfair dealings between head offices and their distribution stores. As a result of the unfair dealings of Namyang, the Fair Trade Commission imposed a fine of 12.3 billion won on Namyang.
To reduce the damage to franchises because of unfair dealings, the relationship between the head office and its distribution stores has to be equal. Thus, the owners of distribution stores will not suffer, and their rights can be guaranteed.
