On December 26, 2019, Law No. 13,966/2019 (known as the “Franchise Law”) was published. The Franchise Law establishes the main provisions and requirements applicable to the business franchise system. Below are the main changes promoted by the Franchise Law:
- Article 1 of the Franchise Law makes clear the non-applicability of the consumer and the labor legislations to relations between franchisees (and their employees) and franchisors.
- The Franchise Law regulates the public franchise (state or mixed-economy entities that adopt the system to expand their operations), that did not expressly exist in the prior system.
- In relation to the Offering Circular (“COF”), new items have been added as mandatory inclusion items in the document, among which, the following: (a) the term for listing franchisees that are no longer part of the network has increased from 12 to 24 months; (b) in relation to the territory, specification on the existence of potential competitors and detailing on the rules of territorial competition between self-owned and franchised units; (c) indication to the franchisee of what is offered by the franchisor also in terms of (i) support; (ii) incorporation of technological innovations; (iii) training (including time, content and costs); and (iv) instructions on the physical arrangement of equipment and instruments, descriptive memorial, composition and sketch; (d) franchise brand information and franchise-related intellectual property rights, the use of which must be authorized by contract with the franchisor. In the specific case of cultivars, information on the status with the National Cultivation Protection Service (SNPC) should be included; (e) indication of the existence of any rules relating to the transfer of the franchise and succession, and if positive, description of such rules; (f) indication of situations in which penalties, fines and indemnities are applied, and respective values; (g) information on the existence of minimum purchase quotas and the possibility to refuse products; (h) indication of the existence of a franchisees’ council or association, with the respective attributions; (i) indication of the rules limiting competition between the franchisor and the franchisee and between the franchisees themselves during the franchise period; and (j) specification of the contractual term, if any.
- The Franchise Law also established in its Article 3 that in case of sublease of the commercial establishment by the franchisor, (a) either party will have legitimacy to propose a renewal of the lease agreement; (b) the amount of the rent to be paid by the franchisee to the franchisor in subleases may be higher than that paid by the franchisor to the lessor, provided that (i) this possibility is clearly and expressly stated in the COF and in the Franchise Agreement; (ii) the amount in excess is not an excessive burden to the franchisee, maintaining the economic balance of the relationship.
- Article 7 of the Franchise Law states that (a) contracts that have effects solely in Brazil shall be drafted in Portuguese and governed by Brazilian law; and (b) international franchise agreements may be written in Portuguese (or translated at the cost of the franchisor), and the parties may opt for the domicile legislation of either party (or the object of the franchise), in which case the parties shall maintain a legal representative in Brazil for the purposes of receiving summons; (c) the use of arbitration to govern the franchise is permitted.
The Law will become effective 90 days after its publication, that is, on March 25, 2020, and the previous legislation on the subject (Law No. 8,955/1994) will be repealed.