Poland: The new Law on Franchising on the horizon

Under Polish law, there have been no franchise-specific regulations. For the time being, franchise agreements have been considered innominate contracts which can be entered into based on general freedom of contracting. This is about to change as the Ministry of Justice is currently working on a draft franchise law which will regulate the franchise industry.

The Ministry of Justice has actually been working on the new franchising rules for some time now. In the second half of 2022, it presented draft legislation guidelines for the new law (“Guidelines”), but the actual draft law has not been published yet. In any case, the new law, if adopted, will result in tighter regulation of the franchise industry. The Guidelines give an idea of what to expect from the new law.

What to expect

First of all, not surprisingly, the new law will define the concept of the franchise agreement. The definition has already been subject to criticism, e.g., due to the fact that it appeared to cover only agreements where the business concept or technique provided by the franchisor to the franchisee is secret, while commercial or service franchises are sometimes based on simple and open business concepts.

The new law will also impose an obligation to provide franchisees with certain precontractual information at least 14 days before the signing of the franchise agreement. The information to be provided covers, e.g., information on how the franchisor’s remuneration is calculated, what is the estimated level of costs to be made by the franchisee and his/her estimated income, how the franchisor would supervise the franchisees, if and how the franchisee is obliged to conclude contracts with third parties, details of transfer of rights, contractual penalties, non-competition clauses as well as duration of the contract and conditions for extension. The franchisor will also be required to provide his template franchise contract.

The new law will also define the scope of the non-competition clause. The franchisees will likely be required to refrain only from creating a competitive franchise system for a period not longer than one year following termination of the franchise agreement.

The lawmakers have also turned their attention to the issue of notice periods, transfer of rights, confidentiality, contractual penalties and promissory notes, which are a widespread instrument used to safeguard the franchisor’s claims. The Guidelines also state that the franchisee will be able to seek a lower franchise fee if the franchisee’s ordinary income is significantly reduced as a result of circumstances for which the franchisee is not responsible.
Included in the Guidelines is also an entire section on the choice of an arbitration court for handling disputes related to the franchise agreements. The latest official word though is that this section may be dropped.

Timeline

It is likely that work on the new law will gain momentum in the coming months. The draft law deadline imposed by the Minister of Justice’s internal regulation passes in June 2023. However, some officials have suggested that the new draft will see the light of day much earlier. It is even possible that the draft law will have been ratified well before the June deadline. In any case, this initiative should be carefully monitored by all businesses who operate or plan to operate in the franchise industry in Poland.