On December 27, 2019, Law No. 13.966/2019 was published in the Federal Official Gazette. The new legislation refers to the business franchise system in Brazil and will take effect from March 2020.
This new legislation aims to modernize the business franchise industry in the country, enhancing transparency and legal certainty in this sector, and some of the modifications to the business franchise system brought by Law No. 13.966/2019 are indicated below:
I) Regulation of the business franchise system rather than just of franchise agreements.
II) Broadening the scope of definition of the purpose of the franchise system with the provision for assignment of the right to use trademarks and other intellectual property rights negotiated in the franchise agreement, i.e. including trademarks, patents, industrial designs, utility models, software, copyright, among others, not restricted to trademarks and patents as regulated in the previous legislation.
III) Definition that the business franchise system may be adopted by a private company, a state-owned company or a non-profit organization, regardless of the sector in which they operate.
IV) Express prevision for the lack of employment relationship between the franchisor and the franchisee or its employees, even during the training period, as well as not characterizing the consumer relationship in the business franchise system.
V) For the Franchise Offering Circular (“COF”), the new Franchise Law expands the list of documents and information, including rules applied for the transfer or succession of the franchise, as well as specifications regarding the contractual term and renewal conditions. As regards to the delivery term, the new legislation maintains the rule that the COF must be provided to the franchisee at least ten (10) days before the signing of the contract or franchise pre-contract. It also innovates in determining that, in the case of a bidding or prequalification promoted by agency or public entity, the COF will be disclosed at the beginning of the selection process.
VI) The new Franchise Law also provides for the possibility of the franchisor subleasing the commercial point to the franchisee, establishing that the amount to be paid by franchisee to the franchisor may be higher than the amount the franchisor pays to the owner of the property in the original commercial point, provided that such possibility is expressly included in the COF and does not result in excessive burden on the franchisee.
VII) Under the new law, franchise agreements that take effect exclusively in Brazil will be written in Portuguese and governed by Brazilian law. For international franchise agreements, the contracts must be originally written in Portuguese or have a certified translation into Portuguese. The Parties may opt for the jurisdiction of one of their countries of domicile, while maintaining a legal representative or attorney duly qualified and domiciled in the country of the jurisdiction, empowered to represent them administratively and judicially, including to receive summons.
Lastly, the new Franchise Law maintains the understanding that the parties may elect arbitration to settle disputes related to the franchise agreement, a practice that was already adopted, but is expressly provided for in the current legislation, which will come into effect in the coming months.
