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2 / 01 / 2020

NEW FRANCHISING LAW IS APPROVED IN BRAZIL

Dear Sirs.,

It was enacted the Federal Law no. 13,966, which updates the current franchising legal framework and revokes Law no. 8955/1994. The law was published in the Official Gazette on December 27, 2019 and will become effective within 90 days of its publication.

The law establishes important innovations, which aim to bring more legal certainty, transparency, simplification and expansion of the franchise system in Brazil.

According to the final text of the sancioned law, President Jair Bolsonaro only vetoed article 6, which established the possibility of public franchises, i.e., public companies, mixed economy companies and entities directly or indirectly controlled by the Union, states, Federal District and municipalities to adopt the franchise system.

Based on the reasons of the veto, the adoption of the franchise system by these public companies would create legal uncertainty for being inconsistent with Federal Law No. 13,303/2016 (State-Owned Companies Law), which states that state-owned companies must conduct bidding procedures.

It is important to stress that the new law maintained several rules and principles already provided for in the current Franchising Law, such as the broad contractual freedom and the obligation of the franchisor to provide the Franchise Disclosure Document (FDD) to the potential franchisee at least 10 days prior to the signing of the agreement or payment of the fees.

That said, please find below the main points of modification of the new law:

  • No consumer relationship: it is now expressly provided that there is no consumer relationship between franchisor and franchisee, as already established by the Brazilian court in several case laws.
  • No employment relationship: there is no employment relationship between the franchisor and the franchisee, or the franchisee’s employees, even during the training period.
  • Arbitration clause: the parties may elect arbitration to settle any disputes that may arise in connection with the franchise agreement.
  • Sublease of commercial spaces: it is established the possibility of subleasing commercial spaces of the franchisor, which can facilitate the process of expansion of franchise chains, especially in shopping malls.
  • New mandatory information in the FDD: in addition to the mandatory information that must be in the Franchise Disclosure Document that is delivered to the franchisee, the FDD must contain new information, such as the existence or not of transfer or assignment rules and what are they; indication of contractual term and renewal conditions; and indication of the situations in which penalties, fines or indemnities are applied and the respective amounts, as established in the franchise agreement.
  • Penalties: in addition to keeping the existing penalties for franchisors who fail to deliver the FDD with ten days in advance to the signing of the Franchise Agreement or payment of the fees, the new law also applies those penalties to franchisors who omit information required by law or include false information in the FDD.

In case of any doubts about this subject, please do not hesitate to contact us.

Sincerely,

CONTACTS:
Paula Mena Barreto
Partner
T: +55 21 3262-3028
E: paula.menabarreto@cmalaw.com

Manoela Esteves
Associate
T: +55 21 3262 3042
E: manoela.esteves@cmalaw.com

Thaissa Lencastre
Associate
T: +55 21 2217-2041
E: thaissa.lencastre@cmalaw.com