The franchising market grew 6.8% in Brazil, in 2019, according to the research from the Brazilian Franchising Association. In this context, the new Brazilian Franchising law (no. 13.966) was enacted last December and will become effective on March, 25th. The new law is supposed to promote franchising in Brazil by bringing more legal certainty to both companies and investors.
It should be highlighted that the new law maintains various principles and provisions from the previous franchise law, however, the key points of the amendments are summarised below.
The new law establishes that there is no employment relationship between the franchisee or the franchisee’s employees and the franchisor. Similarly, it also states that there is no consumer relationship between franchisor and franchisee. In this way, the law finally clarified that the franchisee is not an employee nor a consumer of the franchisor.
In addition, the new law states that all international contracts must be written in Portuguese or must be accompanied by a certified translation. The costs of this translation must be attributed to the franchisor. Moreover, the new law clearly allows the celebration of international franchising contracts, which were not mentioned in the previous law. As a consequence, it is expected to facilitate the entry of more international trade marks and know-how into the country. Furthermore, the new law also determines the situations in which state companies and non-profit organisations will be entitled to exercise the status of franchisors.
The Franchise Disclosure Document, which the franchisee receives, remains obligatory under the new law, but now it must also include other requirements such as: intellectual property (instead of only trade marks); the franchisor must present a list with past franchisees of the last 24 months; a term for contractual renewal and its conditions; situation in which penalties, fines or indemnities will be applied. Those are some of the new additions to the Franchise Disclosure Document that aims to bring more transparency to franchise agreements.
Last but not least, the new law now expressly provides the possibility of parties to elect an arbitral tribunal in order to settle any disputes that may arise related to the franchise agreement. This was particularly important considering that, in Brazil, franchising contracts can be regarded as adhesion contracts, in which, an arbitration clause would not be automatically enforceable. Hence, it can be expected that now the validity of such clauses will be recognised by the Superior Court of Justice.
Overall, the new law has not radically changed the Brazilian legal framework for franchising. Nonetheless, it is still a significant and, as some would say, necessary improvement towards a clearer and more effective franchising legislation. Thus, more national and foreign investments are to be expected in the Brazilian franchising market.