On December 26, 2019, a new franchise law was sanctioned in Brazil. Law no. 13.966 — which can be consulted in its Portuguese version here — seeks to bring more clarity and security to the relation between the franchisor and the franchisee; to stablish the new international franchise agreement in Brazil; and to regulate aspects that were not covered by the former Brazilian franchise law.
Among the changes that were promoted, the new law aims to amplify the concept of the franchise agreement in Brazil, including, in its definition, agreements related to supporting, management and operational methods.
The new law states that in order to be able to grant a franchise authorization the franchisor must be the owner of the brand that will be included in the franchise agreement. If this is not the case, an express authorization of the holder of the brand is required. This is a relevant point brought by the legislator that aims to protect the interest of franchisees.
Under the new regulation, franchise activities can be promoted not only by entrepreneurs and business companies, but also by state-owned companies and non-profit entities, regardless of the sector in which they operate. The legislator also established the inapplicability of the consumer and the labor legislation between franchisor and franchisee.
In addition to these points, the mandatory requirements contained in the Franchise Offering Administrative Circular have also been altered. The previous 15 (fifteen) requirements were added by 8 (eight) new ones, totalizing 23 (twenty-three) aspects that must be included in the franchise agreement. These new criteria were established in order to bring greater transparency to the relationship between franchisor and franchisee, ensuring that the key information is clearly and assertively stated in the contract. If the franchisor fails to include all these aspects in the agreement, the contract may be considered null, and the franchisor may be required to return all amounts eventually paid by the franchisee.
Given this new legal framework, franchisors should promote updates to their documents used as Franchise Offering Administrative Circular, including, in addition to the mandatory points already established in the previous law and those of free disposal, the following aspects:
– Indication of the possibility of transferring the contract;
– Indication of all penalties, fines and indemnities stated in the agreement;
– Indication of the existence of a minimum purchase quota by the franchisee, and of the possibility and conditions for the refusal of products or services required by the franchisor;
– Indication of the existence of a council or association of franchisees, the powers, and mechanisms of representation before the franchisor, in addition to detailing the competencies for managing and supervising the application of existing funds resources;
– Indication of the main competition aspect which should be observed by the franchisor and the franchisees, and among the franchisees, during the term of the franchise agreement, and details of the territorial limits, the term of the restriction and the penalties for non-compliance;
– Specification of contractual term and renewal conditions; and
– Place, day and time to receive the necessary documentation and to start opening the envelopes, in case of public companies.
Along with the above modifications, the legislation is also innovated in terms of providing for the international franchise agreement, a point that was not covered by the former law. This provision aims to update the legislation to reflect the dynamism of the Brazilian market that is increasingly turning to the internationalization of business.
Thus, those contracts involving more than one legal system — due to the nationality or domicile of the parties or due to the place of exercise or completion of their activities — are considered international.
The international franchise agreements should be originally written in Portuguese, observing the criterion of bringing objective and accessible language. However, the franchisor may opt for certified translation into Portuguese, which needs be done at their own expense.
In such cases, the parties may elect the competent court to analyze any issues and questions related to the contract. The parties must, in this case, constitute and maintain a legally qualified representative or attorney in the country of jurisdiction, empowered to represent them administratively and judicially, including to receive service of process in law suits.
The new regulation comes into force in March 2020, 90 (ninety) days after its publication in the Federal Official Gazette, and replaces Law No. 8,955, which was published on December 15, 1994.
Alissa Campos is a corporate lawyer and holds a Master’s degree in Law by the Universidade Federal de Minas Gerais.