Duterte orders registration of franchise agreements involving MSMEs

President Rodrigo Duterte on Monday ordered new requirements for franchise holders of micro, small and medium enterprises (MSMEs) such as registration of franchise agreements and creation of a Franchise Registry.

This developed after the President issued Executive Order (EO) 169 which provides for strengthening the franchising industry for the protection of MSMEs.

EO 169 states that in registering of franchise agreements with the Department of Trade and Industry (DTI) and establishing Franchise Registry under DTI, franchisors will be responsible for registering their franchise agreements with the DTI, provided that franchisors that are members of duly registered franchise associations will register with the DTI their standard franchise agreement and execute an undertaking that all future franchise agreements with MSME franchisees will incorporate the minimum terms and conditions prescribed under Section 2 of EO 169.

Section 2 of EO 169 provides for minimum terms and conditions of franchise agreements namely:

• name and description of the products or services under the franchise;
• specific rights granted to the MSME franchisee, such as but not limited to the right to use the mark or any other intellectual property rights duly registered with the Intellectual Property Office of the Philippines (IPOPHL);
• full disclosure of any pre-signing, initial or recurring fees, such as but not limited to, franchise fee, promotion fee, royalty fee or any related type of fee which may be imposed on the MSME franchisee;
• detailed responsibilities of the franchisor which include the enumeration of the types and particulars of assistance and the submission of the franchise agreement to the DTI;
• detailed responsibilities of the MSME franchisee;
• non-discriminatory provisions;
• duration of the franchise and the terms and conditions for renewal;
• effects of and grounds for pre-termination, termination or expiration of the franchise agreement;

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• provision on "cooling off" period where the MSME is  given the option to terminate the agreement;
• mechanism for dispute resolution which shall include a stipulation that parties may seek voluntary mediation under Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004; and
• remedies of the parties in case of any violation of the terms and conditions of the franchise agreement.

Likewise, EO 169 mandates that all franchise agreements entered into by and between a franchisor and an MSME franchisee within the Philippines should be in writing and duly notarized.

"The franchising industry plays a crucial role in sustaining the country's economy by creating job opportunities, boosting consumption, and promoting tourism," EO 169 read.

"There is a need to intensify government efforts to strengthen the franchising industry to help businesses, especially MSMEs, by developing a transparent and business-friendly environment, and promoting fair and equitable practices," it added.

Based on Philippine Statistics Authority records as of 2019, MSMEs represent 99.5% of businesses in the Philippines, 68% of which are into franchising.

"Compliance with the inclusion of the foregoing minimum terms and conditions in the franchise agreement may entitle the franchisor to incentives or benefits to be provided by the national government," EO 169 pointed out.

"For this purpose, the DTI is hereby directed to formulate and enact measures for the entitlement to incentives of qualified franchisors, subject to existing laws, policies and regulations," it added.

The DTI will have to issue such guidelines within 90 days from the effectivity of EO 169.

Franchisors with existing franchise agreements with MSMEs, on the other hand, will have to comply with these new requirements upon renewal of their respective franchise agreement with MSME franchisees.

A business is considered as an MSME if the value of its assets is within the range of P50,000 to P20 million. —KG, GMA News