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International Franchise Handbook: Focus on Poland

International Franchise Handbook: Focus on Poland

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Franchising may be an attractive proposition for many companies wishing to expand internationally. Take a look at this overview to discover the applicable franchise law in Poland, covering the essentials for franchisors, the relevant areas of law, selected aspects such as fees, and dispute resolution and applicable law.

ESSENTIALS

about Poland's franchising law

  1. No legal definition of the franchise and no legal provisions dedicated to the franchise agreement.
  2. Conclusion and content of the franchise agreement (including, for example, confidentiality and IP clauses) is generally based on the freedom of contract rule stipulated by the Polish civil code.
  3. Pursuant to the jurisprudence, the franchisor and the franchisee are deemed entrepreneurs.

RELEVANT AREAS OF LAW

Legal basis of Franchise Law

There is no definition of franchise in the Polish legal system. Neither the Polish civil code nor other legal acts contain rules governing the running of a franchise business. The franchise agreement can be concluded on the basis of freedom of contract rule, resulting from the Polish civil code. Pursuant to this rule, parties have the freedom to choose a type of contract and can shape its content. However, the primary features of a franchise agreement have been developed through the practice of trading. Also, the jurisprudence attempts to define the franchise. Generally, it is indicated that the franchise agreement is a contract between entrepreneurs, pursuant to which the franchisor grants the franchisee the right to use the so-called franchise package when selling goods or services to final customers. In addition, the franchisor undertakes to provide assistance to the franchisee on a permanent basis. The franchisee carries out business in his own name and on his own account in the manner specified in the franchise agreement. The franchisor is entitled to control the franchisee in this respect and to collect the agreed remuneration.

Specifics regarding

Foreign Franchisors Foreign entities wishing to conduct the franchise business in Poland can be both the franchisor and the franchisee. In general, these entities are subject to the same regulations as Polish entities and are therefore, subject to similar restrictions under the Polish civil code and other legal acts.

Corporate Law

There are several forms of doing franchise business in Poland: sole proprietorship, civil law partnership, capital companies (i.e., Limited Liability Company and joint-stock company) and partnerships (i.e., registered partnership, limited partnership, limited joint-stock partnership). The most popular form of a business activity are capital companies, i.e., limited liability companies and joint-stock companies. The establishment of a capital company requires conclusion of the Articles of Association (in the case of a joint-stock company–a statute), covering of the share capital and entry of the company in the Polish commercial register. A foreign franchisor may hold shares in a Polish capital company and may also be a partner in a Polish partnership. Foreign entities from EU Member States may also set up a branch of a foreign entrepreneur in Poland, if they operate a business in one of the EU Member States. In case of foreign entities from countries outside the EU, it is possible to establish the branch of a foreign entrepreneur in Poland, provided that this possibility is allowed by ratified international agreements.

Consumer Protection Law

Consumer is a natural person who carries out a juridical act with an entrepreneur, which is not directly related to their economic or professional activity. Since, in accordance with the established practice of trade and the views of legal doctrine and judicature, it is considered that the parties to the franchise agreement are economic operators (traders), the franchisee does not have the status of the consumer. Consequently, the franchisee is not entitled to protection resulting from consumer protection rules.

Antitrust/Competition Law

The provisions of antitrust law in the field of public law impact the franchise agree - ment’s content. As Poland is a member of the European Union, both EU law and national law will apply. When considering the possibility of concluding the franchise agreement with its individual clauses, it is necessary to analyse provisions of antitrust law, in particular those relating to prohibited restrictive agreements. Article 101 of the Treaty on the Functioning of the European Union will be of the greatest importance in EU law, while Polish law will be about the Law of 16 February 2007 on the protection of competition and consumers, and the Regulation of the Council of Ministers of 30 March 2011 on the exclusion of certain types of vertical agreements from the prohibition of restrictive agreements. The first of these Polish Acts indicates a catalogue of prohibited agreements which could disrupt or distort the functioning of the free market. The Regulation eases some of the prohibitions on so-called vertical agreements.

Employment Law

Polish labour courts have the power to determine whether a legal relationship can be regarded as an employment contract and consequently, be subjected to labour law. In general, the risk of the franchisee being deemed an employee of the franchisor seems rather small. Pursuant to the definition of employment relationship, by entering into an employment relationship, the employee assumes the obligation to perform specific work for the employer and under the employer’s direction at a place and time specified by the employer. The employer assumes an obligation to employ the employee against payment of remuneration. On the basis of the legal doctrine and jurisprudence views, a cooperation within the franchise generally does not fulfil the employment relationship elements indicated above. According to the jurisprudence, the franchisee is an independent trader engaged in an economic activity in their own name and on their own account in the manner specified in the franchise agreement.

Law on commercial agents

Under Polish law, a franchise agreement and an agency agreement are not the same concepts. Unlike the franchise contract, the agency contract is a named agreement and is regulated by the Polish civil code. The most important difference between the franchise and the agency contract is that the agent concludes contracts for or on behalf of the contract provider, while the franchisee concludes the contract on their own behalf and acts on their own account. In addition, the agent receives remuneration for their actions in the form of commissions, while in accordance with the trade practice, the franchisee pays remuneration to the franchisor for support received from them. Therefore, as a general rule, restrictions on the agency contract do not apply to the franchise agreement.

IP Law

The franchise agreement may include elements specific to intellectual property rights agreements such as patent licenses, trademark licenses and the know-how agreements. The most important Polish Acts governing the licensing agreements are the Industrial Property Law and the Act on Copyright and Related Rights. A franchise agreement may contain elements of the licensing agreement and the know-how agreement. The most important piece of legislation to protect know-how is the Act on Fair Trading. It indicates unlawful acts, which threaten the interests of another trader or customer. One of the acts of unfair competition is a breach of business secrecy. It covers the transmission, disclosure or use of someone else’s trade secret information or its acquisition from an unauthorized person if it threatens or prejudices the interests of the trader. In the event when the act of unfair competition occurs, the trader whose interest has been infringed may claim, inter alia, cessation of violations and compensation for the damage caused. Know-how may also be subject to copyright protection.

SELECTED QUESTIONS/ASPECTS

Precontractual Disclosure

In light of lack of regulations on the franchise agreement in Polish law, there are no guidelines on what data and information the parties to the contract are obliged to disclose at the negotiation stage. Therefore, the scope and procedure for transferring data to each other depends on a given agreement. In case when a counterparty has not been provided with all relevant information or when the information provided is untrue or incomplete, then the infringer will be liable under the general principles of the Polish civil code. It is also possible to include contractual penalties in the franchise agreement to be paid in case when the violations described above occur.

Legal restrictions

The franchise agreement is an unnamed contract and is therefore not directly governed by Polish civil code. There are also no provisions containing restrictions or limitations specifically related to the franchise agreement. The parties to the agreement may shape its content considering the principle of freedom of contract as set out in the Polish civil code and other rules related to conducting business activity in Poland.

Franchise fees

There are no regulations specifying the nature, amount and method of payment of franchise fees. There are also no statutory restrictions preventing payments in any currency. These issues depend on arrangements of the parties to the agreement, however the fees should be at market value. The parties may determine amount of interest in the contract. The civil code indicates the maximum amount of interest for late payments. Currently, the maximum percentage for delay is 5.6% per annum. The above limitation cannot be excluded in contractual terms, even if jurisdiction of foreign law is selected.

Confidentiality

The parties have the option to include confidentiality clauses in the franchise agreement. Those provisions should specify precisely what information is confidential and what actions are not permissible with respect to confidential information. The parties may also indicate a demand for payment of the contractual penalty in the event of a confidentiality obligation breach. It is possible that the parties will also be able to claim compensation for the indicated infringements on a general basis. In such a situation, a plaintiff will have to prove the fact and the amount of the damage caused by the infringement and the causal link between the damage and the infringement.

Amendments

Amendments to the franchise agreement require consent of all parties to the agreement. In the event of an extraordinary change of relations, the court may, at the request of the party, amend the content of the contract or even terminate it, using the rebus sic stantibus clause. This clause will be applicable once three conditions are met. Firstly, the change in relations between the parties to the agreement must be extraordinary. Secondly, this change must entail excessive difficulty in performance or risk a gross loss to one of the parties. Thirdly, the parties at the stage of the agreement conclusion might not anticipate the impact of an extraordinary change of relations on the obligation. This clause is used exceptionally in the case of truly extraordinary events.

Termination

The franchise agreement may be concluded for a definite period or for an indefinite period. Due to the nature of the cooperation, it is a long-term agreement. Therefore, it is most often concluded for an indefinite period or for a definite period covering a longer period, e.g., several years. The franchise agreement may be terminated by any party. The parties may specify the termination period and reasons for terminating the agreement with immediate effect. The franchise contract may also be terminated by a concerted agreement between the parties.

Renewal and transfer

The parties to the franchise agreement may specify whether the rights and obligations arising from the contract are transferable. The parties may also determine whether the transfer of contractual rights and obligations to another entity requires a consent of the counterparty.

DISPUTE RESOLUTION AND APPLICABLE LAW

Dispute resolution, court system

Civil law disputes are resolved by common courts. They are divided into district courts, regional courts and courts of appeal. However, the legal proceedings consist of two instances. In principle, where the subject matter of the dispute is pecuniary claim, the district courts are entitled to hear cases in which the value of the dispute does not exceed PLN 75,000.00. If the value of the disputes’s subject matter exceeds PLN 75,000.00, the case will be heard by the regional courts. It is possible to resolve a dispute amicably in mediation proceedings. Mediation can be applied in all cases where the outcome depends on the will of the parties, for example, in the case of payment claims. Mediation is carried out before or during legal proceedings. The basis for mediation is the mediation agreement or a court decision directing the case to mediation proceedings. The parties have the opportunity to take advantage of arbitration proceedings conducted by an arbitral court. In Poland, the most famous arbitration institution is the Court of Arbitration at the National Chamber of Commerce in Warsaw.

Applicable Law

Generally, the parties are free to choose Polish or foreign law being applicable to the franchise agreement.

COVID-19

Here are no Polish legal provisions on COVID-19 directly related to the franchise. Both franchisors and franchisees were able to benefit from support offered to entrepreneurs by the Polish authorities.

By Krzysztof Owsianny, Attorney at Law, Deloitte Legal 

Deloitte Legal at a Glance

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Local contacts:

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Deloitte Legal Sh.p.k

Sabina Lalaj, Attorney-at-Law, Managing Partner

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Advokatsko društvo “Legal Partners” d.o.o.

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