Ministry requests FTC to probe McDonald's 'alleged unfair business practices'

People order burger meals at McDonald's restaurant in Seoul in this 2019 file photo. / Yonhap

By Kim Jae-heun

The Ministry of SMEs and Startups has recently requested the Fair Trade Commission investigate “alleged unfair business practices” conducted by McDonald's Korea.

According to the ministry, the Korean branch of the U.S.-based fast food chain received 544 million won ($458,298) from 22 prospective franchisees between Sept. 13 and Nov. 2016.

According to the Fair Franchise Practices Act, franchises can keep any deposits received from prospective franchisees at a designated financial company, such as a commercial bank. This is to protect franchises from any unexpected incidents such as a franchisee going out of business or fleeing the country. The ministry said McDonald's Korea may have violated the subcontract and fair franchise practice acts.

“McDonald's Korea has also failed to provide disclosure documents to prospective franchisees that give them information on how to run their franchised business,” a ministry official said. Some of them have received the document but they opened the fast food chain two weeks before they signed the contract. The law bans this in order to give a franchisee enough time to review the document before starting the business.

Last June the FTC issued a correction order to McDonald's Korea and imposed a 52 million won ($43,807) fine.

However, the ministry requested the FTC to take legal action against McDonald's Korea considering the amount of damage it has caused to SMEs here.

By law, the ministry can push the antitrust watchdog to file a complaint with the prosecution.

“The FTC only decides to pursue legal action after examining the legality of it. But our ministry came to conclusion that the McDonald's case is more severe so bringing the matter to a close by issuing a correction order is insufficient,” a ministry official said. “This is a law that a major company like McDonald's cannot be ignorant of. The American fast food chain has been violating this quite often and for a long time."

McDonald's Korea said their official was not aware of the law and deposited the funds into a registered account.

“After the FTC took corrective action against us, we deposited the amount into our designated financial company. Our official didn't know about the law and kept it on the business account,” a McDonald's official said. “Regarding the disclosure documents, our official also did not know a hard copy was required so there was only verbal mention of it. We can assure you that franchisees were not damaged by the oversight.”

McDonald's Korea recently named Antoni Martinez as the new managing director of the Korean branch Jan. 29. Martinez has not yet arrived in Korea as his term starts in March.

The managing director said in a statement that “We have a robust plan in place for 2020, and I am confident that we can continue to drive our business forward by putting even more focus on customers, to deliver an outstanding performance in the future.”

However, he has yet to make any comment on the government's plan to take possible legal action against McDonald's Korea over their alleged unfair business activities in the past.