Brazil's New Franchising Law Allows Parties To Settle Their Disputes By Arbitration

According to researchers, in 2019, the Brazilian franchising market grew 6.8 percent, and more than 200 international franchise networks from 26 countries were operating in Brazil. And the market is still growing.

On December 27, 2019, the new Brazilian Franchising Law (Law no. 13,996) was enacted; it will become effective within 90 days of its publication. The new law updates the former legal framework and revokes previous Franchising Law no. 8955/1994, establishing some important changes and innovations which aim to allow the expansion of franchising in Brazil through more legal certainty, transparency and simplification.

It is important to stress that the new law maintains several rules and principles already provided for in the former Franchising Law, such as broad contractual freedom and the obligation of the franchisor to provide a Franchise Disclosure Document (FDD) to the potential franchisee at least 10 days prior to the signing of the agreement or payment of the fees.

The main innovations in the new law are as follows:

No consumer relationship: it is now expressly established that there is no consumer relationship between franchisor and franchisee; this issue has already been settled in Brazilian case law. No employment relationship: there is no employment relationship between the franchisor and the franchisee, or the franchisee's employees, even during the training period. Sublease of commercial spaces: the law establishes the possibility of subleasing commercial spaces from the franchisor, which can facilitate the process of expansion of franchise chains, especially in shopping malls. New mandatory information in the FDD: in addition to the mandatory information that must be in the Franchise Disclosure Document which is delivered to the franchisee, the FDD must contain new information, such as the existence (or not) of transfer or assignment rules and what these rules are; indication of contractual term and renewal conditions; and indication of the situations in which penalties, fines or indemnities are applied and the respective amounts, as established in the franchise agreement. Penalties: in addition to keeping the existing penalties for franchisors who fail to deliver the FDD with ten days in advance of the signing of the Franchise Agreement or payment of fees, the new law also applies those penalties to franchisors who omit information required by law or who include false information in the FDD. Arbitration clause: the...