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In its recent closure of one of its South Korean branches, the sandwich franchise Subway insisted that any objections had to be submitted in English to a mediating organization in the US, it has been learned.

Subway Korea

According to an Oct. 27 explanation by the Fair Trade Commission (FTC), the commission’s Seoul office concluded that Subway’s recent actions in compelling the owner of one of its branches in Pyeongchon, Gyeonggi Province, to shut down was in violation of the Fair Transactions in Franchise Business Act, which prohibits unilateral store closures. The FTC plans to convene a conference of its members shortly to determine the level of punitive action to be imposed against Subway.

The FTC launched its investigation after receiving a report from a Subway branch owner who was facing pressure to close their business. The owner submitted the complaint after concluding that Subway’s headquarters had not guaranteed them the appropriate right to defense in the process of pursuing the restaurant’s closure. Indeed, the contract signed between the restaurant and Subway headquarters states that owners who object to closures must comply with the decision of a mediation and settlement center in the US. To do this, they must submit explanatory documents to the organization in English. Subway cited numerous deductions for poor hygiene management and other factors as a reason for the restaurant’s closure, which the US mediation and settlement center accepted.

In its investigation, the FTC concluded that the unilateral closure of a store without legitimate grounds was potentially in violation of South Korea’s Franchise Business Act even if the process went through US mediation and settlement center procedures. The commission’s investigation found Subway to have been “excessive” with the hygiene inspections it carried out to verify the poor hygiene management practices cited as a reason for the restaurant’s closure.

“The contract itself states that stores cannot be closed when doing so would be in violation of domestic law, and South Korean authorities are within their rights to take punitive action if [the investigation] determined this to have been an improper closure in terms of the Franchise Business Act,” the FTC said.

Cho Sung-wook, who took office last month as chairperson of the FTC, has stated in talks with reporters and elsewhere that he plans to respond sternly to unfair practices by global businesses and apply the same standards with them as with their South Korean counterparts.

By Kim Kyung-rok, staff reporter

Please direct comments or questions to [english@hani.co.kr]