Law No. 13,966, which regulates the corporate franchising system, was published on December 27, 2019, in the Official Gazette and will be effective as of March 2020. This law revokes Law No. 8,955, from December 15, 1994, which addressed the same subject. The main changes brought by the new law are discussed below:

  • The first article from the new law expressly states that a business franchise system cannot be classified as a consumer relationship or as an employment relationship between the franchisor and the franchisee or its employees, even during the training period. The same article set forth that a franchise system may be implemented by a private company, state-owned enterprise or non-profit entity, regardless of its corporate purpose.
  • Article 2 includes eight items that describe new content requirements for the Franchise Offering Circular ("COF"). For example, in addition to what was already required by the revoked law, the COF must now include rules of transfer or succession regarding the franchise; events for which penalties, fines or indemnifications may be applied; and details of contract terms and renewal conditions.
  • As under the revoked law, the COF can be delivered to the franchisee candidate as late as 10 days prior to the signing of the agreement, pre-agreement, or the payment of any kind of fee to the franchisor or to companies or third parties appointed by the franchisor. However, the new law includes an exception related to bids and prequalification promoted by public entities, in which case the COF must be disclosed earlier, at the beginning of the selection process. 
  • The new law addresses the possibility of sublease of the commercial facility by the franchisor to the franchisee. In this scenario, the rent amount payed in the sublease can be higher than the amount payed by the franchisor to the landlord, provided that this has been agreed to in the COF and in the contract and does not impose excessive burden on the franchisee.
  • The new law's article 7 addresses the required conditions for the franchise agreements, especially regarding the competent court. Agreements that affect only Brazilian territory must be written in Portuguese and ruled by Brazilian law. International agreements must be in Portuguese or, if in another language, accompanied by a certified translation into Portuguese done at the franchisor's expense. In international agreements, the parties may negotiate to decide which of their countries of residence will be the dispute resolution venue.
  • The new law clarifies the subject of using arbitration in disputes involving franchising contracts. Arbitration was already possible under the revoked law, since disputes resulting from the relationship between the franchisor and the franchisee are normally related to disposable property rights and arise between parties with the legal capacity to contract, within the scope of Law No. 9,307/96 (Brazilian Arbitration Law). However, the new law expressly addresses this possibility.

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.