COMPARATIVE GUIDE
21 March 2023

Franchising Comparative Guide

Franchising Comparative Guide for the jurisdiction of Slovakia, check out our comparative guides section to compare across multiple countries
Slovakia Corporate/Commercial Law

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions govern franchising in your jurisdiction?

The franchising relationship is not specifically regulated as an explicit type of contract.

Under Slovak law, franchising agreements are considered a non-specific contract (sui generis) which, depending on each individual case, will combine elements of several other types of contracts (eg, lease contracts, licensing contracts, agency contracts, distribution agreements, cooperation agreements).

The Commercial Code, the Civil Code (40/1964 Coll, as amended), the Trademark Act (506/2009 Coll, as amended) and other statutes will likely apply to the franchising relationship.

In addition, it is advisable for the franchising agreement to be in general compliance with the European Code of Ethics for Franchising. Although the European Code of Ethics for Franchising is not legally binding, members of national associations and federations of the European Franchise Federation undertake to respect its principles and often incorporate these principles into their franchising agreements. Of these, the Slovak Franchising Association is the most important.

THE EUROPEAN CODE OF ETHICS FOR FRANCHISING should be followed too.

1.2 Do they apply to foreign franchisors entering your jurisdiction or only to domestic franchises?

In principle, no specific restrictions or approvals are required for foreign franchisors to enter the local market. There are certain areas – such as defence and gambling – in which the entry of foreign entities into the Slovak market is subject to certain limitations; but the franchising model is not common in these sectors.

The legislation will generally apply to both domestic and foreign entities. However, there are certain exemptions, in particular with regard to the choice of (foreign) law.

1.3 Do any special regimes apply in specific sectors?

Some sectors of the Slovak market are regulated, such as pharmaceuticals, food and defence. These regulations might have implications for the franchise business, as each has its own regulatory specifics. However, no limitations are imposed specifically in connection with franchising.

1.4 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The authority responsible for the supervision of commerce is the Slovak Trade Inspectorate.

In addition, individual regulated sectors may have their own regulatory bodies and authorities, which can impose sanctions for violations of the law. For example, in the food sector, this body is the State Veterinary and Food Administration of the Slovak Republic.

1.5 What is the regulator's general approach in regulating the franchise sector?

Franchising is not explicitly governed under Slovak law; thus, there are no major differences between franchising agreements and other types of business agreements. Instead, various sectors have their own sector-specific rules, such as the food sector.

1.6 Are there any trade associations for the franchise sector? If so, what are the conditions for membership? What are the commercial implications of not being a member?

The primary self-regulatory franchising association is the Slovak Franchising Association, which is a member of the European Franchise Federation. In this regard, the Slovak Franchising Association is responsible for the application of the European Code of Ethics for Franchising of the European Franchise Federation.

Membership of the Slovak Franchising Association is not mandatory to operate a franchising business in Slovakia. However, it may be useful with regard to the overall image of the franchise. In addition, members communicate, cooperate and exchange knowledge together more closely.

2 Franchise market

2.1 How mature is the franchise sector in your jurisdiction?

Although the Slovak franchising sector is growing, we believe that there is still potential for further expansion. In our view, the regulation of franchising in Slovak law and the promotion of better opportunities for financing would definitely facilitate such expansion.

2.2 In which sectors is franchising most common?

In Slovakia, franchising is most common in the following sectors:

  • food and beverages (restaurants, bars);
  • textiles and fashion;
  • health and fitness;
  • industrial products and machines;
  • real estate;
  • hotels; and
  • car rental.

2.3 Who are the biggest and most successful franchisors in your jurisdiction? How are they typically structured?

The biggest and best-known franchisors in Slovakia are:

  • fast food chains (eg, McDonald's, Subway, KFC, Pizza Hut);
  • coffee shops (eg, Starbucks); and
  • estate agents (eg, Re/Max).

3 Franchising models

3.1 Is master franchising or the development model most common in your jurisdiction?

Both models are common in Slovakia. However, master franchising is not used to its full potential – for example, the option to sub-franchise is less common. At the same time, there have been cases in which a master franchising licence has been issued after some time, once the franchisee had proved itself a reliable business partner to the franchisor.

Compared to the United States and many parts of the European Union, the franchising model is not used as widely in Slovakia. However, the number of franchising operations is growing, with foreign franchises predominating over local franchises.

3.2 What other models of franchising are commonly used in your jurisdiction?

Business-format franchising is one of the most common models. Under this model, the franchisor generally offers a wide range of services to the franchisee, including advertising, strategy, training and precise operations and quality manuals.

However, all types of franchising models are generally permitted, including product (trademark) franchising, manufacturing franchising and combinations thereof.

3.3 What are the potential advantages and disadvantages of these different models?

The business format franchise is generally preferred by franchisors. However, it may also be attractive to franchisees, especially those that are new to business, due to the high level of input and overall assistance provided by the franchisor. However, under the business format, the franchisee has less room for creativity.

On the other hand, the franchisor generally has less involvement in the product (trademark) franchise model. In this model, the franchisee pays a fee to the franchisor for the right to distribute and sell goods – similarly to a dealer or distributor – on the franchisor's behalf as the product manufacturer. The franchisee receives the actual products, as in a business format franchise; however, the franchisee is given more operational freedom in terms of how to run the business. Also, the fees are often lower than in business format franchising.

Overall, the business format is considered to be easier to operate, as the trademarks are already market tested, are usually well known and are recognised by customers. Also, the franchisee need not produce an operation strategy and thus the risk of failure of the business is mitigated.

Regardless of which model is adopted, there are several disadvantages to franchising, such as the greater number of restrictions involved, including the franchising manual and requirements for operational and qualitative uniformity. The right of franchisees to sell their businesses without the franchisor's approval may also be restricted; and the franchisee faces a higher business risk if the business of franchisor and the whole franchise fails.

3.4 What specific considerations should be borne in mind in the case of cross-border franchising into your jurisdiction?

In principle, there are no restrictions on foreign franchisors owning equity in a local business.

Also, there are no general restrictions on a foreign entity granting a master franchise or development rights to a local entity. However, the terms of the respective agreements must comply with the provisions of law, especially competition law.

4 Definitions and scope of application

4.1 How is ‘franchising' defined in your jurisdiction?

‘Franchising' is not explicitly defined (as a specific contract type) in Slovak law. In Slovakia, franchising agreements are considered a non-specific contract (sui generis) which, depending on each individual case, will combine elements of several other types of contracts (eg, lease contracts, licensing contracts, agency contracts, distribution agreements, cooperation agreements).

The regulation of lease agreements applies to the extent and on the basis that the lessor (franchisor) grants a ‘thing' (intellectual property/know-how) to the lessee (franchisee) for the agreed remuneration, to use it temporarily or to take advantage of it.

The Commercial Code, the Civil Code, the Trademark Act and other statutes will also apply to the franchising relationship.

In addition, it is advisable for the franchising agreement to be in general compliance with the European Code of Ethics or the Code of Ethics of the Slovak Franchising Association.

4.2 What are the key requirements that apply to franchising? Is pre-contractual disclosure required? Is registration of documentation required? Are mandatory terms imposed?

Registration of the franchising agreement or the related documents is not mandatory.

Standard commercial contracting requirements apply under the Commercial Code. As the regulations applicable to several different contract types might come into play, each element of the franchising contract should comply with the relevant legal specifics – for example, the licensing should comply with the trademark legislation, the provisions on trade secrets should comply with the Commercial Code and so on.

While registration of the franchising agreement itself is not mandatory, other general registrations may be required – for example, the registration of a legal entity in the Commercial Register (please see question 5) and various tax-related obligations. Also, under the Trademark Act, the licence will have legal effect towards third parties only once it has been registered with the Slovak IP Office.

4.3 What specific activities (if any) are prohibited under the franchising laws and regulations? What are the potential consequences of breach?

No specific activities are explicitly prohibited in relation to franchising and we have seen the franchising model utilised in a variety of fields. However, the franchising business must comply with all required and applicable general regulations.

5 Initial steps

5.1 Are there any restrictions on foreign franchisors entering your jurisdiction?

In principle, no specific restrictions or approvals are required for foreign franchisors to enter the local market. The legislation generally applies to both domestic and foreign entities.

Based on an overall business analysis conducted on a case-by-case basis (and the applicable franchising model), it may be advisable to incorporate in some form in Slovakia. This will especially be the case where the foreign entity intends to carry out business activities in Slovakia on a regular basis. In terms of the local establishment, this could take the form of a local subsidiary or a branch of the foreign entity.

5.2 What is the most common structure adopted by foreign franchisors entering your jurisdiction?

In case of incorporation in Slovakia, the limited liability company is the most widely used form. The minimal registered capital is €5,000. The limited liability is at a subsidiary level. Directors need not be Slovak nationals. The ultimate beneficial owners must be disclosed in the Commercial Register in the course of registration (although the information on the ultimate beneficial owners is not publicly available in this register).

Branches of foreign companies are also used, although this is slightly less common.

5.3 What requirements or restrictions apply with regard to the selection and recruitment of franchisees?

No specific regulations or restrictions apply with regard to the selection of franchisees as business partners. Generally, only standard contractual and commercial regulations will apply.

5.4 Are franchisees subject to any legal obligations when purchasing a franchise?

Mainly the general business-related obligations apply, such as authorization to conduct business (i.e. setting up a company), and other possible regulation in relation to some specific sectors (for details, please see question 1.3).

6 Disclosure and due diligence

6.1 What pre-contractual disclosure requirements apply to franchisors in your jurisdiction?

There are no specific pre-contractual disclosure obligations that expressly relate to franchising (or, more specifically, to franchising agreements) under Slovak law.

Moreover, the concept of pre-contractual liability (culpa in contrahendo) – which involves an obligation of disclosure, to a certain degree – is not explicitly recognised in Slovak law. However, the case law of the local courts has recognised this concept to some extent, through the application of the general provisions of the Civil Code and the Commercial Code (on liability for damages).

In practice, pre-contractual liability is mainly intended to protect, for example, investments made during the contract negotiations (eg, for the purchase of materials or equipment, or the provision of manpower) which will be used to fulfil a later contract.

6.2 What formal, substantive and procedural requirements apply with regard to the disclosure document in your jurisdiction?

We are not aware of any formal requirements regarding the procedure for the disclosure of documents.

The Commercial Code states that where the parties mutually exchange confidential information in negotiating a contract, no party to which such information has been provided may disclose such information to a third party or use it at variance with its purpose for its own needs, regardless of whether a contract is ultimately concluded. Anyone that breaches this duty will be liable for damages.

6.3 What pre-contractual disclosure requirements apply to franchisees in your jurisdiction?

The principles of confidentiality and good morals (fair trade) should be followed. The Civil Code also stipulates liability for damages caused by conduct that is against good morals.

6.4 What are the consequences of any breach of the pre-contractual disclosure requirements?

The injured party may potentially claim damages (if any) from the infringing party.

The damages must be quantified and proved before the court, and may include, for example, wasted investment expenses, reputational damage or missed business opportunities.

6.5 What other due diligence should the parties undertake before entering into a franchise agreement?

As part of the due diligence, it is recommended, among other things, to check the counterparty's legitimacy and potential reliability based on all publicly available data – for example:

6.6 Are there any restrictions imposed upon franchise brokers in your jurisdiction?

Brokerage (the agency model) is generally a common business activity. No specific restrictions apply to franchise brokers as such. However, brokerage services may be viewed as a ‘trade' and, subject to the applicable legal criteria, the broker should be registered in the Slovak Trade Register. In addition, brokers in some highly regulated areas (eg, finance) must be registered in specialised registers.

7 Franchise agreement

7.1 What formal, substantive and procedural requirements apply with regard to the franchise agreement in your jurisdiction? Are there any mandatory terms? What terms are typically included in the agreement?

In Slovakia, there are no mandatory clauses that expressly apply to the franchise agreement. Thus, the parties are relatively free to determine the conditions of their agreement, provided that these do not infringe good morals (bonos mores), public order or the protection of personality status or rights.

The typical franchise agreement will include elements of several other defined agreements, such as a lease agreement, a licensing agreement and a consignment contract – all of which are all expressly regulated by the Commercial and Civil Code, whose provisions should be followed where applicable.

The European Code of Ethics for Franchising is not binding in Slovakia, but it provides useful guidance in this regard, especially for cross-border franchising businesses.

7.2 Do any specific requirements apply regarding the governing law or jurisdiction of the franchise agreement?

The Slovak courts generally accept and recognise a foreign choice of law. The Act on International Private and Procedural law (97/1963 Coll, as amended) also sets out a procedure for the recognition and enforcement of foreign judgments.

7.3 Does the franchisor have any mandatory rights and obligations under the franchise agreement?

In Slovakia, there are no mandatory clauses that expressly apply to the franchise agreement. Thus, the parties are relatively free to determine the conditions of their agreement, provided that these do not infringe good morals (bonos mores), public order or the protection of personality status or rights.

7.4 Does the franchisee have any mandatory rights and obligations under the franchise agreement

In Slovakia, there are no mandatory clauses that expressly apply to the franchise agreement. Thus, the parties are relatively free to determine the conditions of their agreement, provided that these do not infringe good morals (bonos mores), public order or the protection of personality status or rights.

7.5 What restrictions can the franchisor impose on the franchisee's activities under the terms of the franchise agreement (eg, purchasing requirements, non-compete obligations, exclusivity, price control)?

The franchisor may impose restrictions in the forms of guarantees on the franchisee. Under Slovak law, such guarantees can take several different forms, such as:

  • suretyship;
  • financial guarantees;
  • collateral transfer of rights;
  • liens;
  • bank guarantees; and
  • contractual penalties.

Guarantees that are in compliance with the law are enforceable.

Non-compete and exclusivity clauses are also typical; however, these should be evaluated together with the price control for compliance with the competition laws.

7.6 Is there a duty of good faith imposed upon the franchisor and franchisee?

In civil law disputes, the principle of good faith is presumed, whereas a lack of good faith is subject to a burden of proof. Also applicable are a similar principle of good morals (bonos mores) under Slovak civil law and the principle of fair trade under Slovak commercial law.

Under the Civil Code, the exercise of rights and obligations arising from civil law relations:

  • may not, without a legal reason, interfere with the rights and legitimate interests of others; and
  • may not conflict with good morals.

Neither the Civil Code nor any other regulation defines the concept of ‘good morals'. However, theory and judicial practice equally consider good morals to be generally accepted rules of morality, which represent a fundamental order of values. This means that those moral rules are objective in nature (Decision of Appellate Court in Banska Bystrica, 16Co/152/2008).

7.7 What are the parties' rights and obligations in relation to renewal of the franchise agreement, and what is the process for renewal?

The concept of a ‘franchising agreement' is not defined in Slovak law and thus no specific renewal mandatory obligations are connected thereto. Generally, the process of automatic renewal is explicitly vested in the law only for some types of contracts (eg, lease contracts).

The clauses of lease contracts may potentially apply to franchising agreements in case of any lease. This should be evaluated on a case-by-case basis.

Under the Civil Code, if a lessee uses the leased property after the end of the lease and the lessor does not file a motion to retrieve the leased property in court within 30 days, the lease is considered renewed under the same conditions as originally agreed. A lease agreed for a period longer than one year is always renewed for one year; while a lease agreed for a shorter period is renewed for the relevant period.

7.8 What formal, substantive and procedural requirements apply with regard to termination of the franchise agreement in your jurisdiction?

Generally, the law and/or agreed terms of the franchise agreement determine the grounds for termination of the agreement.

Subject to these conditions, withdrawal from the agreement may be possible. Typically, this would be in the event of substantial breach of the agreement by the counterparty, and the party must notify the breaching party without undue delay after learning of the breach. For the purposes of the Commercial Code, a breach will be deemed substantial if the breaching party knew or could have anticipated at the time of its conclusion, from the contents of the contract or the circumstances under which it was concluded, that the counterparty would not be interested in performance of the contract in the event of the breach. If in doubt, it will be presumed that the breach of the contract is non-substantial.

Under the Commercial Code, withdrawal from a contract does not affect the right to payment of a contractual penalty.

A franchise agreement may also be terminated by mutual consent of the parties.

7.9 Are there any restrictions on repatriating moneys out of your jurisdictions?

Generally, there are no major restrictions on holding bank accounts in foreign currency and no major restrictions on the import or export of capital. Repatriation payments can principally be made in foreign currency.

However, the respective regulations should be still taken into account – in particular, the anti-money laundering (AML) and tax regulations.

7.10 Are there any withholding taxes that apply to franchising in your jurisdiction?

Under the Income Tax Act, the applicable rates of withholding tax are 7%, 19% or 35%.

Dividends are subject to tax at a rate of 7%. For royalties, there is a 19% standard tax rate.

A tax rate of 35% will apply where the income accrues to a taxpayer of a non-contracting state (eg, a tax haven).

However, these rates can be reduced under either a tax treaty or an exemption granted under the applicable EU legislation.

8 Operational standards

8.1 What legal status does the operations manual have in your jurisdiction?

Franchising is not specifically regulated in Slovakia. Thus, we are of the view that the operational manual will be binding and will be given contractual status in the franchising agreement.

8.2 How can the franchisor ensure compliance with its operational standards during the term of the franchise agreement?

If the operation standards are considered a binding part of the franchising agreement – for example, like terms and conditions – they can be enforced by the parties. Typically, compliance with the contractual obligations is ensured through contractual sanctions (fines).

Under the Commercial Code, a disproportionately high fine may be reduced by a court to the amount of damage caused by breach of the contractual duty prior to the court ruling.

8.3 Can the franchisor make unilateral changes to its operational standards during the term of the franchise agreement?

Generally, unilateral changes to the contract are not possible under Slovak law. However, this is a highly discussed and rather unsettled topic; and nowadays, it is common practice for one party to change the terms and conditions, subject to providing the counterparty with prior notification and the possibility of withdrawal from the contract.

9 Intellectual property

9.1 How are brands protected in your jurisdiction and what specific implications does this have in the franchising context?

Brand protection in Slovakia is mostly secured through registration of the relevant brand as a trademark by the Slovak IP Office. Registration at a European level as an EU trademark is also possible. Registration of a trademark is recommended as best practice. Slovak law does afford some protection to non-registered signs, but the protection is enhanced once the rights have been duly registered. Trademarks are governed and protected by the Trademark Act.

Under the Trademark Act, a trademark may consist of any sign – in particular words, including personal names, drawings, letters, numbers, colours, the shape of the goods or the shape of the packaging of the goods, or sounds – that is capable of:

  • distinguishing the goods or services of one person from those of another; and
  • expression in the Register of Trademarks of the Slovak IP Office in a manner that allows the competent authorities and the public to clearly and precisely identify the subject of protection granted to the trademark owner.

9.2 How are other intellectual assets of the franchisor (eg, know-how, trade secrets) protected in your jurisdiction and what specific implications does this have in the franchising context?

Trade secrets are explicitly governed by and protected under the Commercial Code. The law explicitly states that the owner of a trade secret enjoys legal protection against the violation or threat to the right to trade secrets. In case of damage caused by breach of a trade secret, compensation may be claimed in an amount corresponding to the minimum amount of remuneration or fees that the infringer would have to pay to the owner of trade secret, had it applied for authorisation to use the trade secret.

‘Know-how' is not explicitly defined and regulated under Slovak law. However, where it meets the relevant conditions (eg, it is expressed in an objectively perceptible form and is transferable to another person), know-how may be protected by concluding an agreement on the protection of information or a non-disclosure agreement.

10 Employment

10.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have in the franchising context?

The employment regime in Slovakia generally reflects the standard European labour regulations.

The employment regulations should be followed where an employment relationship exists – for example, if the franchisee employs any employees.

10.2 Can franchisees be deemed to be employees of their franchisor?

It is very unlikely that the courts will treat franchisees as employees. According to Slovak labour law, an ‘employee' is a natural person who undertakes to provide dependent work or similar work in the course of an employment relationship. Thus, the relationship between the franchisor and the franchisee will not be treated as an employment relationship.

11 Competition

11.1 What is the applicable competition regime in your jurisdiction and what specific implications does this have in the franchising context?

The competition regulations are mainly set out in the Act on Protection of Competition. This law:

  • stipulates the most important terms of antitrust and competition law;
  • regulates the abuse of a dominant position; and
  • sets out the procedure of the Anti-monopoly Office in preventing dominant undertakings from abusing their market position.

A dominant position as such is not prohibited; however, undertakings are not allowed to abuse their dominant position – for example, through:

  • exclusionary practices (eg, hindering the entry of new players to the market);
  • the enforcement of unfair trade conditions, including prices; or
  • the restriction of production, sales or technological development to the detriment of consumers.

With regard to merger control, the law also defines thresholds which give rise to a duty to notify

Slovak competition law is in line with the respective EU law and the activities of the European Commission. The franchise agreement should comply with all such rules – for example, with regard to any potential vertical restraints such as exclusivity arrangements, resale price maintenance, product ties and so on.

12 E-commerce

12.1 How is e-commerce regulated in your jurisdiction and what specific implications does this have in the franchising context? Can franchisees be prohibited from using e-commerce in their businesses?

The legal regime governing e-commerce is rather complex and is scattered across various laws, including:

  • the Civil Code;
  • the E-commerce Act (22/2004 Coll, as amended);
  • the Electronic Communications Act (351/2011 Coll, as amended);
  • the Consumer Protection Act (250/2007 Coll, as amended); and
  • the Personal Data Processing Act (18/2018 Coll, as amended).

The E-commerce Act contains rules on the liability of internet service providers; and – together with the Electronic Communications Act and the Advertisement Act – it regulates marketing (including spam), which could have implications for a franchising business, especially in case of online advertising and the use of newsletters.

There are no laws that would impose a blanket ban on franchisees using e-commerce in their businesses. In our experience, the precise use of e-commerce in a franchise is usually regulated in the franchising agreement – for example:

  • whether the franchisee must also have a brick-and-mortar store or whether a pure e-commerce platform will suffice; and
  • in the former case, whether it must be a fully fledged customer store or whether a ‘dark store', a ‘click-and-collect' pick-up point or a pop-up store will suffice.

13 Consumer protection

13.1 What consumer protection measures are applicable in your jurisdiction and what specific implications do these have in the franchising context?

Consumer protection is primarily governed by the Consumer Protection Act and the Civil Code. Under Slovak law, the term ‘consumer' primarily refers to a natural person who does not act within the scope of business activities or the performance of a profession.

In other words, the business-to-business relationship between the franchisor and the franchisee do not fall under the consumer protection regime. However, the franchisee itself, as the direct interface that transacts with consumers, must comply with all consumer protection requirements.

Many of the consumer protection rules stem from EU law. However, as in other areas of civil law and contract law, there are also certain local requirements. Most of the consumer protection rules concern the scope of information that must be provided to consumer with regard to:

  • the goods and services;
  • the rights of consumers in terms of warranty, complaints, repairs, replacements and refunds of goods and services; and
  • other related rights concerning the quality, fitness for purpose and safety of marketed goods and services.

Another significant group of consumer protection rules concern issues such as:

  • inadmissible and unfair trading practices;
  • false advertising;
  • prohibited advertising; and
  • bundling of products and services.

Finally, another part of the rules relates to the organisational framework of regulatory supervision and the redress of grievances. In this context, the basic regulatory oversight authority is the Slovak Trade Inspectorate. Specific fields of business may also have sector-specific consumer protection bodies, such as the Slovak Foodstuff and Veterinary Inspectorate and the Office for Healthcare Supervision.

Based on the above, the consumer protection rules apply to the widest scope of goods and services, as long as the customer is a natural person who purchases the goods or services in a personal capacity. Hence, in our experience, the vast majority of businesses run as franchises fall under the consumer protection regulations.

13.2 Are franchisees covered under any of these consumer protection measures?

We are of the view that because franchisees act in the capacity of entrepreneurs or business entities, they will not be treated as consumers. However, most franchisors and franchisees must ensure that they comply with the relevant consumer protection regulations in relation to their customers who are consumers.

14 Data security and cybersecurity

14.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have in the franchising context?

The Personal Data Protection Act (18/2018 Coll, as amended) is fully in line with the General Data Protection Regulation (GDPR), and reflects the European standards on the protection of data and information.

There are no specific implications that pertain to the franchising context. In general, the franchisee is usually the data controller – that is, the party that determines the purposes for which and the means by which personal data is processed. As such, the franchisee must ensure that customers, as data subjects, enjoy all of their rights in relation to the processing of their personal data. In some specific cases, the franchisor and the franchisee may be joint controllers – for example, where the personal data is stored and otherwise processed not only locally by the franchisee, but also in a wider database of the franchisor, which may wish to coordinate the evaluation of data and marketing centrally for multiple franchisees.

Another example concerns situations where ‘data usage' and ‘data commercialisation' are covered by the franchising agreement. To the extent that such data is the personal data of customers as data subjects, the franchisor and the franchisee will have enter into a separate agreement that regulates their respective responsibilities for compliance with the GDPR. In addition to the need for such agreement, the main tenets of such agreement must be included in the data processing policy or other communication that is provided to customers whose personal data is processed.

14.2 What cybersecurity obligations are applicable in your jurisdiction and what specific implications does this have in the franchising context?

Cybercrime is explicitly addressed by the Criminal Code, which affords modern criminal law protection to IT systems and data. Criminal offences include:

  • accessing IT systems and information media without authorisation (hacking);
  • using data without authorisation; and
  • obtaining technology to violate the secrecy of messages.

The Cybersecurity Act, which implemented the Network and Information Security Directive, is the primary source of cybersecurity law. It stipulates several duties on providers of essential services, critical infrastructure (eg, in the banking and transport sectors) and so on.

We are of the view that the cybersecurity legislation principally has no specific implications for franchise businesses as such. In fact, most businesses that use the franchising model in Slovakia would fall outside of the scope of the cybersecurity regime.

15 Disputes

15.1 In which forums are franchising disputes typically heard in your jurisdiction? What issues do such disputes typically involve?

The most common issues that end up before courts concern contractual breach, licensing and IP disputes and competition disputes.

Disputes in some areas of law are heard by their own specialised courts – for example:

  • intellectual property and unfair competition;
  • antitrust and competition; and
  • contracts concluded under public procurement tendering procedures.

Franchising agreements do not fall under the jurisdiction of any specialised court; however, if the issue to which the dispute relates falls under the jurisdiction a specialised court, then the dispute will be heard by that court, regardless of the type of agreement under which the dispute arose.

The Slovak courts also accept and recognise a foreign choice of law subject to applicable regulation.

15.2 Is mediation commonly used in franchising in your jurisdiction? Is arbitration commonly used in franchising in your jurisdiction?

Mediation is possible under Slovak law; the necessary legal and institutional framework is in place and there has been a slight increase in its use, although it is still seldom availed of as a forum for dispute resolution.

In contrast, arbitration clauses are frequently included in business-to-business contracts, including franchising agreements. The court fees payable by the plaintiff for commencing proceedings are higher in arbitration than in litigation; however, such fees are generally recoverable from the defendant if the plaintiff wins the case. Importantly, the main advantages of arbitration over litigation are the faster speed of the proceedings and the greater specialisation of the arbitrators; although both of these factors will vary depending on the specific arbitration tribunal. Franchising agreements with cross-border elements often include arbitration clauses under the auspices of the International Court of Arbitration of the International Chamber of Commerce or the Vienna International Arbitration Tribunal.

However, it is fair to say that the most common way to resolve disputes is still through the general courts.

15.3 Can class actions be brought in your jurisdiction? If so, what specific implications does this have in the franchising context?

The Slovak rules of court procedure allow multiple parties to bring a court claim (ie, joinder). There are several different types of joinder. However, multiple claimants suing through joinder is not a proper equivalent of a class action.

Slovak law also recognises actions in public interest, in which a legal entity raises a claim on behalf of a group of persons. However, these are possible only in a limited number of cases, such as those involving consumer protection, anti-discrimination or unfair competition.

The limited use of quasi-class actions has no specific implications in the franchising context. However, it is conceivable that a public interest action in the field of unfair competition could have the potential to affect a clause or term that may be included in numerous franchising agreements.

15.4 Have there been any recent cases of note?

Franchising lawsuits often involve violations of know-how, trademarks and trade secrets. One such case involved the Mr Kebab restaurant franchise, established in Slovakia. The franchise had registered a relevant EU trademark and prevailed in litigation against infringers in Hungary (https://franchising.sk/clanek/1975/boj-o-znacku/). However, the same brand was less successful in preventing brand infringement in South Korea, which reflects the greater challenges of litigating outside the European Union.

16 Trends and predictions

16.1 How would you describe the current franchising landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The COVID-19 pandemic has significantly harmed the business environment in Slovakia. In a number of sectors – including hospitality, restaurants and pubs, sports facilities and retail – many businesses have suffered severe losses and only the more financially robust have survived. This has also affected franchising businesses.

At the same time, however, other businesses have thrived, including delivery services, streaming platforms, software companies and home electronics producers and resellers. Again, these include franchising businesses.

With regard to future development, the COVID-19 pandemic is likely to increase interest in strong brands among potential Slovak franchisees. We expect IT and modern technology franchise models to thrive. In addition, the market position of existing strong names should be further strengthened.

In terms of legal developments, there are no scheduled legislative changes that specifically target franchising. However, the market has already responded to the COVID-19 pandemic and will continue to evolve with the aim of preparing for similar disruptions in the future. The franchise concepts that have succeeded in the COVID-19 environment have separated themselves from those that have proved rigid and unable to adapt to the new reality. There has been an effort to revise franchise manuals and contracts so that, in the event of another crisis, the franchises will be better prepared to face them. These changes have included:

  • a more detailed and more robust definition of ‘force majeure'; and
  • the revision of the fee system – in particular, to include some form of earn-out (ie, the franchise fees being based on the business results, and thus both the franchisor and the franchisee sharing the burden from the limited operation of shops and services during lockdowns and other restrictions).

17 Tips and traps

17.1 What are your top tips for franchisors seeking to enter your jurisdiction and what potential sticking points would you highlight?

Slovakia is a member state of the European Union and its legislation is fully compliant with EU law. This is especially so in highly harmonised fields of law, such as competition, antitrust and data protection. Hence, a franchisor seeking to enter the Slovak market which has previous experience of other EU member states and their legal regimes should not face any major differences from what it is used to.

However, certain areas of law are not harmonised at the EU level and even the regimes between different member states can still vary considerably. These include most aspects of contract law, civil law, liability for damages (other than in relation to consumer protection, which is harmonised) and the connected case law of national courts. This is also why it is not always possible to use template franchising agreements that have been used in other jurisdictions; instead, these must be localised.

In relation to the provisions of the franchising agreements that are not regulated or affected by mandatory rules of law, one way to draft them with reduced costs and legal risks is to utilise the various sources of soft law issued by the Slovak Franchising Association and the European Franchise Federation. These include the European Code of Ethics for Franchising, as well as certain recommended templates and checklists.

To sum up, experience of franchising in another EU member state and adherence to the European Code of Ethics for Franchising, European model contracts and other soft law will make the lives of franchisors seeking to enter the Slovak market much easier. However, as much contract law is purely national, and as in certain areas (eg, foodstuffs, cosmetics, electronics, health-related products) the regulatory framework requires compliance at a local level, the franchising agreement must be reviewed by a locally qualified lawyer with experience in the area of franchising.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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