The Story Behind Korea’s Laws: Your Guide to Korea’s Legal Pulse
SEOUL, Jan. 15 (Korea Bizwire) — South Korea’s Supreme Court has ordered Pizza Hut Korea to refund 21.5 billion won (about $16 million) to franchise owners, ruling that the company illegally collected undisclosed margin-based fees without explicit contractual consent—a decision expected to reverberate across the country’s franchise industry.
In a final ruling issued Thursday, the Supreme Court of Korea upheld lower-court judgments in favor of 94 Pizza Hut franchisees who sued the company for unjust enrichment. The court concluded that Pizza Hut must return so-called “margin franchise fees” collected between 2016 and 2022.
Those fees—known in Korea as cha-aek gaengmaeng-geum—are markups embedded in the prices of ingredients and supplies sold by franchisors to franchisees. While such margins are common in the industry, the court found that Pizza Hut lacked a valid contractual basis to collect them.
The justices ruled that margin-based fees fall under the definition of “franchise fees” in South Korea’s Franchise Business Act and therefore require a clear and specific agreement between franchisor and franchisee.
In Pizza Hut’s case, the court said, no such agreement existed—either explicitly in the franchise contracts or implicitly through the parties’ conduct.
Pizza Hut had argued that franchisees implicitly consented to the fees by continuing to purchase supplies and that similar practices were widespread across the franchise sector.
Pizza Hut Ordered to Refund 21.5 Billion Won in Fee Dispute (Yonhap)
The court rejected that reasoning, cautioning that implied agreements unfavorable to franchisees must be recognized only with extreme care, given the imbalance of bargaining power between franchisors and store owners.
Lower courts found that Pizza Hut collected a fixed royalty equivalent to 6 percent of gross sales while also charging undisclosed supply margins that were neither specified in franchise contracts nor itemized in invoices. The Supreme Court agreed that franchisees were not adequately informed of those charges and could not be deemed to have consented to them.
The ruling also upheld the lower court’s method for calculating refunds, including estimates for years in which margin rates were not disclosed. The court cited Pizza Hut’s failure to comply with document production orders and found no basis to conclude that the refund calculation was unreasonable or unjust.
Legal experts said the decision sets an important precedent by clarifying that franchisors cannot rely on industry custom or silence to justify collecting margin-based fees. Each charge must be contractually grounded and transparently disclosed.
The ruling is expected to influence a growing wave of similar lawsuits already filed by franchisees of other major brands, including fried chicken chains, café operators and retail franchises, many of which have challenged comparable fee structures following Pizza Hut’s earlier courtroom losses.
For South Korea’s franchise sector—long criticized for opaque pricing and fee practices—the decision signals heightened judicial scrutiny and sends a clear message: undisclosed margins are no longer defensible.
Jerry M. Kim (jerry_kim@koreabizwire.com)
