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Photo courtesy of Yonhap News |
[Alpha Biz= Kim Jisun] South Korea’s Supreme Court has ruled that Pizza Hut Korea must refund hundreds of billions of won in so-called “margin-based franchise fees” collected from franchisees.
On January 15, the Supreme Court’s Third Division upheld a lower court ruling that partially favored the plaintiffs in a lawsuit filed by 94 Pizza Hut franchise owners seeking the return of unjust enrichment from the company’s headquarters.
Under the final ruling, Pizza Hut Korea is required to refund KRW 21.5 billion (approximately USD 160 million) in margin-based franchise fees collected from franchisees between 2016 and 2022.
The Supreme Court agreed with the appellate court’s finding that a franchisor must have a specific contractual agreement in place to charge such fees, and that no valid agreement regarding margin-based franchise fees existed between Pizza Hut Korea and its franchisees.
Margin-based franchise fees refer to distribution margins earned by franchisors through the supply of raw materials and ingredients to franchisees.
In South Korea, many franchise headquarters—including Pizza Hut Korea—derive a significant portion of their profits from these margin-based fees rather than charging a fixed royalty or a percentage of franchisees’ sales.
Pizza Hut franchisees filed the lawsuit in December 2020, arguing that the company had unfairly collected undisclosed margin-based fees while simultaneously charging a fixed royalty equivalent to 6% of total revenue. Both the trial court and the appellate court ruled in favor of the franchisees.
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
