On 26th December 2019, Brazil’s President, Jair Bolsonaro, enacted Law No. 13.966/19, the new Franchise Law, which revokes and replaces the former 1994 francise law (Law No. 8.955/94).
The new law updates terminology and concepts, inserts certain new mandatory information in the franchise disclosure document (Circular de Oferta de Franquia) and brings new rules into the franchising system.
The new law provides a detailed definition of franchising, which expressly excludes consumer or employment relationships from the franchisor-franchisee relationship, in order to prevent the risk of courts finding that employment and consumer protection laws apply to franchising arrangements.
Aiming to increase transparency in the franchisor-franchisee relationship, the new Franchise Law requires that the franchisor disclose a set of information, substantially more detailed than the former law, to prospect franchisees prior to the execution of any binding document or payment of any sort.
Furthermore, the new legislation provides that the intellectual property rights to be used in the franchising arrangement do not need to have been granted to their owner (applications filed for registration suffice).
Moreover, unlike the former legal framework, the new law recognizes the possibility of the franchisor subletting a point of sale to the franchisee and generate profits from such sublease.
Also, aligned with article 224 of the Civil Code, the new law provides that franchise agreements that produce effects solely in Brazil must be written in Portuguese and governed by Brazilian law, which also means that international franchise agreements drafted in a foreign language are required to be translated into Portuguese.
In addition, the new law expressly contemplates arbitration as a dispute resolution mechanism.
It should be noted that, besides the changes mentioned herein, other modifications were introduced by the new law, requiring the attention of franchises inserted in the Brazilian market.
The obligations established by the new Franchise Law will become effective 90 days as from the date of its publication in the Official Gazette, i.e., as from 27th March 2020, which is the deadline established for franchisors to adapt their franchise structures and documents to the new rules.