On December 26, 2019, the President of Brazil, Jair Bolsonaro, enacted Law No. 13.966/19, the new Franchising Law, which repealed and replaced the old 1994 franchising law (Law No. 8.955/94).
The new law updates several terminologies and concepts, inserts some new mandatory information in the franchise disclosure document (Franchise Offering Circular) and introduces new rules to the franchise system in Brazil.
The new law provides a detailed definition of franchising, which expressly excludes consumer or employment relationships from the franchisor-franchisee relationship, in order to eliminate the risk of the courts understanding that labor and consumer protection laws apply to franchise agreements.
In order to increase transparency in the franchisor-franchisee relationship, the new franchising law requires a set of information, substantially more detailed than the previous law, that the franchisor must disclose to potential franchisees before signing any binding document or making any payment of any kind.
Furthermore, the new legislation establishes that the intellectual property rights to be used in the franchise agreement do not need to have been granted to their owner (registration applications are sufficient).
Furthermore, unlike the previous legal structure, the new law recognizes the possibility for the franchisor to sublet the point of sale and profit from it.
Furthermore, in line with Article 224 of the Civil Code, the new law establishes that franchise agreements that produce effects exclusively in Brazil must be written in Portuguese and governed by Brazilian law, which also means that international franchise agreements written in a foreign language must be translated into Portuguese.
In addition, the new law expressly provides for the adoption of arbitration as a form of dispute resolution.
It should be noted that, in addition to the changes mentioned here, other modifications were introduced by the new law, requiring attention from franchises operating in the Brazilian market.
The obligations established by the new Franchise Law will become enforceable 90 days after the date of its publication in the Official Gazette of the Union, that is, from March 27, 2020, a period during which franchisors will have to adapt their structure and franchise documents to the new rules.
