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Advances in Social Science, Education and Humanities Research, volume 499
2nd International Conference on Law, Governance and Social Justice (ICOLGAS 2020)
Legal Protection Of The Parties In The
Franchise Agreement
1 2
Dharu Triasih , Dewi Tuti Muryati
1,2
University of Semarang, Semarang - Indonesia
E-mail: dharutriasih.fhusm@yahoo.co.id./dewitutimuryati@yahoo.com
Abstract - Franchise agreements are based on the agreement made by both parties, this causes legal
principles of contractual freedom set out in Article 1338 protection as well as obligations and rights for the
of the Civil Code. However, the implementation on this franchisee in implementation of franchise business
basis needs to pay attention to the requirements
mentioned in Article 1320 of the Civil Code which is agreements.
about the legal conditions of an agreement. One of the Article 1338 of the Civil Code encourages the
causes of problems in the Franchise Agreement is the applicability of all legally established agreements as
existence of a standard contract or standard contract
based on freedom of contract contained in the Civil Code. laws to those who make them. An agreement cannot
How is the legal protection for the parties in the be revoked as long as it is agreed upon by both
Franchise Agreement during the pandemic? What are the parties or for reasons reasoned by law to be sufficient
legal consequences of not registering a Franchise? The
approach method is the normative juridical method. for that purpose. An agreement must be executed in
Specifications This research is analytical descriptive. good faith. Based on the provisions contained in
Data collection used is library studies, document studies. Article 1338 of the Civil Code, it will be known the
Analytical descriptive data analysis. In connection with
the covid-19 pandemic period, the pandemic condition basics - the principle of freedom of contract that is
which qualifies as force majeure has implications for the everyone is free to make an agreement or free to
franchise agreement made by the parties. Franchisors determine the content of an original agreement is not
cannot be declared in default because the contractual
obligations are not fulfilled not because of intent or contrary to the Law and public order.
negligence but because of the Covid-19 pandemic. A franchise agreement is an agreement
Regents according to their authority can each impose between the franchisee and franchisor, which gives
administrative sanctions in the form of written warning;
fine; STPW revocation. the franchisor the right to manufacture or sell goods
Keywords- Agreement; Franchise; Legal Protection (products) and/or services within a certain time and
place decided by the franchisor. While the franchisee
I. INTRODUCTION pays a certain amount of money to the franchisor for
The presence of a standard contact or freedom the right he has acquired, such as buying and selling;
of contract is found in the Criminal Code. Therefore, renting, and so on. Therefore, the provisions of the
the State gives the basic limitation of good faith as agreement law that apply to a franchise contract are
stated in Article 1338 Paragraph (3) of the Criminal generally only the provisions in the general section of
Code as an effort to protect the law against the parties the agreement, namely those contained in Article
involved in the Franchise Agreement. Especially the 1233-1456 Civil Code, for example, the validity of
franchisee whose position is weaker than the the provisions regarding the validity of the
franchisor. The position of the franchisee is indeed agreement, regarding the termination of the
weaker compared to the franchisor. Because the agreement and so on. This is what led to the idea of
franchisee only runs the business of the franchisor and conducting this research activity.
expands its business locally or elsewhere. Therefore,
the franchisee in conducting its business must comply II. PROBLEMS
with the content of the standard contract agreement First, how is the legal protection of the parties in the
made by the franchisor, because the franchisee does not Franchise agreement? And second, What are the legal
have the right to determine the content of the consequences for the Franchise not being registered?
Copyright © 2020 The Authors. Published by Atlantis Press SARL.
This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 418
Advances in Social Science, Education and Humanities Research, volume 499
Advances in Social Science, Education and Humanities Research, volume 499
Franchisees or franchise recipients are
III RESEARCH METHOD business entities or individuals who are given the
right to utilize and/or use intellectual property rights
The type of research used is normative legal or inventions or the characteristics of the franchise
research or commonly known as doctrinal research, giver.
which is research conducted by examining library A franchise agreement is an agreement that
materials or secondary data consisting of primary the franchisor holds with the franchisee, the
legal materials, secondary legal materials, and franchisor grants the franchisee the right to produce
tertiary legal materials. According to Peter Mahmud or market goods (products) and/or services (services)
Marzuki, all research related to law (legal research) is within a certain time and place agreed by the
always normative [1] This research is descriptive- franchisor, while the franchisee pays a certain
analytical using the statute approach and the case amount of money to the franchisor for the rights he
approach. The source of this research uses primary has acquired. . The definition of the franchise
and secondary legal materials related to the legal agreement as referred to above, can be seen several
issues raised. The data collection technique used in elements of the franchise agreement, are: [2]
this research is library research. 1. The existence of an agreed-upon agreement.
Franchise agreements are made by the parties,
IV. DISCUSSION namely franchisors and franchisees, both of whom
are qualified as legal subjects, either as legal
1. Legal Protection For The Parties To The Franchise entities or only as individuals.
Agreement 2.There is a right from the franchisor to the
The definition of Franchise according to Article franchisee to produce or market goods and or
1 of Government Regulation Number 42 of 2007 services. With this franchise agreement, the right to
concerning Franchising, states that: Franchising is a use the franchise system is granted. Granting rights
special right that is owned by an individual or under the franchise name from the franchisor to this
business entity against a business system that is franchisee, then the rights given need to be
business in nature to market goods and/or services regulated in the franchise agreement.
that have been proven successful and can be used 3.Granting of these rights is limited to a certain time
and/or used by other parties based on a franchise and place. In this case, the franchisor gives the
agreement. [2] franchisee the right to use the name, trademark, and
The franchise is a form of the business format logo of his business to the franchisee limited to the
in which the first party called the Franchise provider place and time that has been agreed in the franchise
(franchisor) grants the right to the second party called agreement.
the Franchise recipient (franchisee) to distribute 4.There is a payment of a certain amount of money
goods/services within a geographic area and a certain from the franchisee to the franchisor. Some
period by using a brand, logo, and an operating financial compensation must be submitted by the
system that is owned and developed by the franchisee to the franchisor so that the relationship
franchisor. The granting of these rights is stated in can be a franchise relationship. Although it is not
the form of a franchise agreement. [3] absolutely a payment of money. Such compensation
In addition to the definition of a franchise, it is is usually included in the categories' initial money,
necessary to explain the meaning of the franchisor royalties, and other money of an occasional or
and franchisee. recurring nature.
Franchisor or franchisor is a business entity or According to Government Regulation No.
individual that gives rights to other parties to utilize 42/2007. Article 4 concerning Franchise A Franchise
and or use intellectual property rights or inventions or Agreement must at least contain clauses regarding the
business characteristics that they own. following:
1. Identity of each party;
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Advances in Social Science, Education and Humanities Research, volume 499
Advances in Social Science, Education and Humanities Research, volume 499
2. Identity and position of each party parties from harming other parties, including in
authorized to sign the Profit Wara providing legal protection for IPR. This is because
Agreement; the agreement can be a strong legal basis to enforce
3. A description of intellectual property rights legal protection for the parties involved in the
or inventions or characteristics of products Franchise system. If one of the parties violates the
and / or services that are the object of the contents of the agreement, then the other party can
franchise; sue the violating party by applicable law. As with the
4. The rights and obligations of each party as Franchise Agreement above, it can be seen that the
well as the support and facilities provided to Agreement has specifically regulated IPR protection,
the Franchise recipient; namely by agreeing on certain limitations that must
5. The marketing area. in this case, the be obeyed by the franchisee, which is directly or
franchisor can determine whether the indirectly aimed at protecting the intellectual
marketing area covers all or part of property rights of the Franchise giver. Government
Indonesia; Regulation on Article 5 about Franchise, in the
6. The term of the Franchise Agreement (which Franchise Agreement, contains clauses at least:
is at least for 5 years along with the a. Name and address of the parties;
procedures and requirements for the b. Types of Intellectual Property Rights;
extension of the Agreement; c. Business activities;
7. Procedures for dispute resolution; d. Rights and obligations of the parties;
8. Matters that may result in termination or e. Assistance, facilities, operational
termination of the Franchise Agreement; guidance, training, and marketing
9. Compensation in the event of termination of provided by the Franchise Giver to
the Franchise Agreement; the Franchise Recipient;
10. Method of payment; f. Business area;
11. The use of products or materials produced in g. Duration of the agreement;
the country as long as they meet the h. Procedure for payment of rewards
stipulated quality standard requirements; and i. Ownership, change of ownership and
12. Coaching, training, and guidance for rights of heirs;
Franchise Recipients. [4] PP 42/2007 For the j. Dispute resolution; and
Government, rule of law is a responsibility k. Procedure for extension, termination.
that must be realized to provide legal [5]
services and justice for its citizens to create However, the unilateral contract termination
order and harmony in life. After all, legal makes the franchisee's position as a weak party. In
protection is a right for every citizen the Franchise Agreement, the principle of freedom of
wherever they are and the Government has a contract is applied, it's called the freedom of the
big responsibility to enforce the law for the franchisor to determine or choose a business partner
implementation of legal protection for its as a franchisee because the freedom to determine the
citizens without any discrimination. contents and form of the agreement no longer exists
For the Government, rule of law is a with the pouring of the Franchise Agreement in the
responsibility that must be realized to provide legal form of a standard agreement
services and justice for its citizens to create order and A franchise agreement is a standard agreement,
harmony in life. After all, legal protection is a right where the franchisor has prepared terms that have
for every citizen wherever they are and the been printed in an agreement form which is then
Government has a big responsibility to enforce the submitted to the franchisee. This standard agreement
law for the implementation of legal protection for its is commonly made because the franchisor can save
citizens without any discrimination. Franchise more money and time. However, agreements like this
agreements are one aspect of legal protection for are often burdensome to franchisees because they are
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Advances in Social Science, Education and Humanities Research, volume 499
Advances in Social Science, Education and Humanities Research, volume 499
dominated by the interests of the franchisor. This 1. General provisions
standard agreement can also be called an agreement 2. Conditions precedents
to accept or reject (take it or leave it) because one of 3. Franchise Grant
the parties cannot carry out negotiations or the terms 4. Restrictions on the use of franchise
contained in the agreement. This agreement opposes rights (limited of franchise /
the principle in the agreement, namely the principle intellectual property protection)
of freedom of contract because it appears that this 5. Franchise price and payment terms
franchise agreement only focuses on the interests of 6. Services by the franchisor
the franchisor. The principle of freedom of contract 7. Uniformity
as the basis for forming a franchise agreement, in 8. Promotion (marketing and advertising
practice is often misused by strong parties so that it campaign)
often causes irregularities in the formulation of rights 9. Training
and obligations by strong parties, thus harming the 10. Exclusivity
weak. [6] 11. Terms of the agreement
Based on Article 1338 paragraph (1) that in the 12. Location selection (premises)
making of an agreement there is a principle of 13. Right of inspection and audit
freedom of contract where this principle gives 14. Report procedures (report
freedom to any person or business entity to make any procedures)
agreement without violating provisions prohibited by 15. The principle of non-competition
law or statutory regulations, the agreement is valid (non-competition)
according to law. 16. Product or system confidentiality
Article 1338 paragraph (2), that is, if an (non-disclosure)
agreement has been made and it has been agreed that 17. Administrative licensing
it is valid, then one of the parties cannot withdraw or (government approval)
cancel the agreement without an agreement from both 18. Employees and labor
parties agreeing. 19. Insurance
Article 1338 paragraph (3) of the Civil Code is 20. Guarantee against lawsuits and losses
about the principle of good faith in agreeing. This (indemnification)
means that a business agreement is based on bad 21. Taxes
faith, for example, based on fraud, then the business 22. Transfer of rights (assignment)
agreement is considered invalid and can be canceled 23. Stand-alone position (independent
according to law. Thus the principle of good faith contractors / no - agency)
implies that freedom in making a business agreement 24. Default (event of default / non-
cannot be realized on the will of one of the parties performance) 25. Extension
without being limited by good faith. With the agreement
principle of good faith, each party agreeing will carry 25. Extension agreement
out the obligations and rights arising from the 26. Termination or termination of the
agreement. agreement
In agreeing the parties must comply with the 27. Choice of forums and legal
provisions of Article 1320 of the Civil Code jurisdiction (forum and governing)
regarding the validity of an agreement: 28. Amendments to the agreement and
1) There is an agreement between the parties; waiver of rights (modification and
2) The competence of the parties; waiter)
3) A certain thing. 29. Damages
The following are the clauses that are commonly 30. Force Majeure
agreed upon in a franchise contract, both 31. Several abilities of provisions
international and domestic, such as:
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