To print this article, all you need is to be registered or login on Mondaq.com.
1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions govern franchising in your jurisdiction?
In Poland, there are no specific laws or regulations governing franchising. Legal relations created within the franchising model of cooperation are governed by a mixture of:
- civil law;
- IP law;
- tax law; and
- competition law.
Where a franchise is based on or strongly dependent on the processing of personal data, the General Data Protection Regulation will have a role to play. Occasionally, the parties to a franchising relationship may seek advice relating to employment law (non-solicitation and non-compete clauses) and finance law (financing and bank guarantees). Franchising may also be subject to the law on mergers and acquisitions and competition law, especially where certain thresholds are met; and a transaction may have to be notified to the regulatory authorities, such as the European Commission, the Polish Office for Competition and Consumer Protection or the Polish Securities and Exchange Commission.
1.2 Do they apply to foreign franchisors entering your jurisdiction or only to domestic franchises?
The parties to a franchising agreement are free to choose what law governs the contract (it need not be Polish law). In such case, subject to certain overriding mandatory laws, the law the parties choose will govern the franchising relationship (eg, liability, indemnification, IP rights, term and termination, jurisdiction). Obviously, certain laws will always apply to any business operations in the territory of Poland – tax law, competition law, employment law or certain aspects of bankruptcy law.
1.3 Do any special regimes apply in specific sectors?
There are no special franchising regimes in specific sectors. However, entrepreneurs active in, for example, the food and beverage sector must meet all applicable food and beverage regulations. The obligation to meet such sector-specific requirements usually rests with the franchisees operating in a given market and does not directly affect the franchisor.
1.4 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
There is no special authority responsible for regulating the franchise market in Poland, so the law applicable to a franchise is enforced either by the courts or by authorities competent for a particular sector.
The president of the Office of Competition and Consumer Protection (OCCP), which is the body that supervises compliance with competition and consumer law, has the biggest influence on the franchise market.
The president of the OCCP is entitled, among other things, to:
conduct proceedings in case of practices that violate the common interests of consumers, which may result in:
- the prohibition of contested activities;
- an order for rectification of the effects of a breach being issued; or
- the imposition of a fine;
- conduct antitrust proceedings against entrepreneurs that breach a prohibition of practices in restraint of trade. As a result, the president of the OCCP may issue a decision ordering the cessation of the unlawful activities and may impose a fine of up to 10% of the turnover achieved in the business year preceding that in which the penalty is imposed, as well as a fine of up to PLN 2 million on a manager; and
- control a concentration of entrepreneurs – this is aimed at avoiding a situation in which, as a result of a merger, a significant limitation of competition on the market may occur, in particular through the creation or strengthening of a dominant position of an entrepreneur that allows it to act in isolation from competitors, contractors and consumers.
In terms of personal data processing, the Polish Personal Data Protection Office is the competent authority.
1.5 What is the regulator’s general approach in regulating the franchise sector?
The Polish authorities have no particular approach towards the regulation of the franchise sector.
1.6 Are there any trade associations for the franchise sector? If so, what are the conditions for membership? What are the commercial implications of not being a member?
In Poland, the Polish Association of Franchisors functions to protect the rights and represent the interests of its members in relation to state authorities and administrations, local government bodies and other bodies and organisations.
Only a natural or legal person that is an employer and that meets the requirements of the Ethical Code of Granting a Franchise can become a member of the association. Moreover, a principal object of the business of such a person must be the granting of franchises. The potential member must have at least two franchisees, as well as a good name on the franchise market. A foreign franchisor must have at least two franchisees in the territory of Poland to become a member of the association.
As the association is an independent and voluntary organization, there are no commercial implications of not being a member. However, the organization offers special benefits such as certificates of credibility for its members.
2 Franchise market
2.1 How mature is the franchise sector in your jurisdiction?
The Polish franchise market is mature and stable. According to a market report from 2020, there were over 1,300 franchise models in operation, with approximately 83,500 franchise outlets. However, the Polish franchise market has not yet developed to its full potential. According to experts, the franchise and distribution market in Poland will continue to grow in the coming years. In 2019, Forbes ranked Poland among the most attractive countries for franchising. The confirmation of this trend is an increasing presence of international franchises in Poland, as well as the success of Polish export brands abroad. The most important Polish brands in the international franchise market are companies such as:
- Gino Rossi;
- 4F, LLP (Reserved, House, Cropp, Mohito and Sinsay);
- Organique; and
- Orlen petrol stations.
The popularity of franchising among small entrepreneurs confirms its viability as a business model in Poland. A franchise is currently one of the main ways in which small entrepreneurs can develop their business. Moreover, franchising provides employment for about half a million people in Poland.
2.2 In which sectors is franchising most common?
Franchising is popular in almost all sectors of the Polish economy, although it is most common among food and grocery chains, restaurant chains, clothing retailers and cosmetics retailers.
2.3 Who are the biggest and most successful franchisors in your jurisdiction? How are they typically structured?
Food and grocery: In the sector of food and grocery chains, Żabka is the biggest and most successful franchisor in Poland. Over 5,000 franchisees cooperate with this franchisor, running over 7,000 stores. Other popular franchise concepts in this sector include Carrefour Express and ABC.
Food and beverage: The most developed franchise concepts in the food and beverage sector are international restaurant chains. The biggest chain of franchisees in Poland is McDonald’s, which has about 400 franchise points. Another big franchisor is Subway. Popular Polish brands include Sphinx (a restaurant chain), Grycan and Cukiernia Sowa (confectionery).
Cosmetics: The biggest franchisor in the cosmetics sector is Rossmann, which had over 1,400 stores in Poland in 2020.
Structure: Franchisors in Poland usually choose a limited liability company as their corporate structure (see question 5.2).
3 Franchising models
3.1 Is master franchising or the development model most common in your jurisdiction?
The development model is more popular in Poland than the master franchise model, which is not used as often, due to the potentially higher fees involved.
3.2 What other models of franchising are commonly used in your jurisdiction?
Besides multi-unit franchising, direct franchising is one of the most popular franchise models in Poland.
3.3 What are the potential advantages and disadvantages of these different models?
The potential differences in these models are more of a business and operational nature than a legal nature. In other words, there are no legal specifics that give advantage to one model over another.
The direct franchise is the simplest model of developing a franchise, including from the legal perspective. A franchise agreement is entered into directly between the franchisor and the franchisee. The franchisor renders services set out in the franchise agreement by itself. Additionally, the franchisor carries out all activities that allow the enterprise to work properly.
The master franchise model can be based on an agency model, in which case the strict EU provisions on commercial agents (termination periods, compensatory benefits) will apply.
With more elaborate models, the personal data processing and sub-processing structures will require more complicated data processing agreements.
Legally simple models are not always the best platform for developing a franchise system at a significant distance, because the franchisor may subsequently experience difficulties in rendering direct services and controlling its franchisees.
3.4 What specific considerations should be borne in mind in the case of cross-border franchising into your jurisdiction?
Tax structures and the risk of permanent establishment must always be considered in cross-border transactions. For non-EU franchisors, compliance with the EU data protection laws applicable in Poland may also arise.
4 Definitions and scope of application
4.1 How is ‘franchising’ defined in your jurisdiction?
‘Franchising’ is not defined in Polish law. Companies often incorporate a standard definition of ‘franchise’ into a contract. This definition consists of two elements:
- a continued contractual relationship between the franchisor and franchisee, by which the franchisor undertakes to provide the franchisee with know-how for the term of agreement and the franchisee agrees to pay fees or provide other consideration; and
- the franchisee’s independence from the franchisor.
4.2 What are the key requirements that apply to franchising? Is pre-contractual disclosure required? Is registration of documentation required? Are mandatory terms imposed?
Polish law imposes no requirements applicable to franchising. There are no requirements concerning pre-contractual disclosure or registration of documents. Polish law imposes no mandatory terms.
4.3 What specific activities (if any) are prohibited under the franchising laws and regulations? What are the potential consequences of breach?
There are no specific prohibited activities in terms of franchising under Polish law.
5 Initial steps
5.1 Are there any restrictions on foreign franchisors entering your jurisdiction?
In general, there are no such restrictions. Unless a permanent establishment is considered due to the level of control under the franchising agreement or the regular presence of the franchisor in Poland, franchising remains a purely contractual relationship and can be provided from any jurisdiction.
If a foreign franchisor considers establishing more permanent operations in Poland, non-EU companies must establish a branch or subsidiary company to do business in Poland.
Operating a business in Poland requires registration. Apart from this, there are generally no additional strict regulations on starting up a business in Poland.
There are restrictions regarding the ownership of real estate in Poland for non-European Economic Area franchisors; government approval is required for this.
5.2 What is the most common structure adopted by foreign franchisors entering your jurisdiction?
The sale of a franchise to a Polish entrepreneur does not require a physical presence or the establishment of a formal business in Poland.
However, where a foreign franchisor is thinking of entering the Polish market on a permanent, on-site basis, a limited liability company (sp zoo) is the most common structure adopted by foreign (as well as domestic) franchisors. This corporate form requires a minimum amount of capital investment (PLN 5,000) and offers limited liability, so that only the company’s assets are liable to creditors, with a few exceptions. Moreover, a limited liability company offers more flexibility as regards internal structure and procedures.
5.3 What requirements or restrictions apply with regard to the selection and recruitment of franchisees?
No requirements or restrictions apply to the selection or recruitment of franchisees. The franchisor has free choice in this and is entitled to establish the requirements that the franchisee must meet in order to buy a franchise.
5.4 Are franchisees subject to any legal obligations when purchasing a franchise?
Franchisees are not subject to any legal obligations when purchasing a franchise.
6 Disclosure and due diligence
6.1 What pre-contractual disclosure requirements apply to franchisors in your jurisdiction?
There is no mandatory pre-contractual disclosure requirement in Polish law. Nevertheless, there are some general rules that Polish law recognises, such as the pre-contractual principle of good faith (culpa in contrahendo). Under this principle, the franchisor must provide the franchisee with all relevant information before concluding the franchise agreement. The scope and content of this obligation depend on the individual case.
6.2 What formal, substantive and procedural requirements apply with regard to the disclosure document in your jurisdiction?
There are no formal, substantive or procedural requirements applicable to the disclosure document under Polish law.
6.3 What pre-contractual disclosure requirements apply to franchisees in your jurisdiction?
There are no binding pre-contractual requirements that apply to franchisees. Nevertheless, franchisees are bound by the general contractual obligations set out in the Civil Code, such as culpa in contrahendo (see question 6.1)
6.4 What are the consequences of any breach of the pre-contractual disclosure requirements?
Under Polish law, only the general civil law provisions regarding pre-contractual obligations – foremost among them the principle of culpa in contrahendo (see question 6.1) – apply to pre-contractual disclosure. There are no special provisions applicable to non-compliance with pre-contractual disclosure obligations.
6.5 What other due diligence should the parties undertake before entering into a franchise agreement?
There are no other due diligence obligations in Poland.
6.6 Are there any restrictions imposed upon franchise brokers in your jurisdiction?
There are no specific restrictions imposed on franchise brokers under Polish law.
7 Franchise agreement
7.1 What formal, substantive and procedural requirements apply with regard to the franchise agreement in your jurisdiction? Are there any mandatory terms? What terms are typically included in the agreement?
Franchise agreements are not specifically regulated in the Civil Code or in any other civil law provisions. Franchise agreements are therefore concluded in Poland based on the principle of freedom of contract set out in the Civil Code, and under the restrictions of that principle.
Article 353(1) of the Civil Code imposes limitations on the freedom of contract. Statutory limitations on freedom of contract in relation to franchising are laid down by the Competition and Consumer Protection Law.
Further restrictions set forth in the abovementioned provisions are the principles of social co-existence and the nature of a relationship. These limitations present major interpretive problems that arise from the fact that the principles of social co-existence are general clauses, and that Polish jurisprudence has not yet worked out an interpretation of these principles with respect to franchise agreements. In this regard, it would be easier to determine (business) custom, to which Article 353(1) does not refer.
All the provisions of a franchise agreement must comply with the abovementioned provision. In the event of non-compliance, the contested provision may be declared null and void by operation of law.
Polish law does not require any specific form (eg, written, deed) for franchising agreements. However, should the parties agree on the transfer of IP rights in an agreement that is subject to Polish law, the agreement must be in written form (blue-ink signature or qualified electronic signature).
7.2 Do any specific requirements apply regarding the governing law or jurisdiction of the franchise agreement?
There are no special requirements. The parties are free to choose both the governing law and the jurisdiction, including arbitration. It is advisable to subject the agreement to the laws of the country of residence of one of the parties (franchisor or franchisee), but this is not required. According to the EU Rome I Regulation, the parties are free to choose the law of any jurisdiction they wish.
7.3 Does the franchisor have any mandatory rights and obligations under the franchise agreement?
Polish law does not set out any mandatory rights and obligations of the franchisor under a franchise agreement. However, should the franchise agreement be regarded as a commercial agency, the mandatory provisions on commercial agents will apply.
7.4 Does the franchisee have any mandatory rights and obligations under the franchise agreement
Polish law does not set out any mandatory rights and obligations of the franchisee under a franchise agreement.
7.5 What restrictions can the franchisor impose on the franchisee’s activities under the terms of the franchise agreement (eg, purchasing requirements, non-compete obligations, exclusivity, price control)?
Although local law does not regulate the terms of a franchise agreement, in line with the principle of freedom of contract, the franchisor may impose additional restrictions or obligations on the franchisee.
In practice, several types of standard clauses are used:
- a purchase clause obliging the franchisee to buy specified goods from the franchisor or suppliers indicated by the franchisor. Such a clause is justified in the case of distribution franchising, where the franchisee trades with goods provided by the franchisor that bear the franchisor’s trademark;
- an exclusivity clause obliging the franchisee to perform its activities within a specified geographic area. As a result, nobody else should be entitled to operate a business based on the same franchise within that area. Incorporation of such a clause into a contract means, on the one hand, that the franchisee cannot sell goods beyond its area; but on the other hand, that it cannot object to supplies of goods coming from another territory into its area. The admissibility of such a clause is assessed from the viewpoint of the justified interests of all participants in the trade, as well as the interests of competitors. Provisions that violate these interests should be considered inadmissible; and
- customarily, loyalty and confidentiality clauses.
To protect the franchisor’s know-how, the parties can conclude a post-termination non-compete clause that may last no longer than one year after termination. The franchisee must agree not to deal in that time period in goods that are substitutes for those offered by the franchisor from the premises in which the franchisee operated for the duration of the franchise agreement.
If the franchisor provides the franchisee with know-how that is not in the public domain, the parties may consider concluding a post-termination non-compete clause for a longer period; however, such a non-compete clause would have to be exempted under the individual exemption of Article 101(3) of the Treaty on the Functioning of the European Union or its Polish equivalent.
7.6 Is there a duty of good faith imposed upon the franchisor and franchisee?
The parties to a contract are expected to act in good faith and the courts will take this into account.
7.7 What are the parties’ rights and obligations in relation to renewal of the franchise agreement, and what is the process for renewal?
Local law does not regulate the parties’ rights and obligations in relation to the renewal of franchise agreements. There are no legal limitations on the fees payable or available remedies if a franchisor decides not to renew a franchise. The parties may specify a renewal procedure in the franchise contract.
However, should the franchise agreement be regarded as a commercial agency, certain minimum termination periods and compensatory benefits after termination may apply.
7.8 What formal, substantive and procedural requirements apply with regard to termination of the franchise agreement in your jurisdiction?
There are no special requirements relating to the termination of a franchise agreement in local law. The general provisions of the Civil Code apply to termination. A franchise agreement is a long-term form of cooperation concluded for either a fixed term or an indefinite period. Polish law specifies two ways of terminating such an agreement: termination upon notice or rescission.
Termination upon notice occurs mainly in the case of legal relations concluded for an indefinite period. The agreement can be terminated only upon notice. This means that termination takes effect only with respect to the future. The contract terminates after the lapse of a notice period, which may be set forth in a statute or in a contract. If no notice period is provided, the agreement expires immediately upon delivery of the termination notice.
Rescission is a remedy to a breach of contract – if one party commits a qualified delay in performing the contract, the other party may rescind the contract, provided that the affected party notifies the defaulting party in writing of its intention to rescind and grants an appropriate additional amount of time for proper performance. If the set time limit lapses, the affected party is entitled to rescind the contract.
It is advisable to include provisions on the termination in a franchise agreement, including provisions concerning rescission. Explicit provisions can minimise the risk of confusion arising between the parties.
7.9 Are there any restrictions on repatriating moneys out of your jurisdictions?
There are no restrictions on repatriating money.
7.10 Are there any withholding taxes that apply to franchising in your jurisdiction?
The standard Polish withholding tax rate due on franchise fees and dividends is 20%. If a double taxation agreement (DTA) applies, both franchise fees and dividends payable to foreign entities are subject to the tax established thereunder. The Polish franchisee is a remitter of withholding tax in Poland and remains liable for payment of amounts due to the Tax Office.
On 1 January 2020, fundamental changes in collecting withholding tax in Poland were adopted. A new tax refund mechanism was introduced, under which withholding tax will be collected by the withholding tax agent in full, even where an exemption applies under a DTA. After proving the right to apply a preferential rate, the tax will be refunded by the tax authority.
The new provisions will apply when payments exceed PLN 2 million in a given tax year. In such case it will still be possible to apply an exemption as set out in a DTA, provided that the management board issued a statement to the tax authority that all requirements for the exemption had been met. If the management board members issued a false statement, they could be subject to criminal sanctions. Due to the many factors involved, including COVID-19, the entry into force of these new provisions was postponed. Based on the most recent available information, they should enter into force no earlier than as of 2022, but it is very likely that this date will also be moved.
Poland is a member of the European Union and is therefore also a member of the harmonised value added tax system.
8 Operational standards
8.1 What legal status does the operations manual have in your jurisdiction?
Operation manuals are not regulated by Polish law and are only one of the elements of a franchise agreement. However, operation manuals could be regarded as specific terms and conditions and could therefore form part of the contract. If so, specific requirements on accepting them and potential future changes could apply if the franchise agreement is governed by Polish law – namely, the manual should be delivered to the franchisee before the conclusion of the agreement, and same will apply to any subsequent changes to the manual.
8.2 How can the franchisor ensure compliance with its operational standards during the term of the franchise agreement?
All obligations and rights should be duly reflected in the franchise agreement, so that the franchisor is entitled to terminate the franchise agreement for a material breach where the franchisee does not comply with all of the applicable standards and requirements. Polish law allows also for contractual penalties to be agreed for a breach of non-monetary obligations.
8.3 Can the franchisor make unilateral changes to its operational standards during the term of the franchise agreement?
The franchisor is entitled to change the operational manual unilaterally. However, in such case it should notify the franchisee of the changes; and if the franchisee does not accept them, the franchisee is entitled to terminate the agreement (under Polish law).
9 Intellectual property
9.1 How are brands protected in your jurisdiction and what specific implications does this have in the franchising context?
There are no specific regulations on brand protection in franchise relations.
In Poland, a trademark can be protected through registration with the Polish Patent Office (PPO). The scope of the trademark protection is determined by the applicable list of goods and services, classified in accordance with the Nice Classification. This list constitutes an attachment to the application. Application proceedings can take between 10 and 12 months, provided that the application is not opposed.
Representation by a professional representative (ie, a trademark attorney or attorney at law) in the trademark registration process is mandatory in the case of individuals or entities from outside the European Economic Area (EEA). Individuals and entities that have a domicile or a business seat in Poland or in the EEA territory need not be represented by a professional representative in trademark registration proceedings.
If there are no absolute grounds for refusal, the application will be published in the Official Bulletin within two months of filing. From this time, any third parties may file their observations regarding the absolute grounds for refusal, regardless of the primary positive assessment of the PPO. Based on these submissions, the PPO may change its view and dismiss the trademark application.
Within three months of publication of the application, the holders of earlier trademarks, as well as the holders of earlier personal and economic rights, may file an opposition to the trademark registration. The opposition deadline cannot be extended. The parties have two months (which may be extended to six months) to settle the case (a cooling-off period). Following this, the PPO will proceed with the opposition. A likelihood of confusion will be found where identical or similar registered trademarks are applied in relation to identical or similar goods or services. The trademark applicant may raise a claim of non-use against an earlier registration. The PPO is bound by the grounds of the opposition indicated by the opponent. Letters of consent are acceptable.
If no opposition is filed, the PPO will issue a decision on the trademark registration. The PPO will also grant the registration if an opposition is dismissed by a final, non-appealable decision. Registration is dependent on payment of the registration and publication fees.
Trademarks are registered for 10 years, with the possibility of an unlimited number of extensions for subsequent 10-year periods thereafter.
9.2 How are other intellectual assets of the franchisor (eg, know-how, trade secrets) protected in your jurisdiction and what specific implications does this have in the franchising context?
The confidentiality of trade secrets and know-how is protected in Polish law by the Combating of Unfair Competition Act. Acts of disclosure, such as making use of or obtaining information of other persons that constitutes a trade secret, are deemed to be torts of unfair competition.
A ‘trade secret’ is defined as technical, technological or organisational information of the enterprise or other information of an economic value which, as a whole or in a special collection and layout of its elements, is not commonly known to persons that usually deal with this type of information, or is not easily accessible to those persons, provided that the person authorised to use the information or management of the same has exercised due diligence and taken actions with a view to maintaining its confidentiality. There are three preconditions to consider information as a trade secret:
- The information is confidential;
- It has economic value; and
- It is properly secured.
A breach of confidentiality occurs where, for example, confidential information is obtained without the consent of the owner of that information or as a result of the unauthorised access, appropriation or copying of that information.
The Combating of Unfair Competition Act grants twofold protection for trade secrets and know-how. First, an entrepreneur whose interest has been threatened or affected may claim remedies such as:
- cessation of unlawful acts;
- elimination of the effects of the impermissible acts;
- repair of the damage inflicted under the general rules; and/or
- release of unjust benefits under the general rules.
Cases regarding damage arising from a tort of unfair competition are heard by the IP division of the regional court.
Second, a breach of the confidentiality of a trade secret may be prosecuted as a crime under the Combating of Unfair Competition Act. Where a person breaches an obligation to keep information secret and that breach causes serious damage to the entrepreneur, it may be liable to a fine, restriction of liberty or deprivation of liberty for up to two years. The same liability applies to a person that obtains confidential information unlawfully and discloses it to any other third party or uses it in its own business.
10.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have in the franchising context?
In general, the Polish employment regime does not apply directly to the franchise relationship.
However, certain aspects can be viewed and interpreted from an employment law perspective (pursuant to the Labour Code).
Where a franchisee hires employees based on employment contracts, the franchisee must comply with the obligations set out in the Labour Code and must ensure the following, among other things:
- limited working hours (generally no more than eight per day and 40 per week);
- holiday entitlements; and
- health and safety at work.
In case of a violation of its statutory or contractual obligations, the franchisor or franchisee may be sued by an employee. Cases relating to employment are heard by the employment divisions of the Polish courts. Additionally, in the case of a franchisee’s non-compliance with its obligations, a fine may be imposed on the franchisee by the regional labour inspectorate. The fines imposed under the Labour Code range from PLN 2,000 to PLN 45,000, depending on the offence.
10.2 Can franchisees be deemed to be employees of their franchisor?
A franchisee cannot be treated as an employee. A franchisee is a sole trader – that is, it trades under its own name and bears the economic risk of its own activities. Although a franchisee may be dependent on the franchisor to a certain extent, the relationship between them should be described as a cooperation. Whether the franchisor receives remuneration under a franchising agreement is important, as in accordance with an employment agreement, an employee receives remuneration. Moreover, franchisees do not enjoy the same social protection as employees.
11.1 What is the applicable competition regime in your jurisdiction and what specific implications does this have in the franchising context?
Competition law in Poland is regulated by the Consumer and Competition Protection Act, which follows the rules set forth in EU law. The relevant provisions prohibit the creation of a legal relationship in a way that may affect trade by restricting or distorting competition in the market.
However, the de minimis principle introduces exemptions from the prohibition on anti-competitive agreements where:
- the aggregate market share of the competitors in the relevant markets does not exceed 5%; or
- the market share of each non-competing entity in the relevant markets does not exceed 10%.
However, this rule is not readily applied to franchise agreements, as they tend to contain ‘hardcore restrictions’ (eg, price-fixing agreements), which cannot be exempted under the de minimis principle.
If the de minimis principle cannot be applied, a franchise agreement can benefit from exemptions set out in either the EU Block Exemption Regulation or the Polish Block Exemption Regulation, depending on the geographical scope of the agreement. Both regulations contain the same rules and principles. The regulations apply to agreements that do not contain hardcore restrictions when the individual market shares of the franchisor and the franchisee in the relevant markets, as a rule, do not exceed 30%. The regulations specify:
- provisions that will render the whole agreement invalid (black clauses); and
- provisions that will render only relevant clauses invalid (grey clauses).
An agreement will be invalid if it contains the following clauses:
- resale price fixing (ie, setting minimum prices; maximum prices are permitted);
- a ban on passive resale outside the granted territory; or
- restrictions on active reselling.
The following provisions will render only the relevant clause invalid:
- a ban on resale to only some of the franchisor’s competitors; or
- post-contractual non-compete restrictions exceeding one year.
Franchise agreements may also be examined in relation to the rules on prohibiting the abuse of a dominant position and merger control applicable to transactions involving an acquisition of control (eg, mergers, acquisitions and the establishment of joint ventures). In such cases, the general competition law rules will apply.
12.1 How is e-commerce regulated in your jurisdiction and what specific implications does this have in the franchising context? Can franchisees be prohibited from using e-commerce in their businesses?
Poland has implemented EU legislation in relation to consumer protection in e-commerce which, for example:
- allows customers to withdraw from distance sales agreements within 14 days of signing a contract; and
- obliges e-businesses to provide consumers with relevant information.
Polish law protects consumers in business-to-consumer relations, regardless of whether the business is located in Poland.
A franchisor can prevent a franchisee from running a website, from advertising its services on the Internet and from engaging in e-commerce without breaching the restrictions on anti-competitive behaviour.
13 Consumer protection
13.1 What consumer protection measures are applicable in your jurisdiction and what specific implications do these have in the franchising context?
Franchisees must comply with Polish consumer laws if they offer products or services to consumers. Franchisees must avoid ‘abusive clauses’, which cannot be incorporated into standard agreements with consumers. Abusive clauses concern, for instance:
- a limitation of liability of the service provider or seller towards consumers; or
- the exclusive jurisdiction of a particular court.
Abusive clauses were examined by the courts up until April 2016. A register of abusive clauses is maintained which lists clauses that the courts have deemed abusive. Currently, the Office of Competition and Consumer Protection is competent to examine the lawfulness of specific clauses.
In order to adapt Polish law to EU Regulation 2017/2394, Poland has extended the consumer protection powers of the Office of Competition and Consumer Protection, which will affect franchises. The new powers will allow the Office of Competition and Consumer Protection to carry out dawn raids in consumer-related proceedings. Additionally, the ‘mystery shopper’ tool will change: the new law will make it possible to conclude purchases under a hidden identity. The exact date of its entry into force is not yet known.
13.2 Are franchisees covered under any of these consumer protection measures?
As of January 2021, sole traders benefit from consumer protection in relation to abusive clauses, statutory warranties and the right to withdraw from distance or off-premises contracts. To benefit from these rights:
- a given contract must be concluded between a sole trader and another entrepreneur after 1 January 2021; and
- the contract must be directly connected to the sole trader’s business, but cannot be of a professional nature relating to the sole trader’s economic activity.
14 Data security and cybersecurity
14.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have in the franchising context?
The General Data Protection Regulation is the principal act that regulates data protection issues in Poland.
14.2 What cybersecurity obligations are applicable in your jurisdiction and what specific implications does this have in the franchising context?
There are no special regulations on cybersecurity in the context of franchising.
Each of the franchisor and franchisee may be considered to be a data controller or data processor (acting on behalf of a controller), or both of these; or joint controllers. If a franchisor or franchisee, acting as data controller, outsources processing to another party, it must conclude a data processing agreement with that party. The agreement must specify at least the following:
- the scope, purpose and duration of the processing;
- the types of personal data processed and the categories of data subjects; and
- the obligations and rights of the data controller.
If the franchisor and franchisee act as joint controllers, they must put in place an appropriate agreement regarding their responsibilities in terms of compliance with the statutory obligations.
Data processing is lawful only where the data controller indicates the legal basis for the processing. In the context of franchising, several legal bases are available – primarily:
- a legitimate interest of the data controller or data recipient; and
- the performance of a contract with the data subjects (the latter will be available only to franchisees as a party to the contract).
Data processing for marketing purposes may be based on a legitimate interest of the franchisor or franchisee to promote products or services. However, the franchisor or franchisee must obtain the consent of the data subject to e-communications and telemarketing.
An additional legal basis is required in order to transfer data to third countries that do not provide an adequate level of data protection. The most reliable legal basis would be to enter into standard contractual clauses between the Polish franchisor or franchisee and a party from a third country. Standard contractual clauses are issued by the European Commission as a contractual data transfer instrument.
As a result of the judgment of the Court of Justice of the European Union in Shrems II (C-311/18), which invalidated EU Decision 2000/520/EC on the Privacy Shield, it is not possible to rely on this decision as a legal basis for data transfers to the United States.
15.1 In which forums are franchising disputes typically heard in your jurisdiction? What issues do such disputes typically involve?
Most local franchising systems use the Polish common courts for dispute resolution; whereas foreign franchisors tend to choose either foreign courts or arbitration tribunals (local or international).
In franchise disputes, the parties can choose between litigation and alternative dispute resolution (ADR) – that is, arbitration or mediation.
Polish courts: In an agreement, the parties can decide on which common court has jurisdiction to decide in the event of a dispute.
Litigation in Poland remains slow. The duration of proceedings at first instance may be approximately 20 to 30 months. In addition, the COVID-19 pandemic has caused legal proceedings to become even more protracted.
ADR: Arbitration is the most common form of ADR. Arbitration clauses are generally enforceable in Poland. The arbitration clause should be executed in writing.
Mediation can be conducted on the basis of a mediation agreement or a court order directing the parties to engage in mediation. Mediation is voluntary and is not conducted if one of the parties does not agree to it.
In Poland, permanent arbitration courts do exist, the most established of which are:
- the Court of Arbitration at the Polish Chamber of Commerce; and
- the Court of Arbitration at Polish Confederation Lewiatan.
An arbitration court may also be established on an ad hoc basis. Usually, proceedings at the arbitration court have a single instance, but the parties may agree otherwise in the contract. Arbitration is usually faster than proceedings before the common courts, with the average length of arbitration proceedings being nine months.
Arbitration courts are not bound by procedural rules, so less complex procedures can be used. However, arbitration proceedings must comply with the fundamental principles of the law; otherwise, they may be considered contrary to the basic principles of the legal order of the Poland and their rulings may be set aside by a court.
Arbitration fees are usually higher than court fees, but the total cost of the proceedings is usually lower in arbitration, as arbitration is statistically quicker and more specialised.
From an international franchisor’s perspective, it is important to note that Poland is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which means that foreign arbitral awards are enforceable in Poland. Also, as Poland is an EU member state, the Polish courts will recognise and enforce court judgments from other EU member states (in accordance with EU regulations).
15.2 Is mediation commonly used in franchising in your jurisdiction? Is arbitration commonly used in franchising in your jurisdiction?
Arbitration is the most common form of alternative dispute resolution in the franchising context. To refer a dispute to an arbitration court, the parties must present an agreement specifying the subject matter or the legal relationship from which the dispute arose or may arise.
Mediation is less common, though statistics reveal that most cases that are initially mediated, even if unsuccessfully, conclude in an amicable settlement.
15.3 Can class actions be brought in your jurisdiction? If so, what specific implications does this have in the franchising context?
It is possible to bring a class action in Poland. However, the procedure is complicated and is not used very often. The procedure is separately regulated in the Act on Pursuing Claims in Group Proceedings. The scope of claims that may be brought in class action proceedings includes the following:
- liability for damage caused by a dangerous product;
- liability for default on a contractual obligation; and
- in the case of consumers, other cases.
A class action may be instituted in cases where at least 10 participants are asserting claims based on the same factual basis. The procedure is governed by a regional court, which hears the case in a panel of three professional judges. The claimant must be represented by an attorney.
Franchisors or franchisees may appear in a class action as either claimant or defendant, as the procedure is not restricted solely to claims brought by consumers. This instrument is about to be used by entrepreneurs in the fitness industry, which are bringing a class action against the Polish State Treasury for losses arising from the lengthy lockdown imposed on that industry during the COVID-19 pandemic.
15.4 Have there been any recent cases of note?
There have been no recent cases of note relating to the franchise sector.
16 Trends and predictions
16.1 How would you describe the current franchising landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Two major trends will shape the franchise market in Poland. The first is the COVID-19 pandemic, which is affecting the economy in general and has significantly influenced consumer behaviour in favour of online shopping. Additionally, hotels and restaurants are having a difficult time due to the imposition of periodic lockdowns.
The second development is a new legislative initiative aimed at strengthening the position of franchisees. However, the legislative process is at a very early stage, so no conclusions or firm predictions can be made as yet.
17 Tips and traps
17.1 What are your top tips for franchisors seeking to enter your jurisdiction and what potential sticking points would you highlight?
Tips: In order to succeed in the Polish market, franchisors should increase brand recognition by investing in advertising and marketing, especially where their brands are not globally recognised. Franchisors should be prepared to modify their offer or implement other changes to their marketing policy in order to meet the demands of Polish consumers. Franchise networks that are successful abroad will not automatically win the loyalty of Polish customers. However, well-known franchises operating in the United States or Europe will have an advantage.
Traps: As the status of the parties to a franchise agreement is not yet regulated, it is possible that the courts may afford them the protection enjoyed by agents under the Civil Code. Although no cases have dealt with this issue as yet, this could arise in the future.
The new legislation that is planned could also set certain traps, although it is too early to reach any conclusions in this regard as yet. The situation should thus be closely monitored by any foreign franchisors considering entering the Polish market.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.