Corporate Tax Law

Franchising Comparability Information – Corporate / Business Legislation

July 30, 2021
Jason Wilson

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1 Legal and Enforcement Framework

1.1 Which legal and regulatory provisions regulate franchising in your country?

There are no specific laws or regulations on franchising in Poland. The legal relationships created within the framework of the franchising model of cooperation are regulated by a mixture of the following elements:

  • Civil right;
  • IP law;
  • Tax law; and
  • Competition law.

When a franchise is based on or heavily reliant on the processing of personal data, the General Data Protection Regulation plays a role. Occasionally, the parties to a franchising relationship can seek advice on labor law (non-solicitation and non-competition law) and financial law (financing and bank guarantees). Franchising can also be subject to the law on mergers and acquisitions and competition law, especially if certain thresholds are met; and a transaction may need to be reported to regulators such as the European Commission, the Polish Competition and Consumer Protection Office or the Polish Securities and Exchange Commission.

1.2 Do they apply to foreign franchisors entering your jurisdiction or only to domestic franchisors?

The parties to a franchise agreement are free to choose which law applies to the agreement (it does not have to be Polish law). In such a case, subject to certain mandatory laws, the law chosen by the parties for the franchise relationship applies (e.g. liability, indemnity, IP rights, term and termination, place of jurisdiction). Of course, certain laws always apply to any business activity in Poland – tax law, competition law, labor law or certain aspects of bankruptcy law.

1.3 Are there special regulations in certain sectors?

There are no special franchising regulations in any particular sector. However, entrepreneurs who are active in the food and beverage sector, for example, must comply with all applicable food and beverage regulations. The obligation to meet these industry-specific requirements usually rests with the franchisees operating in a particular market and does not affect the franchisor directly.

1.4 Which bodies are responsible for enforcing the applicable laws and regulations? What are their powers?

In Poland there is no specific authority in charge of regulating the franchise market, so the law applicable to a franchise is enforced either by the courts or by the authorities responsible for a particular sector.

The President of the Office of Competition and Consumer Protection (OCCP), which monitors compliance with competition and consumer law, has the greatest influence on the franchise market.

The President of the OCCP has, among other things, the right:

  • Bringing proceedings against practices that infringe the common interests of consumers, which may result in:

    • the prohibition of contentious activities;
    • an order to remedy the effects of a breach is issued; or
    • the imposition of a fine;
  • conduct antitrust proceedings against entrepreneurs who violate a ban on trade-inhibiting practices. As a result, the President of the OCCP can, by resolution, order the cessation of the illegal activities and impose a fine of up to 10% of the turnover generated in the financial year prior to the imposition of the sanction, as well as a fine of up to PLN 2 million for a manager; and
  • Control of corporate concentration – this is intended to avoid a significant restriction of competition in the market as a result of a merger, in particular through the establishment or strengthening of a dominant position of an entrepreneur, which enables it to act in isolation from competitors, contractors and consumers.

The Polish Personal Data Protection Office is the competent authority for the processing of personal data.

1.5 What is the general approach of the regulator to regulate the franchise sector?

The Polish authorities do not have a particular approach to regulating the franchise sector.

1.6 Are there professional associations for the franchise sector? If so, what are the membership requirements? What is the economic impact of not being a member?

In Poland, the Polish Franchisors Association has the task of protecting the rights of its members and representing the interests of state authorities and administrations, local government authorities and other bodies and organizations.

Only a natural or legal person who is an employer and who meets the requirements of the code of ethics for granting a franchise can become a member of the association. In addition, a main object of the activity of such a person must be the granting of franchises. The prospective member must have at least two franchisees and have a good reputation in the franchise market. A foreign franchisor must have at least two franchisees in Poland to become a member of the association.

Since the association is an independent and voluntary organization, non-membership has no economic impact. However, the organization offers its members special advantages such as certificates of credibility.

2 franchise market

2.1 How mature is the franchise sector in your country?

The Polish franchise market is mature and stable. According to a market report from 2020, over 1,300 franchise models with around 83,500 franchise branches were in operation. However, the Polish franchise market has not yet reached 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. This trend is confirmed by the increasing presence of international franchise companies in Poland and the success of Polish export brands abroad. The main Polish brands in the international franchise market are companies such as:

  • Inglot;
  • Gino Rossi;
  • 4F, LLP (Reserved, House, Cropp, Mohito, and Sinsay);
  • CCC;
  • Organic; and
  • Orlen gas stations.

The popularity of franchising among small business owners confirms its viability as a business model in Poland. A franchise is currently one of the most important ways small business owners can develop their business. In addition, franchising in Poland provides employment for around half a million people.

2.2 In which sectors is franchising most common?

Franchising is popular in almost all sectors of the Polish economy, but it is most widespread among grocery and grocery chains, restaurant chains, clothing retailers, and cosmetics retailers.

2.3 Who are the largest and most successful franchisors in your country? How are they typically structured?

Food and groceries: In the food and grocery chain sector, Żabka is the largest and most successful franchisor in Poland. Over 5,000 franchisees work with this franchisor and operate over 7,000 stores. Other popular franchise concepts in this area are Carrefour Express and ABC.

Food & Beverage: The most advanced franchise concepts in the Food & Beverage area are international restaurant chains. The largest franchisee chain in Poland is McDonald & # 39; s with around 400 franchise points. Another big franchisor is Subway. Popular Polish brands are Sphinx (a chain of restaurants), Grycan and Cukiernia Sowa (confectionery).

Cosmetics: The largest franchisor in the cosmetics sector is Rossmann with over 1,400 branches in Poland in 2020.

Structure: Franchisors in Poland usually choose a limited liability company as their corporate structure (see question 5.2).

3 franchise models

3.1 Is master franchising or the development model the most common in your country?

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.

3.2 What other franchising models are widely used in your jurisdiction?

Alongside 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 possible differences in these models are business and operational rather than legal. In other words, there are no legal specifics that give one model an advantage over another.

The direct franchise is the simplest model of franchise development, also from a legal point of view. A franchise agreement is concluded directly between the franchisor and the franchisee. The franchisor provides the services specified in the franchise contract himself. In addition, the franchisor carries out all activities that enable the company to function properly.

The master franchise model can be based on an agency model, whereby the strict EU regulations on commercial agents (notice periods, compensation payments) apply.

With more sophisticated models, the processing and sub-processing structures of the personal data will require more complicated data processing agreements.

Legally simple models are not always the best platform for building a franchise system over a long distance, as the franchisor may later have difficulty providing direct services and controlling his franchisees.

3.4 What are the special features of cross-border franchising in your country?

In the case of cross-border transactions, tax structures and the risk of the permanent establishment must always be taken into account. Non-EU franchisors may also comply with the EU data protection laws applicable in Poland.

4 Definitions and Scope

4.1 How is “franchising” defined in your country?

“Franchising” is not defined in Polish law. Companies often include a standard definition of “franchise” in a contract. This definition consists of two elements:

  • an ongoing contractual relationship between the franchisor and the franchisee, through which the franchisor undertakes to provide the franchisee with know-how during the term of the contract and the franchisee undertakes to pay fees or other consideration; and
  • the independence of the franchisee from the franchisor.

4.2 What are the most important requirements for franchising? Is pre-contractual disclosure required? Is it necessary to register the documentation? Are there any mandatory conditions?

Polish law does not impose any requirements on franchising. There are no requirements for pre-contractual disclosure or registration of documents. Polish law does not prescribe any mandatory conditions.

4.3 What specific activities (if any) are prohibited under franchising laws and regulations? What are the possible consequences of a breach?

There are no specific prohibited activities related to franchising under Polish law.

5 First steps

5.1 Are there any restrictions on foreign franchisors entering your jurisdiction?

In general, there are no such restrictions. Unless a permanent establishment comes into consideration due to control under the franchising contract or the regular presence of the franchisor in Poland, franchising remains a purely contractual relationship and can be performed from any place of jurisdiction.

If a foreign franchisor is considering establishing more permanent business operations in Poland, non-EU companies will need to set up a branch or subsidiary to do business in Poland.

Registration is required to run a business in Poland. In addition, there are generally no additional strict regulations for setting up a company in Poland.

There are restrictions on property ownership in Poland for franchisors outside the European Economic Area; State approval is required for this.

5.2 What is the most common structure adopted by overseas franchisors entering your jurisdiction?

Selling a franchise to a Polish entrepreneur does not require a physical presence or the establishment of a formal business in Poland.

However, if a foreign franchisor is thinking of entering the Polish market permanently on site, a limited liability company (sp zoo) is the most common structure adopted by foreign (as well as domestic) franchisors. This type of company requires a minimum amount of capital investment (PLN 5,000) and offers limited liability so that, with a few exceptions, only the company's assets are liable to the creditors. In addition, a limited liability company offers more flexibility in terms of internal structures and processes.

5.3 What are the requirements or restrictions when selecting and recruiting franchisees?

No requirements or restrictions apply to the selection or recruitment of franchisees. The franchisor is free to choose and is entitled to determine the requirements that the franchisee must meet in order to acquire 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 under Polish law. However, there are some general rules recognized by Polish law, such as the pre-contractual principle of good faith (culpa in contrahendo). According to 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 Which formal, material and procedural requirements apply in your legal system with regard to the disclosure document?

No formal, material or procedural requirements apply 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 for franchisees. However, franchisees are bound by the general contractual obligations of the Civil Code, such as culpa in contrahendo (see question 6.1).

6.4 What are the consequences of a breach of the pre-contractual disclosure obligations?

According to Polish law, only the general civil law provisions on pre-contractual obligations apply to pre-contractual disclosure – above all the principle of fault upon conclusion of the contract (see question 6.1). There are no special regulations for non-compliance with pre-contractual information requirements.

6.5 What other due diligence obligations should the parties take before entering into a franchise agreement?

There are no further duties of care in Poland.

6.6 Are there any franchise broker restrictions in your jurisdiction?

There are no particular restrictions on franchise brokers under Polish law.

7 franchise agreement

7.1 Which formal, material and procedural requirements apply in relation to the franchise agreement in your country? Are there any mandatory conditions? What terms are usually included in the agreement?

Franchise agreements are not specifically regulated either in the German Civil Code or in other civil law provisions. Franchise agreements are therefore concluded in Poland according to the principle of freedom of contract laid down in the Civil Code and subject to the restrictions of this principle.

Article 353 (1) of the Civil Code limits the freedom of contract. Legal restrictions on freedom of contract in franchising are regulated in the Competition and Consumer Protection Act.

Further restrictions on the aforementioned provisions are the principles of social coexistence and the nature of the relationship. These restrictions pose major problems of interpretation, which result from the fact that the principles of social coexistence are general clauses and that Polish case law has not yet developed an interpretation of these principles in relation to franchise agreements. In this respect, it would be easier to identify (business) habits to which Article 353 (1) does not refer.

All provisions of a franchise agreement must correspond to the above provision. In the event of non-compliance, the contested provision can be declared null and void by law.

Polish law does not require a specific form (e.g. written form, certificate) for franchising contracts. However, if the parties agree on the transfer of property rights in a contract that is subject to Polish law, the contract must be in writing (blue signature or qualified electronic signature).

7.2 Do special requirements apply to the applicable law or jurisdiction of the franchise agreement?

There are no special requirements. The parties are free to choose both the applicable law and the place of jurisdiction, including arbitration. It is advisable to make the contract subject to the law of the country of residence of either party (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.

7.3 Does the franchisor have mandatory rights and obligations from the franchise agreement?

Polish law does not provide for any mandatory rights and obligations of the franchisor from a franchise agreement. However, if the franchise agreement is to be regarded as a commercial agent, the mandatory provisions on commercial agents apply.

7.4 Does the franchisee have mandatory rights and obligations from the franchise agreement

Polish law does not provide any mandatory rights and obligations of the franchisee from a franchise agreement.

7.5 What restrictions can the franchisor impose on the activities of the franchisee within the framework of the franchise agreement (e.g. purchase obligation, non-competition clause, exclusivity, price control)?

Although local law does not regulate the terms of a franchise agreement, the franchisor may, in accordance with the principle of freedom of contract, impose additional restrictions or obligations on the franchisee.

In practice, different types of standard clauses are used:

  • a purchase clause that obliges the franchisee to purchase certain goods from the franchisor or from the suppliers specified by the franchisor. Such a clause is justified in the case of distribution franchising, in which the franchisee trades in goods of the franchisor which bear the trademark of the franchisor;
  • an exclusivity clause that obliges the franchisee to carry out his activities in a specific geographic area. As a result, no one else should be allowed to run a business based on the same franchise in that area. The inclusion of such a clause in a contract means on the one hand that the franchisee cannot sell any goods outside of his territory; on the other hand, however, that it cannot refuse deliveries of goods that come from another area into its area. The admissibility of such a clause is assessed from the point of view of the legitimate interests of all trading participants as well as the interests of competitors. Provisions that violate these interests are to be regarded as inadmissible; and
  • usually loyalty and confidentiality clauses.

To protect the know-how of the franchisor, the parties can conclude a grace period non-competition clause which may not last longer than one year after the termination. The franchisee must undertake not to trade any goods during this period that replace the goods offered by the franchisor in the premises in which the franchisee was active for the duration of the franchise agreement.

If the franchisor does not provide the franchisee with know-how that is not publicly available, the parties can consider entering into a post-contractual non-competition 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 Does the franchisor and franchisee have a duty of loyalty?

Good faith is expected of the contracting parties and the courts will take this into account.

7.7 What rights and obligations do the parties have in relation to the extension of the franchise agreement and how does the extension work?

Local law does not regulate the rights and obligations of the parties in relation to the renewal of franchise agreements. There are no legal restrictions on the fees payable or remedies available when a franchisor decides not to renew a franchise. The parties can specify an extension procedure in the franchise agreement.

However, if the franchise agreement is viewed as a commercial agent, certain minimum notice periods and compensation payments may apply after termination.

7.8 Which formal, material and procedural requirements apply in relation to the termination of the franchise agreement in your country?

In local law there are no special requirements for the termination of a franchise agreement. The general provisions of the German Civil Code apply to termination. A franchise agreement is a long-term form of cooperation that is either concluded for a definite period or for an indefinite period. Polish law provides two ways to terminate such a contract: termination upon termination or resignation.

Termination by termination mainly takes place in the case of legal relationships concluded for an indefinite period of time. The contract can only be terminated with a notice period. This means that the termination will only be effective for the future. The contract ends after a period of notice, which can be stipulated in law or in a contract. If no notice period is given, the contract ends immediately upon delivery of the notice of termination.

Withdrawal is a remedy in the event of a breach of contract – if one party is significantly behind with the performance of the contract, the other party can withdraw from the contract, provided that the party concerned notifies the defaulting party in writing of its intention to withdraw and provides a reasonable additional time for the proper performance. After the set period has expired, the person concerned is entitled to withdraw from the contract.

It is advisable to include provisions on termination in a franchise agreement, including on withdrawal. Explicit provisions can minimize the likelihood of confusion between the parties.

7.9 Are there any restrictions on the repatriation of funds from your territory?

There are no restrictions on money repatriation.

7.10 Are there withholding taxes that apply to franchising in your jurisdiction?

The usual Polish withholding tax rate on franchise fees and dividends is 20%. When applying a double taxation agreement (DTA), both the franchise fees and the dividends to be paid to foreign companies are subject to the tax stipulated there. The Polish franchisee pays withholding tax in Poland and remains responsible to the tax authorities for paying the amounts due.

On January 1, 2020, fundamental changes were made to the way withholding tax is levied in Poland. A new tax refund mechanism has been introduced in which withholding tax is collected in full by the withholding agent even if an exemption under a DTA applies. After proof of entitlement to apply a preferential rate, the tax will be reimbursed by the tax office.

The new regulations apply if the payments in a given tax year exceed PLN 2 million. In this case, an exemption according to a double taxation agreement can still be applied for, provided that the management has made a declaration to the tax office that all requirements for the exemption have been met. If the board members made a false statement, they could be prosecuted. Due to the many factors involved, including COVID-19, the entry into force of these new regulations has been postponed. According to the most recent information available, they should come into force in 2022 at the earliest, but it is very likely that this date will also be postponed.

Poland is a member of the European Union and therefore also a member of the harmonized VAT system.

8 operational standards

8.1 What is the legal status of the operating manual in your country?

Operating instructions are not subject to Polish law and are only part of a franchise agreement. Operating instructions can, however, be viewed as special terms and conditions and therefore become part of the contract. In this case, special requirements for their acceptance and possible future changes may apply if the franchise agreement is subject to Polish law – d the manual.

8.2 How can the franchisor ensure compliance with its operational standards during the term of the franchise agreement?

All duties and rights should be duly reflected in the franchise agreement so that the franchisor is entitled to terminate the franchise agreement in the event of a material breach if the franchisee does not comply with all applicable standards and requirements. According to Polish law, contractual penalties can also be agreed for the violation of non-monetary obligations.

8.3 Can the franchisor make unilateral changes to its operating standards during the term of the franchise agreement?

The franchisor is entitled to unilaterally change the operating instructions. In such a case, however, he should inform the franchisee of the changes; and if the franchisee does not accept them, the franchisee is entitled to terminate the contract (according to Polish law).

9 Intellectual property

9.1 How are trademarks protected in your jurisdiction and what specific effects does this have in the franchising context?

There are no special regulations for trademark protection in franchise relationships.

In Poland, a trademark can be protected by registering with the Polish Patent Office (PPO). The scope of trademark protection is based on the current list of goods and services classified according to the Nice classification. This list is an annex to the application. The application process can take between 10 and 12 months, provided that the application is not contradicted.

In the case of natural or legal persons outside the European Economic Area (EEA), representation by an authorized representative (ie a trademark attorney or lawyer) in the trademark registration process is mandatory. Natural and legal persons residing or having their place of business in Poland or in the EEA do not need to be represented by an authorized representative in the trademark registration process.

If there are no absolute grounds for refusal, the application will be published in the Official Journal within two months of filing. From this point on, third parties can submit their comments on the absolute grounds for refusal regardless of the primarily positive assessment of the PPO. Based on this information, the PPO can change its mind and reject the trademark application.

Within three months of the publication of the application, the owners of earlier trademarks as well as the owners of older personal and economic rights can object to the trademark registration. The objection period cannot be extended. The parties have two months (which can be extended to six months) to resolve the case (a cooling off period). After that, the PPO will proceed with the appeal. There is a risk of confusion when identical or similar registered trademarks are used in relation to identical or similar goods or services. The trademark applicant can assert non-use against earlier registration. The PPO is bound by the grounds for opposition given by the opponent. Declarations of consent are permitted.

If no objection is filed, the PPO will issue a decision on the trademark registration. The PPO also grants the entry if an objection is rejected by a final, non-appealable decision. Registration is contingent on payment of registration and publication fees.

Trademarks are registered for 10 years, with the option of unlimited renewal for a further 10 years thereafter.

9.2 How are other intellectual assets of the franchisor (e.g. know-how, trade secrets) protected in your legal system and what specific effects does this have in the context of franchising?

Die Vertraulichkeit von Geschäftsgeheimnissen und Know-how ist im polnischen Recht durch das Gesetz zur Bekämpfung des unlauteren Wettbewerbs geschützt. Offenlegungshandlungen, wie die Nutzung oder Beschaffung von Informationen anderer Personen, die ein Geschäftsgeheimnis darstellen, gelten als Delikte des unlauteren Wettbewerbs.

Ein „Geschäftsgeheimnis“ ist definiert als technische, technologische oder organisatorische Informationen des Unternehmens oder andere Informationen von wirtschaftlichem Wert, die als Ganzes oder in einer besonderen Sammlung und Anordnung ihrer Elemente den Personen, die gewöhnlich damit zu tun haben, nicht allgemein bekannt sind diese Art von Informationen oder sind für diese Personen nicht leicht zugänglich, sofern die zur Verwendung der Informationen oder deren Verwaltung befugte Person gebührende Sorgfalt walten lassen und Maßnahmen zur Wahrung der Vertraulichkeit ergriffen hat. Es gibt drei Voraussetzungen, um Informationen als Geschäftsgeheimnis zu betrachten:

  • Die Informationen sind vertraulich;
  • Es hat einen wirtschaftlichen Wert; and
  • Es ist richtig gesichert.

Ein Verstoß gegen die Vertraulichkeit liegt vor, wenn beispielsweise vertrauliche Informationen ohne Zustimmung des Eigentümers dieser Informationen oder infolge des unbefugten Zugriffs, der Aneignung oder des Kopierens dieser Informationen erlangt werden.

Das Gesetz zur Bekämpfung des unlauteren Wettbewerbs gewährt einen doppelten Schutz für Geschäftsgeheimnisse und Know-how. Erstens kann ein Unternehmer, dessen Interessen bedroht oder beeinträchtigt wurden, Rechtsmittel einfordern, wie:

  • Einstellung rechtswidriger Handlungen;
  • Beseitigung der Auswirkungen der unzulässigen Handlungen;
  • Reparatur des nach den allgemeinen Regeln zugefügten Schadens; und/oder
  • Freigabe ungerechtfertigter Leistungen nach den allgemeinen Regeln.

Fälle von Schäden aus einer unerlaubten Handlung des unlauteren Wettbewerbs werden von der IP-Abteilung des Landgerichts verhandelt.

Zweitens kann eine Verletzung der Vertraulichkeit eines Geschäftsgeheimnisses als Straftat nach dem Gesetz zur Bekämpfung des unlauteren Wettbewerbs verfolgt werden. Verletzt eine Person eine Geheimhaltungspflicht und verursacht diese Verletzung dem Unternehmer einen erheblichen Schaden, kann dieser mit einer Geldstrafe, Freiheitsbeschränkung oder Freiheitsentziehung bis zu zwei Jahren bestraft werden. Die gleiche Haftung gilt für eine Person, die sich unrechtmäßig vertrauliche Informationen beschafft und diese an andere Dritte weitergibt oder in ihrem eigenen Geschäft verwendet.

10 Beschäftigung

10.1 Welches Beschäftigungsregime gilt in Ihrer Gerichtsbarkeit und welche konkreten Auswirkungen hat dies auf den Franchising-Kontext?

Im Allgemeinen gilt das polnische Beschäftigungsregime nicht direkt für das Franchise-Verhältnis.

Gewisse Aspekte können jedoch aus arbeitsrechtlicher Sicht (gem. Arbeitsgesetzbuch) betrachtet und interpretiert werden.

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 Competition

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 E-commerce

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:

  • consent;
  • 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 Disputes

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;
  • torts;
  • 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.

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