Heads up, MSMEs! – A new guide for MSME franchise agreements
On 12 May 2022, Executive Order (E.O.) No. 169, s. 2022 was signed into effectivity, requiring all franchise agreements between franchisors and Micro, Small and Medium Enterprise (MSME) franchisees to be in writing, duly notarized, and to contain a number of minimum provisions, such as, among others, those relating to full disclosure of pre-signing, initial or recurring fees; a cooling-off period, where the MSME can opt to terminate the agreement; and an alternative dispute resolution mechanism which shall include a stipulation that the parties may seek voluntary mediation under Republic Act No. 9285 or the “Alternative Dispute Resolution Act of 2004”.
Under E.O. No. 169, franchisors, with MSMEs as franchisees, are required to register the franchise agreement with the Department of Trade and Industry (DTI), who is also tasked to create an MSME Registry of Franchise Agreements for this purpose. E.O. No. 169 also provides that compliance with the listed minimum terms and conditions may entitle franchisors to incentives from the National Government.
What does this mean for existing franchise agreements?
The guidelines shall apply not only to franchise agreements yet to be entered into but also to existing franchise agreements between a franchisor and an MSME franchisee upon renewal of their respective agreements.
What about the IP Code provisions covering franchise agreements?
Since franchise agreements come within the description of technology transfer arrangements (TTAs), which are regulated under the IP Code, franchise agreements involving MSME franchisees will also need to be consistent with the provisions of the IP Code on mandatory and prohibited clauses. Otherwise, the agreement will be unenforceable. In other words, franchise agreements involving MSME franchisees will need to comply with both the IP Code provisions governing TTAs and E.O. No. 169.
With the continuous proliferation of MSMEs amid a global pandemic, this executive measure regulating franchise agreements will not only protect MSME franchisees, but it will also empower franchisors in view of the incentivization scheme to be formulated and helmed by the National Government.
For more details, E.O. No. 169, s. 2022 may be accessed at https://www.officialgazette.gov.ph/downloads/2022/05may/202200512-EO-169-RRD.pdf.
For additional discussion on TTAs, please refer to