Pizza Hut in extra large lawsuit over ‘unfair’ fees

Another 25 Pizza Hut franchisees filed a suit against their headquarters with the Seoul Central District Court on Tuesday, demanding that headquarters repay them 760 million won ($657,553) for services provided by the headquarters.

From March 2007, the Korean headquarters of Pizza Hut has been demanding its franchises pay 0.55 percent of their profits as a so-called administration fee.

The headquarters required such a fee, in addition to the down payment, on the grounds that the affiliated restaurants benefitted from marketing, operating systems and customer counseling provided by the head office.

In April 2012, the headquarters increased the administration fee to 0.8 percent and required owners to sign another contract agreeing to pay the charges.

It also unilaterally nullified contracts with branch owners that either failed to pay the fee or delayed payment.

This is the second suit filed against Pizza Hut’s Korean headquarters by its franchisees.

About six days ago, the court had already ruled in favor of the other 88 owners of branches that claimed the administration fee was collected for “unjust reasons.”

The headquarters fought back, arguing that it had informed the owners of the terms of contract in advance and had listed those terms under the Fair Trade Commission.

The court, however, ordered Pizza Hut headquarters to pay back between 3.53 million and 92.3 million won to each of the 88 plaintiffs.

“Even Pizza Hut headquarters seems to have difficulty explaining the reasons behind the fee,” stated the court. “The act of enlisting the contract under the Fair Trade Commission doesn’t justify the terms of the contract. Also, there’s the possibility that the owners continued paying the fee since they were afraid they might face penalties if they didn’t.”

The headquarters has not yet announced whether it will comply with the court’s ruling or file an appeal, while the number of franchisees filing suit against its collection of administration fees is expected to increase.

“As the court ruled that the administration fee contract is invalid in the first trial,” said Park Kyoung-joon, the attorney representing the plaintiffs, “some 200 more owners said that they will also file suit.”

BY YUN JAE-YEONG, SHIN SOO-YEON [shin.sooyeon@joongang.co.kr]