Sanctioned in December 2019, Brazil’s New Franchise Act (Law No. 13.966/19) will come into force in March 2020 (revoking Law No. 8,955/94).
The New Franchise Act innovates by expressly allowing parties to choose arbitration as a means to resolve disputes arising from franchise agreements[1], including international franchise agreements[2]. This puts an end to a recurring court debate on the topic.
In addition, the New Franchise Act[3] settles the position that franchise agreements are not to be construed to constitute a consumption relationship or employment relationship between franchisor and franchisee or franchisee’s employees. Accordingly, the Consumer Code[4] – which determines that arbitration clauses in agreements under it are not valid – is not to apply.
However, a debate over the nature of the franchise agreement still remains. This is a significant topic because it involves the formalities that must (or must not) be fulfilled in order for an arbitration clause to be valid.
Some say that the franchise agreement is an adhesion contract[5]. In adhesion contracts, the arbitration clause is to be signed in a separate document or in the contract itself, provided that the provision is highlighted in bold and specifically initialed by the parties (as required by section 4, §2 of the Arbitration Act, Law No. 9.307/96).
However, if the franchise agreement is not deemed an adhesion contract, such requirements are not applicable. In this case, the arbitration clause as inserted in the agreement will be valid and enforceable, provided that the general rules of the Arbitration Act and of section 7, §1 of the New Franchise Act are met.
Notwithstanding this debate, it is important to remind that the Arbitration Act – and Brazilian jurisprudence and the prevailing case law – determines that it is up to the arbitrator to determine whether the arbitration clause is valid, in view of the competence-competence principle[6].
In sum, although the New Franchise Act leaves no room for doubt that disputes arising from franchise agreements can be now resolved by arbitration, the requirements for a valid arbitration clause are still subject to further discussions.
[1] Law No. 13,966/19, section 7, paragraph 1.
[2] Law No. 13,966/19, section 7, paragraph 3.
[3] Law No. 13,966/19, section 1.
[4] Law No. 8,078, section 51, paragraph 7.
[5] Appeal RE No. 1.602.076 – Superior Court of Justice – STJ.
[6] Law No. 9,307/96, section 8, sole paragraph.
