Natural Stupidity Milk Tea franchise explodes. Can Guan Xiaotong, as the "store manager," escape?

[4] Compiled from: Red Star News
 
Case review
Recently, it was exposed online that celebrity Guan Xiaotong was sued by franchisees over the illegal franchising of the Natural Sweet Milk Tea shop, sparking heated discussion.

 

It is reported that the affiliated company of Natural Sweet Milk Tea, Chengdu Natural Sweet Catering Management Co., Ltd., has been sued multiple times over franchise contract disputes. In May this year, the company was fined 30,000 yuan by the Chengdu Municipal Bureau of Commerce for failing to file with the competent commerce department within 15 days after signing a commercial franchise contract, as required by the "Regulations on the Administration of Commercial Franchises." Previously, Natural Sweet was also fined 50,000 yuan by the Chengdu Jinjiang Market Supervision Administration for publishing advertisements for goods or services with expected investment returns, such as franchise recruitment.
 
On the afternoon of June 27, the Natural Sweet Milk Tea company issued a statement saying: The case of Wenzhou Ouge Catering Management Co., Ltd. versus our company over a franchise contract dispute will be heard on July 8, 2022. This case is a franchise contract dispute, and the acceptance and hearing of the case are normal court procedures. Guan Xiaotong has never participated in the company's management operations.

 

Although statements "distancing" themselves have been issued successively, this milk tea shop, which only opened its first store in December 2020, has been inextricably linked to Guan Xiaotong since its inception. A reporter from Red Star News noted from Tianyancha that Chengdu Natural Sweet Catering Management Co., Ltd. was established in August 2020. Guan Xiaotong has no direct equity relationship with Natural Sweet Milk Tea, but her father, Guan Shaozeng, indirectly holds a 35% stake. The official website of "Natural Sweet Milk Tea" shows that the brand was founded by Natural Sweet Company in collaboration with Guan Xiaotong, with Guan Xiaotong serving as the store manager. Additionally, on the opening day, Guan Xiaotong appeared at the opening ceremony as the store manager and co-founder.
 
 
"Franchise Regulations"
Article 3
Commercial franchising (hereinafter referred to as franchising) as defined in these regulations refers to a business activity in which an enterprise (hereinafter referred to as the franchisor) that owns business resources such as registered trademarks, enterprise logos, patents, and proprietary technologies licenses other operators (hereinafter referred to as the franchisee) to use its business resources through a contract, and the franchisee operates under a unified business model as agreed in the contract and pays franchise fees to the franchisor. No entities or individuals other than enterprises may engage in franchising activities as franchisors.
 
[2] Article 7
A franchisor engaged in franchising activities shall possess a mature business model and have the capability to continuously provide franchisees with operational guidance, technical support, and business training. A franchisor engaged in franchising activities shall own at least two directly-operated stores that have been in operation for more than one year.
 
Article 8
A franchisor shall, within 15 days from the date of first entering into a franchise contract, file a record with the competent commerce department in accordance with these Regulations. Those engaged in franchising activities within the scope of a province, autonomous region, or municipality directly under the Central Government shall file a record with the competent commerce department of the people's government of the province, autonomous region, or municipality directly under the Central Government where they are located; those engaged in franchising activities across provinces, autonomous regions, or municipalities directly under the Central Government shall file a record with the competent commerce department of the State Council. A franchisor filing a record with the competent commerce department shall submit the following documents and materials: (1) a copy of the business license or a copy of the enterprise registration (incorporation) certificate; (2) a sample franchise contract; (3) a franchise operations manual; (4) a market plan; (5) a written commitment and related supporting materials demonstrating compliance with Article 7 of these Regulations; (6) other documents and materials as prescribed by the competent commerce department of the State Council. If the products or services under the franchise require approval by law before operation, the franchisor shall also submit the relevant approval documents.

 

 
[1] The author's perspective
The key to this case lies in whether the relationship between Tianrandai Milk Tea Company and Wenzhou Ouge Catering Management Co., Ltd. constitutes a legal franchise contract relationship. According to Article 3 of the aforementioned Regulations, a franchisee shall accept the supervision and management of the franchisor during the operation process, and there exists a certain degree of dependency between the two parties. Therefore, the name of the contract is not the focus for determining the legal relationship between the parties; rather, the specific content of the contract between the parties should be examined, using whether the rights and obligations in the actual performance of the contract meet the basic characteristics of a franchise contract as the criterion for judgment.
 
Additionally, if Tianrandai Milk Tea Company indeed violates the franchise contract signed with the franchisee, it will bear corresponding liability for breach of contract as agreed in the contract between the parties. However, due to the principle of privity of contract, the franchisee cannot directly hold Guan Xiaotong accountable, unless the celebrity has other agreements with the brand company; otherwise, they do not bear the adverse consequences of the brand company's operations. Thus, when signing a franchise contract, franchisees should not only focus on the celebrity effect of the catering brand but should also comprehensively review the products and business model, and carefully sign the franchise contract.