Franchise models typically rely on an arrangement where the franchisors are separate entities to the franchisees in their network. In most franchises, this means franchisees will own and operate their business and enter into contracts with third parties. This is also the case when it comes to a franchisee’s employees. 

The employment contract will exist between the franchisee and the employee, quite often with no involvement from the franchisor. Employment law issues have plagued the 7-Eleven franchise in recent times. Where employee rights are compromised, it is evident that the Fair Work Ombudsman will take action in franchise networks.

We run through some practical tips for franchisors to ensure they comply with their employment law obligations and when they may be responsible for a franchisee’s staff-members.

What is a Franchisor’s Responsibility to a Franchisee’s Employees?

Often the franchisor will not be a direct party to an employment contract between a franchisee and its employees. However, a franchisor should not disregard their responsibility to a franchisee’s employees. In running a franchise network, it’s important franchisors have a business model in place which will facilitate the success of franchisees and their employees. For example, including pricing models that will encourage a franchisee to comply with employee wage requirements.

Provide Training on Complying With Employment Law

Franchise agreements often include clauses that state that a franchisee is solely responsible for complying with any applicable laws or legislation. However, a franchisee with minimal experience employing workers may struggle. The franchisor can then step in and provide training to franchisees to ensure they understand their obligations to their team. This may include pinpointing the relevant award that will apply or developing processes where a franchisee can seek advice from the franchisor when it comes to employment issues (e.g. questions regarding dismissal).

Introduce Employment Law Compliance Checks

The franchise agreement should also include procedures where a franchisor can check on how a franchisee is handling their employees, for example: 

  • interviewing employees personally;
  • undertaking audits of employee work conditions; or
  • requesting regular reports from the franchisee setting out some key criteria for compliance with employment laws.

By introducing employment law compliance checks, a franchisor can encourage a franchisee to comply with their obligations to their employees. Failing to do so could mean a breach of the franchise agreements.

Provide or Review Employee Contracts

Some franchisors provide franchisees with draft employment contracts as a way to know the terms on which a franchisee employs their workers and ensure they comply with employment laws. Alternatively, the franchisor may shift the responsibility onto the franchisee to have a legally sound employment law agreement for their workers, but require the franchisee receive approval before its use.

Key Takeaways

Ultimately, a franchisor’s legal responsibilities towards a franchisee will depend on their overall contractual structure and business model. Ensuring franchisee’s comply with their employment law obligations will help with the success of the franchise as a whole. If you have any questions or need assistance drafting an employment agreement for your franchise business, get in touch with our franchise lawyers on 1300 544 755.

Kristine Biason
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