What Should You Know About Hiring Employees When Buying a Franchise?

Summary

• When purchasing an existing franchise, franchisees can employ some or all of the previous franchisee’s staff as transferring employees, retaining business knowledge and saving training costs, but must ensure employment decisions are not made on discriminatory grounds such as gender, age, religion, or marital status.
• Transferring employees carry their accrued entitlements including annual leave, long service leave, and eligibility for unfair dismissal remedies, and purchasers should negotiate appropriate purchase price adjustments at settlement to account for these liabilities.
• Any enterprise agreement, modern award, or industrial instrument that applied to transferring employees continues to apply after the transfer, and franchisees should send a written confirmation letter to each transferring employee clearly setting out which entitlements from their previous employment will be recognised.
• This article is a guide to employing staff when buying a franchise for franchisees in Australia, explaining the legal considerations around transferring employees, accrued entitlements, and employment obligations.
• LegalVision is a commercial law firm that specialises in advising clients on franchise law and employment matters.

Tips for Businesses

Conduct individual interviews with all prospective transferring employees to assess their suitability for the business, ensuring selection decisions are based on merit and not discriminatory grounds. Obtain a full breakdown of all accrued employee entitlements before settlement and negotiate appropriate purchase price adjustments. Send written confirmation letters to all transferring employees clearly setting out the

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On this page

• Finding and Employing Staff
• Practical Example
• Key Takeaways
• Frequently Asked Questions

Are you in the process of buying your own franchise business and deciding whom to employ? Initially, this can be a daunting experience, particularly when your knowledge of employment law is limited. Employing the right individuals for your franchised business can make all the difference in the success and longevity of your franchise system. This article will examine the legal considerations of employing staff when you run a franchise business.

Finding and Employing Staff

When you buy an existing franchise business, you will likely have the opportunity to employ some or all of the employees from the previous franchisee. Those employees who are given new employment contracts by you as the purchaser of the franchise are known as ‘transferring employees’.

There are various benefits of transferring employees from the previous franchisee to your new franchised business; these include:

• maintaining business knowledge and skills;
• preserving employee morale and retaining talent; and
• saving costs and time that you would otherwise spend on training new employees.

Rather than hiring every employee on the presumption that they are all valuable to the business, each employee should be given the opportunity to prove their worth in an interview. This will allow you to make an assessment as to which employees would best serve the interests of the business based on their skill set. When deciding whom to employ, make sure your decision not to employ someone is not based on any discriminatory basis, such as gender, pregnancy, age, sexuality, religion, or marital status, as this is against the law.

Negotiating Franchise Agreements Factsheet

When bringing on board new franchisees, it is important to negotiate agreements that strike a balance. This factsheet explains how.

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Practical Example

Employees in Victoria, after working for seven years continuously in the same role, receive pro-rata long-service leave entitlements. So, if you take on an employee from the vendor as part of the purchase, and that employee has been working for six years, you will be liable to pay the long service entitlements at the seven-year mark. In addition, employees that you transfer to your new business are able to take whatever paid personal leave they have accrued over time when they start working for you.

Again, you, as the purchaser, can negotiate an appropriate adjustment to the purchase price on this basis of accrued long service leave or other entitlements of the employees. Another thing to keep in mind when deciding when to employ someone from the established business you buy is that any enterprise agreement, modern award, or other industrial instrument that they were working under will continue to apply. It is best to consult an employment lawyer if you have any questions about this.

In the event that you decide to give a job to a previous employee, you should send a confirmation letter that details exactly what you intend to recognise from the previous employment. This may include:

• redundancy payments;
• leave entitlements, such as annual leave;
• eligibility for unpaid parental leave;
• flexible working arrangements; and
• eligibility for remedies of unfair dismissal.

Key Takeaways

Employing the right individuals for your franchise system is crucial for its success and longevity. When purchasing an existing franchise, you can employ some or all of the previous franchisee’s staff. This approach maintains business knowledge, preserves employee morale, and saves on training costs. Additionally, you should ensure transferring employees receive their due entitlements from their previous employer, which may require adjustments at the time of settlement, such as for long service leave. Overall, by adhering to your obligations, the new employment relationship can start from a place of transparency and trust.

If you need help hiring employees, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced franchise lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee.  To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.

Frequently Asked Questions