Since the new Franchising Code of Conduct came into effect earlier this year, there has been an increased focus on franchise issues. This article explores one important issue in this regard – the role of franchisors in promoting fair work practices in their franchisees. 

Franchisors can play an important part in creating a culture of payroll compliance in their franchisees. They can also provide valuable support to assist franchisees meet their obligations at law and under their franchise agreements.

Why should franchisors take such steps?  Recent cases have shown us that even though franchise employees are employed by franchisees and not franchisors, franchisors are not immune from claims, negative publicity and political scrutiny that may arise as a result of unfair work practices perpetuated in franchises. It is certainly in franchisors’ interests to avoid these sorts of outcomes.

Against that background, we suggest franchisors consider taking the following steps to promote fair work practices:

  • Review business structures: If the franchise system offers a profit split that favours the franchisor, franchisors should consider reviewing that model or providing wage assistance for franchisees.
  • Clear disclosure of employee costs: Franchise disclosure documents should clearly identify all payroll costs, including anticipated overtime, weekend and penalty rates. If typical payroll expenditure is based on staff working weekend and/or night shifts, this should also be disclosed.
  • Ensure complaints are appropriately handled: Franchisors should ensure there are robust processes for handling complaints, and may even consider engaging external investigators. If complaints are substantiated, franchisors should ensure breach notices are served promptly on the relevant franchisees and require the situation to be rectified within a reasonable period. It is important that staff are assured that their complaints will be taken seriously and that their jobs will not be jeopardised by making a complaint.
  • Take regulatory investigations seriously: If a franchise is being investigated by a regulator, franchisors should work proactively with their franchisees to respond appropriately. This will involve steps such as appointing a dedicated contact person, seeking legal advice and briefing staff prior to the investigation. Once an investigation is complete, franchisors should ensure any regulators’ recommendations are properly addressed.
  • Review systems: Electronic payroll systems should be standardised in order to automatically adjust wages to include overtime, casual, weekend, penalty and other rates.  Additionally, where internal audits indicate that records may have been doctored, further investigative action should be taken.
  • Encourage franchisees to voice concerns: Franchisors should seek to meet regularly with franchisees (either collectively or individually) to afford them an opportunity to voice any concerns they have about their ability to pay staff. If any such concerns are disclosed, franchisors should work with the relevant franchisees to address those concerns and seek employment advice where appropriate.
  • Conduct ongoing reviews: Internal audits should include a review of payroll compliance. These reviews should place sufficient weight on payroll practices in order to generate a culture which does not tolerate wage fraud. Further, if a franchisee has been identified as failing to comply with appropriate payroll practices (either following investigation of a complaint or otherwise), they should be subject to increased monitoring.