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
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
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
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
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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