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Managing risks throughout the life of a franchise contract

How to monitor and manage employment compliance risks throughout the life of a franchise contract.

To be sure that ethical and sustainable work practices are being followed, you should monitor and manage compliance risks throughout the life of a franchise contract.

You should focus on 3 key stages of the franchise contract life cycle:

  1. pre-contract preparation
  2. contract confirmation and documentation
  3. monitoring during the life of the contract.

1. Pre-contract preparation

Before taking on new franchisees, you should aim to make it easy for franchisees to comply with employment standards and ensure that they are set up to succeed.

This should include the following 3 steps.

Step 1. Check if potential franchisees have followed employment rules in the past

  • Ask the applicant whether they are involved in any current or historic investigations in relation to employment standards breaches or Labour Inspectorate investigations. If there is an ongoing investigation, ask the applicant for more information about the circumstances and, if applicable, how any breaches were resolved.
  • Check whether the applicant (individuals or company) is or has been a director, chief executive, senior manager, shareholder, trustee or partner, and whether they have any record of breaching employment standards.
  • Check the 'stand-down list' below to see if the applicant (individuals or company) has been stood down from being able to support visa applications because they’ve received a penalty (or similar) for not complying with employment standards. Also check the Employment Relations Authority and Employment Court databases for older breaches or breaches that might not have resulted in being placed on the stand-down list.
  • Check breaches you become aware of and ask the applicant for information on the breaches and how they have been remedied.

Employers on stand-down

Determination Database – Employment Relations Authority(external link)

Judgements Database – Employment Court(external link)

If the outcome of the above steps is unsatisfactory, you should consider if you want to continue progressing the application.

Step 2. Make sure that the franchisee understands their employer obligations

  • Ask them what they think they must do to follow employment law. Franchisees should understand what it means to be an employer and the legislative requirements that this entails.
  • As with other training, like operations and brand requirements, prior to confirming their application you should require applicants to complete Employment New Zealand’s free online employer learning modules.

Employment Learning Modules(external link)

  • Provide franchisees with templates of different types of legal employment agreements — permanent and fixed term, full and part-time — that they must use to employ their workers. Check our employment agreement builder.

Employment Agreement Builder – business.govt.nz(external link)

Step 3. Make sure franchisees agree to a standard of ethical and sustainable behaviour

You will need to create a policy or code that outlines how employers and employees should behave and treat others, and how employees can speak up if they have concerns. This should also cover business ethics and expected workplace standards.

A work practice policy or code of conduct:

  • should apply to all franchisees, outlining how they will treat their employees
  • should, at a minimum, cover: expected behaviours, compliance with legislation, business ethics, treatment of workers, environmental standards, and a channel that workers can use if they feel the employer is breaching this code
  • can communicate the aspiration values and desired behaviours of the franchise brand.

All prospective franchisees should:

  • be familiar with, and understand, the intent of the policy and how it works operationally
  • be willing to sign the policy
  • display the policy in their workplace. 

This will show employees which behaviours are acceptable in the organisation so they can adhere to standards, and are empowered to speak up if wrongdoing occurs.

Work practice policy or code of conduct for franchises

2. Contract confirmation and documentation

Once you know you want someone as a franchisee, include requirements in the contract that make it a priority for them to treat workers well.

  1. Make sure the contract outlines what laws they must comply with, and includes a brief description of its purpose and where to find more information. At a minimum, this should include:  
  2. Make sure the contract provides for spot-checks and audits of workplace practices, including employment standards.
  3. Include a contractual requirement that all franchisees promptly inform you if they are investigated for, or found to have committed, a breach of employment-related legislation.
  4. Include a contractual requirement that the franchisee commits to the code of conduct by signing the document and ensuring their employees have access to it.
  5. Include a contractual requirement that the franchisee will ensure all their employees are informed of their employment entitlements, for example, through displaying an employee rights poster or encouraging them to complete the Employment New Zealand online employee e-modules.
  6. Include a contractual requirement that allows you to regularly survey workers (and customers) employed by the franchisee.

Document how you will support franchisees to meet their legal requirements. How will you help them if they have difficulties? Will you negotiate reduced fees for franchisees to get legal advice from a law firm?

3. Monitoring during the life of the contract

Monitoring franchisees’ compliance to the work practice policy or code of conduct should occur throughout the lifetime of the contract.

A ‘set and forget’ approach to franchisees should not be taken. Regular check-ins can show if they have correctly implemented the agreed terms of the contract.

If a franchisee changes their business operating model, this can, even inadvertently, mean they no longer meet employment standards and are therefore breaching the terms of the franchise contract.

The following steps should be taken to reduce the risk of non-compliance with employment standards across a franchise.

Step 1. Ensure regular monitoring

Checks for compliance with employment standards should be included as part of regular franchisee reviews relating to operational matters like stocktakes and brand standards.

Checks should be conducted annually and could be as simple as requiring the franchisee to complete a self-assessment using a self-audited checklist process. An example of a checklist is the Employment New Zealand self-assessment tool.

Employer self-assessment checklist [PDF, 654 KB]

Employer self-assessment guide [PDF, 934 KB]

Alternatively, a franchise may choose to use a checklist that they design and supply themselves.

In all cases, franchisees should be required to give proper evidence to back up their responses or claims, or they should be fully verified using an independent audit process. 

The checklist can also educate franchisees on what they must comply with. At a minimum, should a franchise use their own tool, they should ensure all key messages in the Employment New Zealand self-assessment tool and checklist are covered. This includes specific legal requirements and references for more information.

Step 2. Ensure employees are told of expectations

The franchisee should make sure employees know about the work practice policy or code of conduct. Ideally it should be displayed prominently in the workplace and included in recruitment documents.

Step 3. Use employee voice tools

You can use an employee voice tool to confirm that the work practice policy or code of conduct expectations are being met by collecting information about the workplace anonymously from franchisee staff. Each franchisee needs to have enough employees for their individual responses to be anonymous.

There are free survey tools available like Survey Monkey if employees have unique email addresses. Otherwise, paper surveys could be handed out, as long as the employees can submit them anonymously if they wish to.

In addition to questions about employment standards, you can ask open-ended questions about how the employee would improve things, and to what extent the views of employees align with an ethical and sustainable workplace.

The following employee views could be canvassed using scale-based questions, for example, how satisfied are you with…?  — scale from extremely satisfied to extremely dissatisfied. Other questions could include:

  • How valued do you feel at work?
  • How much would you recommend this franchise to other potential employees?
  • How long do you want to stay working here?
  • How motivated are you to go the extra mile?
  • How fairly do managers treat you?
  • How well do you understand the business’s goals?
  • How important is health and safety to your employer?
  • How much training is available to you for current and future roles?
  • How much does your place of business value diversity and inclusion?

Step 4. Make sure that franchisees tell their employees about their employment rights and obligations

Franchisees should tell new and existing employees about their legal rights and obligations under employment-related legislation, and make sure they understand these.

This could involve the franchisee providing:

  • an information sheet that explains their rights and what to do if these are not met
  • all employees with this information in their first language if possible.

The Employment New Zealand 'Know your employment rights quick guide' is available in 18 languages, along with a free basic employee e-module introducing employee rights.

Minimum rights of employees translations

Step 5. Make sure franchisees and their employees keep learning about employment rights

Employees should be able to learn about their rights and responsibilities not just when they join but also when they are promoted or when legislation changes. They should also have a chance to refresh their learning throughout their employment. We offer free online courses for employees.

Employment learning modules(external link)

Step 6. Promote good practice and lessons learned

You can make employment a feature topic or a regular section of any franchise newsletter or updates. This could include health and safety matters as well as other areas relating to employment, for example:

  • franchisees who have managed a particular aspect well could be celebrated, and sticking-points raised and addressed
  • celebrating diversity and promoting inclusiveness by focusing on individual employees or groups through events like cultural celebrations and employee achievements.

If an issue arises with one franchisee, the issue and the resolution should be communicated to the other franchisees to develop a sense of collective responsibility and ensure all franchisees can benefit from the learnings. 

Encourage franchisees to discuss matters with each other when they arise, while at the same time protecting the privacy of individuals, so learning can be shared.

Step 7. Ensure issues are reported

Franchisees should be required to inform you promptly if they are investigated for, or are found to have committed, a breach of employment-related legislation – for example, employment standards, health and safety or immigration requirements:

  • Franchisees should sign an agreement that confirms they will inform you in a prompt manner.
  • You can check the stand-down list below to stay up-to-date on employers who are not able to support visa applications because they’ve received a penalty (or similar) for not complying with employment standards.

Employers on stand-down

There will need to be an open and trusting communication line for franchisees to feel confident to be transparent in this space.

Step 8. Offer a way to report problems confidentially

Often a barrier to staff raising employment issues is being able to do so confidentially and anonymously.

To help staff, you can provide or make available a confidential point of contact for franchisee employees to raise issues.

  • Make sure there is a proper process to effectively deal with issues as they arise.
  • Any investigation conducted should comply with employment law provisions, including privacy and natural justice principles.

Resolving problems

In some industries there are many vulnerable workers (migrant, young and mature employees).

  • They may not be confident to speak up if they believe they are not receiving their entitlements.
  • Their needs should be integrated into the business code of conduct.
  • They should have tools that empower them to raise any concerns.

A less formal and anonymous reporting system could be considered, which could be actioned by:

  • appointing one person, who the employees choose, as the representative to raise issues with confidentially if the industry is not unionised
  • having a system where employees can raise potential issues and give the employer the opportunity to fix any problems.

This will reduce the risk of receiving adverse publicity, court costs, or penalties should breaches occur. 

If the franchise also has a procurement function or a supply chain, read our guidance for procurers.

Procurer’s approach to ethical and sustainable work practices

Tools and resources

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