FANZ submission seeks automatic exemption from employment law provision

A submission made to the select committee considering amendments to the Employment Relations Bill has suggested that members of the Franchise Association should receive automatic exemption from the controversial ‘Associated Persons’ definition. If adopted, the move would see the Association recognised under law for the first time and create a distinct divide between member and non-member franchises. Around a third of the franchises operating in New Zealand are currently members of the Association.

The Issue

Part 6A of the Employment Relations Act provides protections for certain groups of employees in the cleaning, orderly, catering and laundry industries when the employee’s work is assigned to a new employer. It gives those employees the right to transfer to the new employer on the same terms and conditions of employment.

Under proposed changes to the Bill, businesses with fewer than 20 employees would be exempt from Part 6A when they take over a new contract. 

Government is proposing to create a class of 'associated persons' to be taken into account in considering the exemption that would mean both a franchisee AND the franchisor must employ fewer than 19 persons between them. Read more here. 

Submissions

Submissions on the Bill close today, 25^th July 2013. The Franchise Association’s submission opposes the introduction of the Associated Persons category on three grounds:

1. Franchising has apparently been included within the definition of Associated Persons to ‘help ensure that only genuine small-to-medium businesses are exempt.’ This reasoning misunderstands the true legal and essential nature of franchising.

2. It has been stated that because franchise operations are widespread in the sectors to which Subpart 1 of Part 6A applies (in particular, the cleaning sector), exempting franchises would have ‘the potential to distort the contracting arrangements within the sectors.’ FANZ submits that the only reason that a distortion would take place is if service consumers in general considered that there was a greater cost benefit to be gained from contracting with franchised companies. It also rejects the suggestion that franchisees are unable to win contracts in their own right.

3. The Bill’s authors suggest that if franchises were granted exemption there is a risk that large companies with a corporate structure would move to a franchised model in order to obtain exempt status. FANZ submits that the suggestion that corporates would break up the value of their goodwill and capitalisation to sell parts of the business to franchisees just to avoid compliance is far-fetched.

The Association submission also makes the point that, like vulnerable employees, ‘…many franchisees of certain types of franchise systems, for example, cleaning franchises, are also, in a way, vulnerable. A large number are immigrants or persons previously employed in low income roles who have made an investment in their future by buying a franchise. They are people who want to work hard and run their own businesses. Becoming a franchisee is the first step on a path of independence and financial success for them. Such franchise systems cultivate and encourage a culture of business investment and self-employment amongst persons who might not otherwise have that opportunity or who might not otherwise be motivated to run their own business. In turn, this has positive flow-on benefits to the wider economy, by encouraging business ownership and a sense of responsibility for one’s own future.’

In addition to the FANZ submission, earlier this month a campaign was launched by Crest Commercial Cleaning  aimed at generating pressure to address the problems posed by the proposed changes to the Bill. This also drew attention to the dangers of accepting the definition of franchisors and franchisees as Associated Persons for future legislation, such as taxation.

Meanwhile, 2,000 submissions from low income workers concerned about Part 6a being ‘watered down’ were delivered to Parliament yesterday, says the Labour Party.

Unless confidentiality has been requested, submissions will soon be available in full on the Parliamentary website.

Members and non-members

One of the problems in allowing franchises blanket exemptions from the Associated Persons definition is that there is no legal definition in New Zealand of what constitutes a franchise. Without such a definition, franchise companies will be required to apply for individual exemptions to Part 6a.

The Franchise Association’s submission suggests resolving the problem by granting to franchise systems that are Members of the Franchise Association of New Zealand (and have current compliance with the Association’s Codes) automatic recognition as a genuine system under the Bill. This would effectively move the franchise sector closer to compulsory self-regulation, rather than the voluntary self-regulation that has existed since 1997.

It would presumably also act as a stimulus for increasing the membership of the Association. The Association reported last month that it has 152 franchisor members out of around 485 franchise brands nationwide. It also has 75 affiliate members.

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