World Franchise Council speaks out on franchisee independence

The contentious issue has been especially highlighted by recent cases in the United States, including one which has seen McDonald’s classed as a ‘joint employer’ of franchisees’ staff for negotiation purposes. However, it is increasingly being faced in other countries as legislators come under pressure from lobby groups including unions and non-franchised big businesses. It’s arisen in New Zealand too, with the campaign around Part 6a of the Employment Relations Act and concerns around definitions in the Cartels Bill.

As a result, the World Franchise Council (comprising franchise associations from 42 different countries) issued a joint declaration following its recent meeting in Taiwan confirming the independence of franchisors and franchisees as separate business enterprises.

According to Graham Billings, the Executive Director of the Franchise Association of New Zealand, who attended the Taiwan meeting. ‘There clearly is a perception in the minds of many (legislators, trade unions, media, etc.) that a franchisee is not truly an “independent” entrepreneur and this is a view that we need to ensure does not gain a foothold here in New Zealand.

‘This joint statement is important in that it is a communiqué from the single widest international franchise body and that it strongly upholds that franchisor and franchisee are totally independent entrepreneurs.’

The full declaration

There is growing international criticism of franchising related to joint employment issues. This criticism is based on a misunderstanding of franchising. Neither the independent franchisees, nor their employees, are employees of franchisors. Independent franchise owners build and control their own businesses. Every franchise has brand standards that maintain the quality of products and services. However, the brand standards do not extend to the essential terms and conditions of employment of franchisee employees. Franchisees, and not their franchisors, establish employment practices and policies. Franchisees manage the day-to-day operations of their businesses, including whom to hire and fire, wage rates, benefits, discipline, work schedules, and work conditions.

If franchisors are considered joint employers of franchisee employees, it would place responsibility on the franchisor to manage, monitor and control activities of workers at locations where the franchisor is not present, and would take away the rights of franchisees to independently operate their own businesses.

If franchisors were to be considered joint employers, the effects on franchising, jobs, and the economy would be devastating. It would destroy the franchise business model and dismantle the long-standing structure of the respective rights and obligations of franchisors and franchisees negotiated under the sanctity of freedom of contract.

Fewer new locations will open: Entrepreneurs are drawn to franchising because it provides the ability to operate independently. If that control is taken away, fewer new franchised businesses will open.

Fewer jobs will be created: Fewer new franchise locations will mean there are fewer jobs created.

More new locations will be corporate-owned: Large brands will choose to open more corporate locations instead of independently-owned franchise locations, reducing local opportunities.

Small business ownership will be undermined: Entrepreneurs will be turned into employees.

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