Legal Matters

by Simon Lord

last updated 01/02/2018

Swings and roundabouts in employment law changes

by Simon Lord

last updated 01/02/2018

31 January 2018 – Changes to employment law mean franchisors and franchisees need to be prepared
McDonald's crew celebrating the company's 40th anniversary in New Zealand by wearing 1976 uniforms. Today, a typical McDonald's in New Zealand employs around 70 staff.

Proposed amendments to the Employment Relations Bill would see significant changes to employees’ rights, including the controversial 90-day trial period for new employees which was introduced in 2009. The 90-day trial will remain for employers with less than 20 workers, which means it will still be available as an option for the majority of franchisees; however, other changes remove some advantages for small business employers.

90-Day Trial

The retention of the 90-day trial is apparently at the instigation of coalition partner New Zealand First. The unions are less happy about it: although over 70 percent of employees are employed by companies in the 20-plus bracket, the remainder will still be subject to different conditions. It does, however, represent an understanding of the issues facing small businesses where staff members are often appointed for a unique role and personalities and team ‘fit’ are critical.

Brad Jacobs, chairman of the Franchise Association of New Zealand, believes that the distinction is good for franchises. ‘The proposed change shouldn’t affect many of our members' franchisees as most franchisees would employ less than 19 people. For this to work for franchising, of course, it’s essential that franchisees continue to be correctly recognised as the individual small businesses that they are. Just because a small business operates with a well-known brand doesn’t change that fact.’

McDonald’s is one company whose franchisees do employ over 20 people. ‘A typical McDonald’s would employ circa 70 people,’ says Simon Kenny, the company’s Head of Communications. ‘The food courts have less, but I think it would still be over 20. And many of our franchisees operate more than one restaurant, so they could employ several hundred people collectively.’ However, franchisees are unlikely to be affected by the proposed change. ‘As per our collective and individual agreements we don’t have the 90-day trial period, so it won’t change the way in which we work with our staff or Unite Union.’

How the changes will affect multi-unit franchisees of other brands is not yet clear and may depend upon their ownership structure. In many cases, multi-unit franchisees may operate their units under different legal entities, but if staff are transferred between units it could complicate matters.

Employee Rights

Although the 90-Day trial changes have taken most of the headlines, the restoration of other employee rights will also need to be considered by franchisors and franchisees. These include:

  • Statutory rest and meal breaks;
  • Re-instatement as the primary remedy in employment disputes;
  • Strengthened collective bargaining.

Potentially, though, one of the most significant changes does the opposite to the 90-Day Trial provision by removing a current exemption for small businesses - in this case, in regard to the protection for ‘vulnerable employees’ such as those in the catering or cleaning industries. At the moment, protected employees in businesses with over 20 employees have the right to transfer their employment automatically to a new employer in instances of restructuring or in the sale and purchase of a business. However, if the business has fewer than 20 employees (which would be the case for most cleaning franchisees, for example), this same protection does not apply.

The removal of this exemption for small businesses means that franchisees buying an existing business in the affected industries - or taking on contracts previously serviced by a franchisor - could be required to take on existing staff. This would apply even if the staff have not been doing a satisfactory job or their work could now be done by the franchisee. The change could potentially affect franchise sale or re-sale values in a small number of cases.

Be prepared

The changes announced seek to improve the position of employees across the board, amending legislation passed by previous National governments. Although they may wind the clock back in certain areas, the changes announced so far have been predictable and tempered with an understanding of small business realities. It is vital for franchisors to ensure that their franchisees are aware of any implications for their own business and prepared for the Bill to become law.

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