Legal Matters

by Simon Lord

last updated 30/07/2018

Wage cheat franchisees lose businesses

by Simon Lord

last updated 30/07/2018

July 2018 – A franchisor has taken swift action against a franchisee found to have breached employment law

A Domino’s franchisee found guilty of serious breaches of employment law has had his two franchises terminated by the company, and has been penalised $32,400 by the Employment Relations Authority. He also had to pay staff more than $54,000 in arrears.

Xi (Bruce) Chen operated Domino’s franchises in Henderson and Te Atatu under two separate companies: E Lynn Ltd and E Ming Ltd. An investigation by the Labour Inspectorate found that the companies had failed to:

• Keep wage and time records that were compliant with s130 of the Employment Relations Act.
• Keep holiday and leave records that complied with s81 of the Holidays Act.
• Provide employees with individual agreements that complied with s65 of the Employment Relations Act 2000 and s52 of the Holidays Act 2003.

As a consequence of the lack of records E Ming had underpaid its employees a total of $23,878.89, and E Lynn had underpaid its employees a total of $30,746.61.

Domino’s acts immediately

Domino’s said it had conducted a thorough wage audit following a staff complaint.

‘Domino's expects all of its franchisees to comply with their New Zealand employment law obligations,’ a spokeswoman for the company said. ‘As a result, the franchisee was removed from the business and any underpayments of team members found were immediately rectified.’

Break the law and lose your business

The case is the latest of a small number which have come to light since the Labour Inspectorate announced its intention of targeting the franchise sector early last year. In some cases, problems have arisen as a result of genuine errors as a result of franchisees mis-interpreting the Holidays Act, and have been resolved through back payments to staff. However, where there were poor payroll practices or an apparent intent to avoid employer obligations, franchisees have not only been fined often substantial amounts but have had their franchises terminated by the franchisor.

Most franchise agreements will include strict obligations on the franchisee to keep accurate and up-to-date accounting and employment records, as well as a requirement to comply with all relevant laws. Breaches of these obligations or criminal conviction of the franchisee will give the franchisor the right to terminate the franchise agreement, usually with the immediate loss of the right to use the name and trademarks, a requirement to return the manual and promotional material and also to hand over plant and equipment used in operating the franchise. If the business is premises-based, the franchisor may opt to require the premises to be handed over as well. (See What’s in the Franchise Agreement?)

Association: It’s not worth it

Brad Jacobs, Chairman of the Franchise Association of New Zealand, says that franchisees who break employment laws are making a big mistake. ‘When they get caught, they don’t just have to make good on underpayments – they will get additional fines and often lose the business into which they have invested so much time, effort and money. They will also have damaged the reputation of the brand and the businesses of their fellow franchisees. It’s not worth it.

‘That’s why the Association is working pro-actively with the Labour Inspectorate and specialists in the employment area to help franchisors make franchisees better aware of their obligations. We welcome the current review of the highly-complex Holidays Act and hope that it will reduce confusion and provide greater certainty to franchisees trying to do the right thing.

‘Employment issues will be a key focus at our National Franchise Conference in August, and we have also held several educational sessions on the topic around the country.’

Order a Print Copy
Order a Print Copy