Liquor franchisee's employment breaches raise questions

In the latest enforcement action taken by the Labour Inspectorate, the Employment Relations Authority (ERA) has ordered Shalini Limited, a business that operated liquor stores and a dairy in Auckland, to pay $100,000 in penalties. Shalini will separately repay $96,542.34 in minimum wage and holiday pay arrears to seven migrant workers. Shalini's sole director and shareholder is Venu Mohan Reddy Beerapu.

The Labour Inspectorate conducted an investigation into Shalini’s employment practices after receiving a complaint in 2017. The investigation related to seven retail assistants working in Lifeline Dairy, Grafton Liquor Spot and Bottle-O in Parakai. The evidence before the ERA showed the employees consistently worked long hours and did not receive their minimum wage and holiday pay entitlements, including not being paid correctly for work on public holidays. 

The Labour Inspectorate took enforcement action against Shalini in 2016, but the complaint received in 2017 and the subsequent investigation showed the business continued to breach the minimum employment standards.

Checking out franchises

Since 2012, more than 60 investigations into liquor retail businesses have been completed by the Inspectorate, including those trading under large franchise brands such as Liquor Spot and Bottle-O.  

‘We are deeply concerned about the trend of local liquor shops breaching employment standards, seemingly with no regard for the law,’ says National Manager Labour Inspectorate Stuart Lumsden. He goes on to claim that, ‘Many are part of recognised brands which appear to have no effective measures in place to provide assurance that legal requirements are being met.’

This comment follows on from the Inspectorate’s warning a couple of years ago that it would be targeting franchises in particular as part of a planned crackdown. Since then, there have been a number of investigations of the 37,000 franchised units in this country but very few have resulted in action against franchises like the one being quoted here. Almost no franchise names appear on the list of employers who have breached minimum employment standards.

Franchisees are responsible for their own employment practices and records. However, the potential damage that employment breaches by a single operator can do to a franchise brand and other franchisees is taken very seriously by franchisors.

The Franchise Association (FANZ) has worked with the Labour Inspectorate to help educate franchisors about their franchisees’ obligations. FANZ has also amended the Code of Practice which applies to all its members to reinforce the need for franchisees to comply with employment law, as well as running educational sessions around the country and making additional resources available to all members.

Regulation can't guarantee compliance

It’s worth noting that where franchisees have been found to be failing to meet the required employment standards, they have generally been in breach of their franchise agreements. As a result, many have been exited from the franchise or had their agreements terminated, leading to the loss of all they had worked to build up (see Franchisors Take Action On Cheating Franchisees).

However, as the latest case shows, individual business owners with no regard for the rights of all workers in New Zealand may still try to cheat the system. This occurs no matter how carefully regulated an industry might be, as the Inspectorate notes.

‘Retailing liquor is a closely licensed activity,’ says Mr Lumsden. ‘How anybody can meet the necessary character requirements to hold a liquor licence while at the same time exploiting their workers is a question licensing authorities might want to consider.’

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