Why are visa changes costing franchisee employers more?

The Accredited Employer Work Visa  (AEWV) scheme is aimed at rebalancing New Zealand’s system for employing workers from overseas. It requires New Zealand businesses wishing to employ migrants on visas for up to three years to first register as accredited employers. Those wishing to employ immigrants under the scheme must pay at least the NZ median wage of $27.76 per hour (unless the role is on an exemption ‘green list’) and show that they cannot find suitable New Zealanders first. 

But there's a catch for franchisee-owned businesses. A 2019 review of temporary migrant worker exploitation by MBIE suggested that certain business models and practices can facilitate or hide exploitation, including subcontracting and franchise business models. The new policy will therefore see franchisee-owned businesses being charged $1980 for accreditation under the scheme, versus the $740 charged to non-franchised businesses. However, the impact is even greater than this as Brad Jacobs, co-director of The Coffee Club New Zealand, points out.

'The accreditation fee has also been set at $1,980 each year for franchisee-owned businesses, compared to $740 every second year for independently-owned businesses. Over six years. that's an accreditation cost of $11,880 for a franchisee, compared to $2,220 for an independent business owner, only to hire the exact same employees. It works out at more than five times the cost!'

So what is the evidence that franchisees are more likely to exploit temporary migrant workers than individual business owners not operating within a franchise system? Here's the thinking behind the decision.

Why are franchisees being singled out?

The 2019 briefing document from MBIE to Government made particular reference to Australia’s 2016 inquiry into temporary migrant exploitation, and the high profile cases of systematic exploitation by certain franchisees within the 7-Eleven, Domino’s and Caltex chains there. It commented that, ‘Although New Zealand has not observed exploitation in a franchising context … to the same extent observed in Australia, the general risk factors remain present.’

The document goes on to say, ‘The Labour Inspectorate introduced a “franchise” tag to its case management system in November 2018, providing an indicative sense of the number and outcomes of investigations into franchisees. The data suggests that between December 2018 and June 2019, 51 investigations were completed of which breaches were found in 28 … Work to verify the accuracy of this information is due to be completed in due course.’

What is not clear is whether the 28 breaches were all actually examples of systematic exploitation, or misapplication of minimum wage or holiday pay rights (the notoriously complicated Holidays Act is itself under review, having caught out everyone from McDonald’s to the NZ Police and even MBIE). Certainly, the Labour Inspectorate signalled its intentions as far back as February 2017, and there were a number of cases of deliberate exploitation by franchisees within liquor retail franchises which we reported on our website at the time (see www.franchise.co.nz/articles/3403). However, the new rules are being applied across the board to all franchises, whether in retailing, home services, business-to-business or education.

Specific risk factors

‘Franchising has been identified through the migrant exploitation review as a business model that has specific risk factors for migrant exploitations,’ Andrew Craig (Manager – Immigration Policy – Skills And Residence for MBIE) wrote in an email. ‘It is an accessible entry model to people who are new to business and who do not have experience in navigating New Zealand employment law. The franchising relationship also means that franchisees have less control over some operating costs which can increase incentives to cut costs by driving down pay and working conditions.’ 

He continued, ‘In addition, a number of other migrant exploitation risk factors are prevalent among franchise businesses in New Zealand. The Franchising New Zealand Survey 2017 reports that:

• Franchise units are largely based in industries associated with lower-paid work. According to the survey, units in administration and support services, retail trade (non-food), and accommodation and food retail made up 68 percent of franchising units. Statistics New Zealand’s industry earnings data show that these are the industries with the lowest median earnings. 
• Around half of franchisors reported that at least 51 percent of their franchisee business units were owned by migrants, suggesting a higher likelihood of co-ethnicity and less experience of New Zealand employment law, both of which are risk factors for migrant exploitation. 
• 59 percent of franchisors reported that a lack of franchisee equity was a problem in relation to growth finance, and 34 percent reported franchisees experienced problems accessing funding. There is a risk that these cost pressures may flow down to employees. 

And Mr Craig concluded, ‘While these risk factors can also be found in non-franchise businesses, in isolation, they do not necessarily justify additional accreditation standards. However, when combined with the risk factors inherent in the franchising business model, it was decided that additional accreditation standards are warranted to manage these risks.’

One rule for all

In a follow-up interview with Franchise New Zealand, Mr Craig said, ‘We’re not saying that all franchises are a risk. Some franchise chains do a lot to support their businesses, other ones don’t do so much. We looked at different ways of cutting the risk profile and at the end of the day it was what was the easiest way to keep it simple to administer. 

‘In the first year of operation, it also gives us an opportunity to have a look at issues that can inform our judgment about how to tweak these accreditation standards in the future. It might come out that we’re not seeing much issue from franchises but we’ll keep an eye on that over time. We haven’t fully scoped it out yet but we’ll be talking to the Labour Inspectorate guys who will be doing assessments about what data they record and are franchises showing up as a higher proportion of instances when they actually go out and look in practice?

‘When we carried out the migrant exploitation review, only 20 percent of submissions were opposed to the application of this scheme to the franchise business model.’

We asked Mr Craig if franchises with a good track record of franchisee employers might be able to get a group exemption from the additional costs. He said, ‘At the moment, there is no exclusion possible for certain franchise groups, but as we look through the data from the site visits, we’ll review the settings in a year or so’s time and see what they look like, and we can make informed decisions.’

Industry leaders taking a stand

In September 2021, the Labour Inspectorate commented, ‘The Labour Inspectorate has been engaging with a group of liquor retail and supply leaders, including Liquorland, Super Liquor, The Bottle-O, DB, Lion and Asahi, to share ideas and information about worker exploitation within the sector, and how to work collectively and individually towards fixing this issue. 

‘It is encouraging to see industry leaders taking a stand against exploitation and taking proactive steps to lift employment law compliance. For example, Super Liquor exited the stores run by Nekita Enterprises from their brand and have taken steps to better monitor compliance within their franchise network.’

In general, franchisors have a history of acting quickly where abuses have been reported. Franchisees run independent businesses and make their own employment decisions, although they are of course required to act within the law at all times – not to do so is commonly grounds for termination of the franchise agreement. 

However, providing employment advice, oversight or systems could see franchisors drawn into employment relationships over which they have little or no control. Mr Craig advised that there had been ‘some push-back’ against imposing stronger obligations on franchisors, ‘but as we go through the data, we’ll be looking at it.’

How will the scheme apply?

As we reported earlier this month, the ‘green list’ for high-skilled, hard-to-fill occupations includes sectors such as construction and engineering, health and social services, ICT, electronics and telecommunications; primary industries and science, agriculture and trades. There are also temporary exemptions to the median wage threshold for certain roles in the construction, infrastructure, tourism, hospitality and care workforce sectors – see the full list on the Immigration New Zealand website at www.immigration.govt.nz.

Employers wishing to hire people on AEWVs must apply for either Standard accreditation (for up to 5 migrant workers) or High-volume accreditation (6 or more workers). However, franchisees and employers who place migrants with controlling third parties must meet additional requirements, although there is no limit on the number of AEWV workers they can hire.

For franchisees, these additional requirements state that franchisees:

• Must have been operating for at least 12 months as a franchisee; and
• Must show that at least 15 percent of their workforce are New Zealanders or residents who have 30 hours of work a week.

Under the policy, a business is considered a franchisee employer if:

• They have purchased the right to use a pre-existing business system created by a third party;
• They have a business that uses a brand, trademark, advertising, marketing channels, or a commercial symbol owned by that third party;
• That third party business controls certain activities or structures within their business as set out through an agreement, operational guideline or a ‘terms and conditions’ document.

Franchisees and ‘third party’ employers are also required to seek renewal under the scheme after 12 months rather than the 24 months granted to all other employers.

It is these additional conditions that result in franchisees being charged up to five times the standard accreditation fee – a difference MBIE says is because of the higher level of assessment required, which it is obliged by law to pass on to applicants.

Resales an issue

At a recent webinar with representatives of the MBIE, franchisors raised a number of questions about how the scheme would actually work in practice. A long-standing concern about what happens to AEWV employees if a franchise changes hands during the period of their visa from an accredited franchisee to a non-accredited one has been partially answered.

The advice given at the webinar was that the new franchisee would not lose any employees they have, but would not be able to employ any new workers under the AEWV scheme until they have met the 12-month qualification period and received accreditation.

However, if a resale happens to a non-accredited franchisee, and an employee has less than 12 months remaining on their visa, then the employee will have to find another role with an accredited employer ‘or return home’.

Will the new scheme make a difference?

Dr Christina Stringer of the University of Auckland Business School is co-author of a 2019 study on Temporary Migrant Worker Exploitation in New Zealand which has informed the MBIE. The research included semi-structured interviews with temporary migrant workers who have been exploited, as well as stakeholders with key insights into the exploitation of temporary migrant workers in New Zealand. In total, 131 interviews were conducted. 

The study contains some appalling examples of worker exploitation, including one where the employer was a multiple franchisee. Does Dr Stringer believe the AEWV scheme will make matters better? Not necessarily, it appears. 

‘The problem is that employer-sponsored visas create the conditions for exploiting workers – they make the employee very dependent on an employer. Migrants don’t necessarily have insight into their employment rights in New Zealand, and they believe what their employer tells them. 

‘Personally, I think that employer-sponsored visas are a major concern. There’s a flaw in the system and some employers take advantage of that. And it’s not only the employer: it can sometimes be the migrant that creates conditions because they want to stay in New Zealand and so they will offer their employer a large sum of money to have a job so that they will qualify.

‘International research highlights that the linking of an individual migrant to an employer creates a precarious situation.’

A review of the Accredited Employer Work Visa scheme is expected in 2023, after the scheme has been operating for a year.

More information

Here’s a list of online resources for franchisors and franchisees wanting to find out more:

MBIE Briefing – Temporary Migrant Worker Exploitation Review: Business models and practices
www.mbie.govt.nz/dmsdocument/7106-briefing-temporary-migrant-worker-exploitation-review-business-models-and-practices

2019 Study – Temporary Migrant Worker Exploitation In New Zealand
www.mbie.govt.nz/dmsdocument/7109-temporary-migrant-worker-exploitation-in-new-zealand

(note: this research specifically mentions franchising on pages 26 and 83/84.  On the latter pages, it says: “Throughout this research, migrant worker exploitation has been associated with smaller businesses and, in particular, those operating under sub-contracting and franchise arrangements where the main contractor or franchisee has little oversight of labour practices.” Dr Stringer confirms this should read or franchisor.

Details of the AEWV scheme and how to apply as an employer
www.immigration.govt.nz/employ-migrants/new-employer-accreditation-and-work-visa/accreditation-types-and-employers-requirements

Roles exempt from the median wage threshold
www.immigration.govt.nz/employ-migrants/new-employer-accreditation-and-work-visa/roles-exempt-from-aewv-median-wage-threshold

Productivity Commission report on immigration
www.productivity.govt.nz/assets/Inquiries/immigration-settings/Immigration-Fit-for-the-future.pdf

We welcome links from other websites to this article. Please note that this article is copyright © Eden Exchange NZ Holdings Limited, Franchise New Zealand magazine and Franchise New Zealand On Line. While it may be downloaded for personal use, no part may be reproduced on any other website, in electronic or printed form or in any other form whatsoever.