Franchising is another form of licensing.

Here the organization puts together a package of the

“successful” ingredients that made them a success in their home market and then franchises this
package to overseas investors. The franchisor may help out by providing training and marketing the
services or product. McDonald’s is a popular example of a franchising option for expanding in
international markets.

Because franchise businesses, such as McDonald’s, are usually owned locally, the impact on IHRM,
other than a role in training local franchisees in staffing and other HR practices and skill training of
new employees, is pretty minimal.

XpertHR's top employee management and HR compliance issues for franchises are:

 Joint employer liability - Franchisors can reduce the risk of joint employer
liability by not involving themselves in the daily operations of the franchisee,
particularly when it comes to personnel-related decisions.

 Employee leave and reasonable accommodation requests - An

employer's leave policies should not contain provisions for automatic termination of
employment of employees on leave and should demonstrate they are willing to
provide reasonable accommodations to employees.

 Paid sick leave - An employer that operates in a state or city that requires
paid sick leave should ensure compliance with existing laws.

 Minimum wage, employee classification, and overtime requirements -

These areas pose a substantive risk for employers and are increasingly becoming
the subject of class action lawsuits.

 Hours worked - Since franchises often hire minors, it is important to have an

understanding of working hour restrictions for those individuals.

 Finding and hiring the right employees - Know how to conduct a job
interview and exercise reasonable care in the hiring process. Ensure compliance
with employment laws applicable to the recruiting and hiring process, such as "ban
the box" legislation.

 Onboarding and training - Have an onboarding procedure for new

employees and offer required training such as anti-sexual harassment training.
 Performance management - Performance expectations should be clearly
communicated and performance-related issues documented before they result in
termination.

 Changing landscape of protected activities under the National Labor

Relations Act - Franchisees should recognize that the NLRA applies to their
workforce, even if they are not unionized.

 Workplace safety - Franchises should have appropriate workers'

compensation insurance in place and know how to handle a workers' comp incident.

7 steps to good franchisor HR practice 

In any case it is good practice for franchisors to take the following steps:

1. Outline obligations

Have a well drafted franchise agreement which clearly outlines the obligations of the
franchisor and franchisee in respect to workplace laws.

2. Disclose wage costs

As part of the ongoing support to franchisees, provide disclosure of wage costs before
entering into a franchise agreement and provide avenues of support during the term of
the franchise agreement. This can be achieved by directing a franchisee’s attention to
resources available on government websites which outline employer obligations.

3. Monitor franchisees and request regular reports regarding employment

If a franchise agreement allows for a franchisor to request reports regarding a

franchisee’s business, then the franchisor can monitor the number of employees and
wages paid by the franchisee. This can provide the franchisor an opportunity to identify
any arrangements that may warrant further investigation.  

4. Carry out regular compliance audits of franchised businesses

If a franchisee is found to be engaging in wage underpayment, then depending on the

terms of the franchise agreement this can be grounds for the franchisor to issue a
breach notice requiring the franchisee to remedy the situation. Regular audits will also
act as a deterrent to other franchisees who will be aware that audits are commonplace
and that consequences for non-compliance with employment laws are enforced.
5. Encourage feedback

Both franchisees and their employees should feel comfortable approaching a franchisor
in respect to issues with the system. Employees should not feel that they are prevented
from raising employment concerns with the franchisor. Whilst a franchisor is not
responsible to pay the employee’s wages, franchisors can hold franchisees accountable
to comply with their franchise agreements.

6. Listen to concerns that franchisees raise regarding the system and don’t ignore
issues 

It is in the best interests of franchisors to ensure that franchisees are operating their
businesses adequately. If franchisees are struggling to pay their employees the proper
entitlements, and if this is a widespread concern, that could indicate the need to review
the structure of the franchise system.   

7. Treat franchisees with uniformity

Franchisors could be accused of breaching their good faith obligations under the
Franchising Code of Conduct if they single out a particular franchisee. If audits are to be
carried out and consequences for non-compliance enforced, then all franchisees must
be treated equally.

By implementing these strategies, franchisors can ensure that their franchisees are
complying with their legal obligations towards employees and franchisors can protect the
reputation of their brand and goodwill of the franchise system.