Employment essentials: 7 simple steps for new franchisees

Joining a franchise network has always been a popular option for prospective business owners. The customer base is already established; marketing, supply chain logistics, and product development is taken care of by the franchisor; and there’s a vast support network in place often with decades of experience in running a successful business that can be tapped into.

However, it is important to remember that while the franchisor may provide many of the systems in place within the workplace, the freedom of running a business comes with the responsibility of making sure that the business is complying with Australian workplace laws.

In this article, we break down our 7 “simple steps” that a prospective or new franchisee should keep in mind as they transition to business ownership.


Know your award

Modern awards are documents created by the Fair Work Commission (usually in consultation with unions, employer groups and governments) that apply to specific industries or occupations. These awards contain the minimum standards of employment for your employees, including rates of pay, penalty rates, and even rules about how your employees are allowed to be rostered.

For this reason, it’s important to be across the modern award that applies to your new business from the start.

The Fair Work Commission maintains a list of all the modern awards that can be accessed here.

If you are acquiring an existing business, it is possible that there will be an “enterprise agreement” in place. Enterprise agreements are similar to modern awards, except that they have been negotiated between an individual employer and their employees. There are special rules that deal with transfers of business when it comes to enterprise agreements, and it is highly recommended that you seek legal advice on your obligations when it comes to these.


Classify your employees

Modern awards require an employee to be assigned a classification under the award. An employee’s classification is effectively their job.

An award typically defines each classification so that employers can select the appropriate classification for each of their employees.

For example, a Checkout Operator at a fast food outlet who takes orders and processes sales is usually a Fast Food Employee Level 1 under the Fast Food Industry Award 2010.  Since the definition of Fast Food Employee Level 1 includes “the receipt of orders” and “sale” of take-away meals among other duties.


Contracts of employment – lock down the details

When starting out it can be easy to view employment contracts as an unnecessary expense or an administrative burden. Unfortunately, many employers do not realise the necessity and value of employment contracts until it is too late.

Most modern awards require that certain information be communicated in writing to an employee. This can include:

  • what award covers the employee’s employment;
  • an employee’s classification under that award;
  • and for certain types of employees:
    • the hours of work that the employee will perform; and
    • the specific times and days when those hours will be performed.

An employment contract can ensure that this information is simply communicated and recorded in one place.

Employment contracts also provide clarity between an employer and their employee as to the nature of the employment relationship.

A lack of certainty as to the nature of an employee’s employment can present a very significant risk of causing underpayments. For example, an employee that is paid as a part-time employee but rostered and treated in a manner consistent with casual employment could be entitled to a back-payment of the applicable casual loading. It would be very difficult for an employer to argue that the employee is a part-time employee without an employment contract to evidence this.

Employment contracts need to be updated every few years to ensure that they keep pace with changes in the law. Making the effort now to update employment contracts will save you a lot of headaches later on.


Don’t assume a previous owner had it right

If you are purchasing an existing business, a common mistake that new franchisees make is assuming that the previous owner was already doing things correctly.

Contracts drafted specifically for a certain business are often uniquely adapted to the needs and circumstances of that business. Factors such as whether a business is covered by a modern award or enterprise agreement, the type of employees that are employed and whether employee remuneration will be calculated on an hourly basis or on a salary are all matters that need to be considered. Using another business’s employment contracts is like wearing your friend’s tailored suit to a wedding. It may look great on them but, unless you are remarkably similar, the suit will be a poor fit.


Employee records

The same is also true when it comes to what employees need to be paid. Ensure that you receive up-to-date employment records from the business seller. This is essential for providing certainty as to employee type, classification, length of service and leave accruals.

This is particularly important within the context of long service leave. If an employee transfers from the previous owner to you without a break in service, their long service leave will likely continue to accrue. It is absolutely essential that records are retained so that it is clear when employees reach this entitlement and the value of the payment that will be made.


Transfer of employee entitlements

It is crucial that the previous owner and yourself are clear about what will happen to employee entitlements upon the sale of the business as these can be an expensive liability if you are not careful.

If your business is not an associated entity of the business seller you can choose whether to recognise an employee’s service in respect of:

  • redundancy;
  • annual leave;
  • notice of termination; and
  • the minimum employment period.

If you decide not to recognise a transferring employee’s service with the previous owner, then it is essential to understand how entitlements such as redundancy pay and annual leave will be met.

In some cases, the previous owner may be willing to pay these amounts outright. More often, the previous owner will agree to pay the new employer a pro-rata amount of employee entitlements as part of the business sale. This is usually done on the condition that the new employer recognises the employee’s previous service.

If previous service is recognised it should be noted that employees who have already satisfied the minimum employment period (sometimes called the probation period) with the business seller will not need to do so again for the new employer in order to have standing to bring an unfair dismissal claim. Such employees will also be entitled to notice of termination calculated by reference to their length of service with both the previous owner and your business.

It should also be noted that there are very limited circumstances where a transferring employee’s service will not count with the new employer for the purposes of their long service leave accruals. This is irrespective of whether service is acknowledged for other matters such as annual leave or redundancy.


Check right to work in Australia

When hiring employees, it is important to be satisfied that an employee actually has the legal right to work in Australia. Under the Migration Act 1958 (Cth) there are significant penalties that apply if an employer does not take reasonable steps to check the entitlement of their employees to work in Australia.

An example of taking ‘reasonable steps’ would include asking an employee (or prospective employee) for any of the following:

  • Australian birth certificate;
  • Australian citizenship certificate;
  • Australian passport;
  • Certificate of residency; or
  • Visa with relevant work provisions.

A best-practice solution is to build a ‘right to work’ check into your onboarding processes for new employees.


The importance of professional advice

As a new franchisee it can be tempting to think that learning on a “trial and error” basis will eventually lead to success. However, a failure to meet employment law obligations can have a devastating impact upon a business’s finances, reputation and employee morale.

Complying with your employment law obligations can be quite complex and stressful. Fortunately, with the assistance of professionals a simple path to satisfying these obligations can be achieved.


Should you have any questions about navigating your employment law obligations telephone 1800 572 679 to speak with one of our workplace relations advisors.