Franchise New Zealand | Winter 2026 | Year 35 Issue 02
50
Franchising is one of New Zealand’s most established and influential
business models. It drives rapid growth, supports entrepreneurship, and
creates thousands of jobs across a wide range of sectors.
From MBIE’s perspective, franchising also presents a unique opportunity. When
employment practices are established well from the outset, they can deliver
positive outcomes for workers and businesses as franchise networks grow.
MBIE’s Labour Inspectorate and Employment Services teams work closely
with franchisors, franchisees, and industry groups like the Franchise
Association of New Zealand.
Based on MBIE’s work, many employment issues in the franchising sector
appear to arise from non-compliant design and use of payroll systems, not
understanding employment obligations, or insufficient support for franchisees
in managing complex employment requirements.
MBIE’s view of the franchising sector
Done well, franchising can provide the structure, consistency and support
needed to achieve strong employment outcomes.
However, the model also has characteristics that can unintentionally amplify
risk, including:
• multiple franchisees running under one brand
• varying levels of capability and experience across franchise owners
• centralised systems that are replicated widely
• commercial pressure, particularly in labour‑intensive sectors
When a misunderstanding or poor decision is built into a franchise system, it
is often repeated across multiple sites. As a result, MBIE sometimes sees the
same employment issues across multiple franchise sites, sometimes years
after the original decision was made. From a regulatory perspective, repeated
issues across a network can show the problem sits within the end-to-end
system itself, rather than being isolated to individual stores.
As a regulator, MBIE provides education and takes enforcement action where
needed. Our focus is preventing harm to workers and supporting businesses
to comply with their obligations. Enforcement is used where necessary and
proportionate. Within this context, franchisors play a critical role in prevention.
Common employment issues in franchising
Recent cases involving franchised operations consistently highlight a small
number of recurring themes, including:
• non-compliance with minimum employment standards, particularly around
minimum wage, annual holiday pay, public holidays, and record-keeping
and employment agreement requirements
• misunderstandings around availability clauses and hours of work
• unpaid trial shifts or informal work arrangements
• vulnerabilities for migrant workers, including reliance on employers for
visas and lack of clarity around rights
• failures to act early when issues are identified, allowing arrears and
penalties to grow
One clear takeaway from these cases is that many of these matters could
have been prevented through clearer guidance, stronger oversight, and
earlier engagement.
The following examples are based on anonymised cases MBIE regularly
encounters across the franchising sector.
Case Study 1: When “trial” means payable work
In one case, a franchisee engaged a worker for what they believed was a
short “trial” to assess suitability. The worker performed normal duties over
several shifts but was never paid, as the franchisee understood this to be
standard industry practice.
After the worker made a complaint, an investigation found that the
worker was an employee who completed work which should have been
paid at least the minimum wage, with proper records kept. As a result,
back pay and compensation were ordered by the Employment
Relations Authority.
Key lesson: Unpaid trials are one of the most common misunderstandings
in franchised businesses. While genuine assessment processes are allowed,
work that benefits a business must be paid. Clear franchisor guidance at the
recruitment stage could have prevented the issue entirely.
Case Study 2: Payroll systems do not remove responsibility
In another case, a franchisee relied on payroll software and external advisers
to calculate pay and leave entitlements. Over time, mistakes in holiday and
leave pay built up and affected several staff.
When the problem came to light, the business had to repay staff, comply
with compliance orders, and pay penalties - despite the underpayment being
unintentional.
Key lesson: Using payroll systems or advisers does not transfer legal
responsibility. Franchisors who understand common payroll risk points
and support franchisees with audits or guidance can significantly reduce
these outcomes.
From MBIE’s experience, employment law compliance in franchising
is most effective when treated as a lifecycle responsibility, aligned with
the commercial life of the franchise contract. We suggest taking a lifecycle
approach - utilising the following PLAN - SOURCE - MANAGE stages.
PLAN: Designing compliance into the
franchise model
The plan stage is where many future problems are either prevented — or
unintentionally created. Good franchisors treat employment obligations
as a core system requirement, rather than solely a responsibility of
individual franchisees.
This includes:
• embedding minimum employment standards within franchise agreements
and operating manuals
• providing compliant, up‑to‑date employment agreement templates
• setting clear expectations around record‑keeping, payroll, and leave
• clearly distinguishing between employees and contractors
From MBIE’s perspective, planning for compliance is not about taking over
the franchisee’s legal responsibility. Rather, it is about designing a system that
does not set franchisees up to fail. This benefits both franchisees and the
brand as a whole.
Where employment expectations are unclear at the start, franchisees may
rely on their own assumptions, often based on industry norms or advice that
may not be complete or accurate.
Abhay Kolhe of MBIE’s Employment
System Guidance & Engagement
team provides case studies and useful
planning tools to help franchisors and
franchisees ensure they stay on the
right side of employment law
GETTING
EMPLOYMENT
RIGHT IN
FRANCHISING
Managing & Running a Franchise
Image: www.stock.adobe.com/Fahrus sinatria