What Are the Legal Responsibilities of Franchisees as Employers?

Entering a franchise agreement allows you to run a successful business under an established brand. However, for many, becoming a franchisee also comes with a crucial responsibility: employing and managing staff. Unlike franchisors who permit others to use their branding and business model, franchisees are often direct employers of the staff in their franchise location. It is crucial to understand the legal responsibilities of this role so you can run a compliant and successful business. This article will explain the role of franchisees as employers and provide legal insights into franchise employment practices. 

The Role of the Franchisee as an Employer 

If you operate a franchise business and employ staff, you take on the role of an employer. This role means you are legally responsible for aspects such as:

• hiring; 
• training; 
• paying; and 
• managing the employees who work at your location. 

If you do employ staff, although you are part of a larger brand, the employees who work for your franchise are your responsibility, not the franchisor’s. As an employer, you need to be aware of employment laws in the UK, including those governing:

• wages; 
• working hours; 
• contracts; and 
• employee rights. 

For example, you must share employment contracts with your staff that comply with the law and protect you and your employees. You must also ensure that you are adhering to minimum wage requirements. 

Franchisee and Franchisor: A Non-Employment Relationship 

It is crucial to understand that the franchisee and franchisor relationship is not one of employment. You operate as an independent business owner, running a separate legal entity that uses the franchisor’s brand and operational model. The franchise agreement establishes a contractual relationship between you. 

The franchisor does not directly employ you or your staff. The franchisor might stipulate particular terms around employment within the franchise agreement and set some employment procedures in the franchise operations manual. Still, they are not employers of you or your employees. This distinction has significant legal implications. You bear full responsibility for employment-related matters within your franchise location. 

Through the employment contract you share with your employees, make it clear that they are employees of your business, not the franchisor’s. This clarity can help avoid misunderstandings. 

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Legal Obligations of Franchisees as Employers 

1. Employment Contracts and Worker Rights 

Under UK law, employers must give their employees a written employment contract. This contract should outline the terms and conditions of their role, including the following:

• pay;
• hours of work; and 
• holiday entitlements. 

Employees have particular rights, including protection from unfair dismissal, unfair treatment and discrimination. As an employer, you must have policies to handle employee grievances, ensure fair treatment, and comply with equality law to prevent discrimination in the workplace. For example, if you need to dismiss an employee, you should follow a straightforward disciplinary procedure, providing warnings and allowing the employee to respond to misconduct allegations. 

2. Health and Safety Obligations

As an employer, you are responsible for the health and safety of your employees. This responsibility includes ensuring your franchise locations comply with health and safety regulations. For example, you should:

• carry out regular risk assessments;
• provide employee training; and
• ensure your employees have access to the necessary safety equipment. 

3. Payroll, Tax, and Pension Requirements 

You are responsible for paying your employees correctly and on time. You must manage payroll, calculate taxes, and ensure compliance with HMRC regulations to fulfil this obligation. It is a good idea to seek advice from a professional accountant who can help you with pay and accounts-related matters. 

Moreover, you must enrol eligible employees in a workplace pension scheme and ensure that you meet these pension obligations.

Key Takeaways

Becoming a franchisee can involve taking on significant responsibilities as an employer. Understanding your legal responsibilities as an employer is essential for running a successful franchise business. While the franchisor provides the business model and operational framework, it is you who must:

• directly manage your relationships with your employees;
• comply with UK employment law; 
• ensure your business meets legal payroll, pensions, and health and safety requirements; 
• draft clear employment contracts; and 
• set straightforward employment-related procedures to help you mitigate the risk of disputes and legal issues. 

If you are a franchisee requiring advice on your employment obligations, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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