Recent allegations against United Petroleum by a group of ex-franchisees highlight some common concerns that are, sadly, seen all too often in franchising.
With the key allegations centring around underpayment of staff (and subsequent termination of franchise agreements), it poses the question of why this issue seems to constantly rear its head in the franchising context.
It’s a complex issue and one that has sought to be addressed in the sector since the 7-Eleven scandal in 2015. A couple of years after this scandal, the Protecting Vulnerable Workers Act was passed to hold franchisors liable for non-compliance of workplace laws by their franchisees in certain circumstances.
This meant it was no longer good enough for franchisors to shrug off non-compliance by franchisees as ‘their mistake’. Franchisors need to take an active role in educating and training franchisees, and monitoring compliance with workplace laws.
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More than that, however, there is a need for franchisors to make sure their business model supports proper and lawful payment of wages.
In the United Petroleum dispute, the ex-franchisees claim it was impossible to pay staff full rates and still survive in business.
Likewise, franchisees need to make full enquiries and conduct proper due diligence before buying into a franchise. This joint responsibility would go a long way in mitigating the risk of underpayment issues down the track, and seems to be the intention of the Protecting Vulnerable Workers Act.
One of the other claims in the United Petroleum dispute relates to the alleged forced introduction of a Pie Face offering in all petrol stations. The ex-franchisees claim United Petroleum failed to disclose anything about Pie Face in the franchise documents, thus preventing them from making a “reasonably informed decision about the business”.
Understandably, such significant changes to the business model can be alarming for franchisees, especially where they were not able to make enquiries about the complete business model at the time of entry into the franchise. While improvements and upgrades to the business model can (and should) be made in franchising, it is a very different thing when an entirely new brand is ‘tacked on’ to the existing business.
The recent inquiry into franchising, and latest changes to the Franchising Code of Conduct, seem to address this. More full and robust disclosure of potential significant capital expenditure is required, and a discussion of this expenditure before a franchisee enters into the franchise agreement. If a franchisor doesn’t disclose this expenditure, then it cannot be forced onto franchisees.
But while there are certainly protections for franchisees at law, whether franchisees obtain the benefits of these protections is another story.
As is the case in United Petroleum, new entrants to the franchising sector are often migrants who are also vulnerable themselves, and put their life savings into buying the franchise. And while the Protecting Vulnerable Workers Act set out to protect vulnerable employees, there is a large gap in terms of vulnerable franchisees making informed decisions before buying a franchise.
Again, whilst the franchising inquiry has attempted to address this gap by ‘leveling the playing field’, the concept of joint responsibility needs to be given more emphasis. Certainly, as the owners of the brand, franchisors must commit to ensuring the business model is financially sound and viable for franchisees, as well as making full and transparent disclosure.
For franchisees, it’s about access. Access to pre-entry education and resources. Access to the full facts about the franchise. And access to specialist and independent professional advice. Only then can fairness in franchising be truly achieved.