Employment Compliance Before Franchising in Australia

Franchising an existing business means asking whether another owner can operate your model while meeting their employment obligations. A profitable outlet may depend on unpaid founder hours, unrealistic rosters or incorrect wage assumptions. Before inviting others into your franchise community, examine employment compliance as a readiness test: can the business deliver its promise with properly paid staff and practical safeguards?

1. Establish who employs staff and where responsibility sits

Start by mapping the proposed employment arrangements. Identify which entity will employ people at company-owned outlets, which will employ central support staff and whether each franchisee will employ their own team. Make those distinctions clear in contracts, recruitment materials and everyday communications.

However, separate ownership does not automatically protect a franchisor from liability for workplace breaches.

Under the Fair Work Act 2009, a responsible franchisor entity can be liable for certain contraventions by a franchisee employer. This can apply where the franchisor has a significant degree of influence or control over the franchisee’s affairs and knew, or could reasonably have been expected to know, that a relevant contravention would occur, or that a similar contravention was likely. A defence may be available where reasonable steps were taken to prevent that kind of breach.

Ask an employment lawyer to assess your proposed structure and controls. A clause saying that franchisees are solely responsible for employment is not a substitute for that assessment or for appropriate preventative action.

Australia’s Franchising Code of Conduct is a separate mandatory code under the Competition and Consumer Act 2010, enforced by the ACCC. The new Code commenced on 1 April 2025, with some requirements applying from 1 November 2025. Compliance with it does not replace workplace obligations. Check whether the national workplace relations system or a state system applies to each employing entity.

2. Rebuild the staffing budget around lawful employment

Before treating your existing outlet’s results as evidence of franchise readiness, have a qualified adviser review the staffing assumptions behind them.

Check the applicable modern award or enterprise agreement, employee classifications and actual duties. Job titles alone do not determine pay entitlements. Review ordinary hours, overtime, penalty rates, allowances, breaks, leave, superannuation and any relevant rules for junior employees, apprentices or casuals.

Then prepare a staffing budget that reflects how the proposed franchise will actually operate:

• Include opening, closing, cleaning, handovers and required staff meetings.
• Allow for paid training and time spent completing required administration.
• Budget for leave coverage and unexpected absences.
• Value the owner’s working hours rather than treating them as free labour.
• Test whether busy periods require additional staff to maintain service and safety.

For example, a food business may appear profitable because its founder prepares stock before opening without recording those hours. A franchisee who must employ someone to perform that work faces a different cost base.

If the numbers only work by overlooking employee entitlements, change the operating model before franchising. Higher sales expectations are not evidence that the gap will disappear.

3. Design proportionate prevention and monitoring

Build employment safeguards into the franchise model before launch, rather than adding them after a complaint. The Fair Work Act’s reasonable-steps assessment depends on the circumstances; there is no universal checklist that guarantees protection.

Discuss a proportionate framework with your advisers. It could include employment-law education, access to specialist advice, payroll checks and a confidential way for workers to raise concerns. Set clear expectations about addressing suspected underpayments promptly.

Decide what information you genuinely need to review. For instance, comparing opening hours, recorded staff hours and payroll totals may reveal a mismatch that deserves investigation. It does not, by itself, prove a breach.

Agree lawful access arrangements for relevant records and protect personal information. Restrict access to people who need it, use secure systems and obtain privacy advice before collecting employee-level data.

Do not rely solely on a franchisee signing an annual declaration. Equally, avoid assuming that approved payroll software guarantees compliance: incorrect classifications or settings can reproduce errors every pay cycle.

4. Create a response plan before the first concern

Allocate responsibility for receiving concerns, commissioning specialist reviews and following up corrective action. Provide an escalation route where the concern involves the franchisee personally, so workers are not simply referred back to the person they are reporting.

Your process should distinguish between an administrative mistake, a disputed interpretation and indications of deliberate non-compliance. Seek advice on any required back payments, record corrections and further investigation. Do not promise confidentiality that cannot be maintained during a lawful investigation.

Have your franchise lawyer align cooperation and monitoring provisions with the agreement, the Code’s good-faith obligation and applicable unfair contract terms laws. Avoid making automatic termination the only response to every employment issue.

Practical takeaway: Before offering a franchise, obtain an employment compliance review of your staffing model, cost the work realistically and establish a proportionate prevention and response process. Lawful employment should be achievable within the business model, not left for each franchisee to solve.