Franchising a Hong Kong Business: Defining Employment Responsibilities Between Head Office and Franchisees

Converting company-run outlets to a franchise model involves more than handing operating procedures to another business owner. Who should take responsibility for recruitment, payroll and staff rotas previously managed centrally by head office? A franchise network needs consistent service standards, but it also needs clear boundaries around employment management. Head office should avoid describing franchisees as independent operators while directly instructing their staff day to day.

1. Identify the employer before allocating management authority

The Hong Kong Trade and Industry Department’s business start-up guidance explains that franchisees are independent business operators, not employees of the franchisor, and that their relationship is based on a contract. However, simply including the words ‘independent operator’ in a franchise agreement does not automatically settle who employs the franchise outlet’s staff.

Hong Kong currently has no legislation specifically governing franchising, nor any general statutory franchise disclosure requirements, franchise registration system or mandatory franchise code. The relationship is primarily governed by general contract law and other applicable legislation. Where staff are employed, relevant laws include the Employment Ordinance, the Employees’ Compensation Ordinance and the Mandatory Provident Fund Schemes Ordinance.

An employment relationship must be assessed by looking at the actual arrangements, not just the names given to documents. Before launching a franchise, head office should identify the legal entity employing each role, who pays wages, who can change duties, and who decides on disciplinary action and termination of employment. If the franchisee is a limited company, documents should state its full company name rather than simply the outlet’s trading name.

Pay particular attention to offer letter templates, recruitment platform accounts and payroll systems carried over from company-run outlets. Sharing a brand name does not mean head office can continue issuing employment offers in its own name while expecting the franchisee to bear all responsibility.

2. Separate brand standards from staffing decisions

Head office can set service procedures, uniform requirements and the skills required for each role. Recruitment, pay, leave, rotas and day-to-day staff management should, however, sit with the franchisee. This division of responsibilities should be recorded in the franchise agreement and reflected consistently in the operations manual.

Start by drawing up a responsibility matrix:

• Recruitment and offer letters: The franchisee should confirm the terms of employment and issue offers in the actual employer’s name. Head office can provide job description templates.
• Wages and statutory entitlements: The employer should handle wages, leave, Mandatory Provident Fund (MPF) contributions and related records. Head office’s provision of administrative systems should not blur this responsibility.
• Service quality: Head office should raise improvement requirements with the franchisee or its designated store manager, leaving the outlet’s management to arrange implementation.
• Discipline and dismissal: Head office can report facts and highlight risks to the brand, but observations from store visits should not become direct instructions to dismiss franchise employees.

For example, if head office finds that an employee has failed to follow food-handling procedures, it should document the issue and require the franchisee to take safety and corrective measures, rather than announce the employee’s immediate suspension in a work group chat. Where there is an immediate danger, necessary safety measures should still be taken first, followed by the agreed reporting and personnel procedures.

This does not mean head office gives up oversight. It means framing brand requirements as obligations for the franchisee to fulfil, rather than bypassing the people responsible for managing its staff.

3. Make separate arrangements for secondments and opening support

Grey areas are particularly likely to arise when head office sends staff to help a franchise outlet open, or when two franchise outlets lend staff to each other. Moving people between sites simply because ‘we are all the same brand’ can leave responsibility for wages, workplace injuries and supervision unclear.

Before each support assignment, confirm in writing:

• The staff member’s existing employer and the employment arrangements during the assignment;
• The work location, duties, working hours and on-site supervisor;
• Who will pay or reimburse wages, travel and other expenses;
• Who should receive reports of accidents, absences, complaints and disciplinary issues;
• How the staff member will return to their original role when the assignment ends.

Employers must take out employees’ compensation insurance under the Employees’ Compensation Ordinance. Before staff work at another outlet, confirm with the insurer whether the actual duties, locations and secondment arrangements are covered. Do not assume that the existing policy covers every situation.

If the arrangement involves changing employment terms or transferring employment to another employer, obtain separate legal advice and ensure that any necessary consent is properly obtained. Cost-sharing or indemnity clauses between head office and the franchisee cannot override employees’ statutory rights.

4. Use a pilot to check that documents match everyday practice

Before formally recruiting franchisees, use a pilot outlet to simulate operation under an independent employer. Head office should direct operational requirements only to a designated person, while the outlet’s management handles rotas and staffing decisions. Record every situation requiring direct intervention from head office, then assess whether it arose from gaps in procedures or an incomplete handover of management authority.

The review should extend beyond the franchise agreement. Recruitment advertisements, staff handbooks, work group chats, complaints channels and payroll systems should all clearly reflect the employer’s identity. If head office administers payroll on the franchisee’s behalf, separately define the scope of that service, approval procedures and data access rights. The collection or use of employees’ personal data must also comply with the Personal Data (Privacy) Ordinance.

Finally, ask a Hong Kong lawyer to review the franchise agreement, employment documents and actual reporting and instruction procedures together. Amending a single disclaimer cannot resolve contradictions across the wider operation.

Practical takeaway: Complete an employment responsibility matrix first, then test it through a pilot. For every recruitment, payroll, rota and disciplinary decision, it should be clear who has authority to decide, who is responsible for implementation and who keeps the records.