Buying a NZ Franchise: Check Employee Obligations

Buying an established franchise can mean taking over an experienced team as well as a customer base. However, staff continuity is not guaranteed, and employment liabilities can change the real cost of your purchase. Before committing, establish who employs the team, what obligations may follow the transaction and whether the people who keep the business running intend to stay.

1. Establish what you are buying and who employs staff

Start by distinguishing a purchase of business assets from a purchase of shares in the company operating the franchise. This affects how employment is handled.

In a share purchase, the employing company generally remains the same legal entity. Its existing employment obligations remain with it, so historical payroll problems can become your commercial problem as the new owner.

In an asset purchase, the employer usually changes. Do not assume staff automatically transfer, or that you can simply choose whom to retain without considering statutory protections and existing agreements. Your lawyer should explain the process applicable to each employee group.

Also confirm the employer named in employment agreements and payroll records. A uniform bearing the franchise brand does not establish whether someone works for the seller, the franchisor or another company.

Ask the seller to explain any shared staffing arrangements. If the manager works across several outlets, find out whether their full working week is actually available to the business you are buying.

2. Build an employment due diligence file

Request an anonymised staffing schedule initially, followed by appropriately controlled access to personal records where necessary and lawful. Employment information should be handled consistently with the Privacy Act 2020, rather than circulated freely among everyone involved in the sale.

Have your advisers review:

• Employment agreements, variations and relevant workplace policies.
• Roles, pay rates, guaranteed hours and actual hours worked.
• Holiday and leave records, including accrued entitlements.
• Bonuses, commissions and other promised benefits.
• Any collective agreement coverage and applicable obligations.
• Current grievances, disputes, claims or compliance concerns.
• Contractor arrangements that may need closer examination.

Compare the paperwork with payroll reports and rosters. An agreement showing limited hours is not enough if the employee routinely works substantially more. Ask your accountant to test whether the reported wage bill reflects the staffing needed to operate the outlet properly.

Investigate owner labour too. If the seller regularly covers opening shifts, deliveries or administration without a market-rate wage appearing in the accounts, the replacement cost belongs in your assessment.

3. Understand the New Zealand legal framework

New Zealand has no franchise-specific legislation governing the ongoing franchise relationship, no statutory franchise disclosure regime and no franchise registration requirement. General laws apply across the franchising community.

For employee issues, the Employment Relations Act 2000 is central. It includes rules concerning restructuring and protections for specified categories of employees, commonly described as vulnerable employees. Depending on the work and transaction, eligible employees may have rights to transfer to a new employer. Employment agreements must also contain employee protection provisions addressing relevant restructuring situations.

The Holidays Act 2003 and Minimum Wage Act 1983 are relevant to checking pay and leave compliance. The Contract and Commercial Law Act 2017 and Fair Trading Act 1986 also form part of the wider legal framework for the purchase.

Membership of the Franchise Association of New Zealand is voluntary, but members must follow its Code of Practice and Ethics. That code is not a replacement for employment law. Neither franchisor approval nor a standard franchise agreement settles the buyer’s obligations towards staff.

Get transaction-specific employment advice before making promises about jobs or issuing new agreements.

4. Agree responsibility for costs before settlement

The sale and purchase agreement should explain how employment matters will be handled, rather than leaving them for the handover meeting.

Ask your lawyer to document responsibility for employee communications, offers of employment where required, notice, redundancy obligations and leave entitlements. Your accountant should check that any settlement adjustments match the agreed legal treatment and reliable payroll records.

Seek appropriate contractual protection for undisclosed employment claims or historical underpayments. A seller’s promise to cover a liability does not remove an employee’s statutory rights, and its practical value depends on enforceability and the seller’s ability to pay.

If records are incomplete, resolve the uncertainty through further investigation, negotiated protection or a properly drafted purchase condition. Do not treat an unexplained payroll gap as a minor administrative issue.

5. Test whether the team will stay

With the seller’s agreement, arrange suitable discussions with key staff. Ask about responsibilities, availability and what support they would need through a change of ownership. Avoid promising continued employment or changed terms before taking advice.

Document any seller handover duties, including introductions and explanations of staffing routines. Identify a fallback if a key manager leaves: who can open the premises, supervise shifts and maintain service standards?

Practical takeaway: Before buying an existing franchise, reconcile the staffing records, obtain employment advice and put the agreed handover responsibilities in writing. An established team is an advantage only when you understand both its value and its obligations.