Franchising in the Philippines: Who Chooses the Staff?

Before buying a franchise in the Philippines, establish who will actually choose and manage the people running the outlet. You may be responsible for their wages, while the franchisor decides whom to hire, how many staff you need and when they can be replaced. In franchising, it is important to draw a clear line between brand standards and your authority as the business operator.

1. Distinguish between staffing standards and compulsory appointments

It is reasonable for a franchisor to set skill requirements for preparing products, handling cash and serving customers. But requiring a qualified manager is not the same as insisting that you permanently employ a particular person.

Ask for written policies on recruitment and staff management. Questions to ask include:

• Will you recruit and select staff yourself, or must you choose from a prescribed list?
• Is approval required before hiring or replacing a manager?
• Are applicants assessed on their qualifications, or does approval depend on who they are?
• Will the franchisor appoint someone, and how long will that person stay?
• Who decides what happens if their performance is unsatisfactory?

Being told that “staff are included in the package” is not enough. Establish whether the person will be your employee, a member of the franchisor’s staff on a temporary assignment, or an employee of a separate service provider. Each arrangement carries different risks and obligations.

2. Understand the law on appointed staff

The Philippines has no single comprehensive franchise law. The Civil Code governs contracts, Republic Act No. 8293, or the Intellectual Property Code, governs licensing, and the Labour Code governs employment relationships and labour standards. Executive Order No. 169, series of 2022, also sets minimum requirements for franchise agreements involving micro, small and medium-sized franchisees within its scope.

Section 87.1 of Republic Act No. 8293 is particularly relevant to staffing. In agreements covering the transfer of technology and systematic knowledge, prohibited provisions include requiring the licensee to employ personnel designated by the licensor on a permanent basis. Franchise contracts generally fall within this type of arrangement.

This does not automatically prohibit every skills standard or temporary assistance during an outlet’s opening. The specific clause and the actual working arrangement need to be examined. Under Section 92, failure to comply with the requirements of Sections 87 and 88 may render the agreement unenforceable, unless an applicable exemption has been approved and registered under Section 91.

If you are required to employ a designated person permanently, have a lawyer review the arrangement first. If the franchisor claims an exemption applies, ask for supporting documentation and check that it covers the clause being offered to you.

3. Calculate the full cost of the required staffing

Before signing, ask how many staff must be on duty at each point during opening hours, rather than just the total headcount for a typical day. Check whether there is enough cover for breaks, absences and resignations.

Prepare your own cost breakdown covering:

• Wages under the wage order applicable to the outlet’s location;
• Statutory benefits and contributions;
• Any additional pay required for particular working hours or days;
• Uniforms, recruitment and training for replacement staff;
• Any charges for a manager assigned temporarily to the outlet.

If the franchisor assigns staff to your outlet, ask who pays for travel, accommodation and other expenses. Also check whether there is a separate management fee on top of wages.

Compare these costs against a workable staffing rota for the outlet. Do not assume you can reduce staffing when sales are weak if the agreement requires a minimum number of staff.

4. Establish who bears responsibility as the employer

Simply naming an “employer” in the contract is not enough. It also matters who actually hires, pays, disciplines and controls how staff carry out their work. The legal assessment depends on the real relationship, not just the labels used by the parties.

Clarify who will prepare employment contracts, keep working-time records, pay statutory contributions and handle employee complaints. If the franchisor wants someone removed from the outlet, it should be clear whether this is merely a recommendation and how the applicable employment procedures will be followed. Withdrawal of the brand’s approval is not automatically sufficient grounds for dismissal.

Practical takeaway: Before buying, draw up a one-page checklist: who selects staff, who gives instructions, who pays and who is legally responsible. Have any inconsistencies reviewed before taking on the obligation to run the outlet.