Employee Responsibilities Before Franchising Your Business

When franchising an existing business, it is easy to focus on the brand, equipment and products. But there is an important question to answer: who is responsible for the people running the new outlet? Within a franchise network, the boundary between brand standards and employee management needs to be clear. Set this out before offering a franchise agreement, not after a complaint about pay or dismissal arises.

1. Identify the actual employer

In a typical arrangement, the franchisee operates their own business and hires its employees. However, simply stating in the agreement that the franchisee is the employer is not enough. What also matters is who actually selects and hires workers, pays their wages, has the power to dismiss them, and controls how they carry out their work.

Before expanding, draw up a list of staffing decisions. For each task, specify who makes the decision, who provides support and which document records it:

• Advertising vacancies and interviewing applicants.
• Signing employment contracts and setting pay.
• Arranging work schedules, leave and overtime.
• Assessing performance, taking disciplinary action and dismissing employees.
• Paying wages and making mandatory contributions.

If the brand owner makes almost all these decisions, ask a lawyer to review the arrangement in practice. The label used in a contract does not automatically remove liability that may arise from the actual employment relationship.

2. Separate brand standards from staff instructions

The franchisor may set standards for hygiene, product quality and customer service. However, these need to be enforced carefully so that responsibility for managing workers remains clear.

For example, if a brand inspector spots a product being prepared incorrectly, they can record the breach and ask the outlet manager to put it right. The inspector should not simply suspend the franchisee’s employee. Any disciplinary action must go through the appropriate employer and follow due process.

Establish a clear communication procedure:

1. Report the issue to the designated outlet manager.
2. Identify the standard that has not been met and the corrective action required.
3. Leave any appropriate staffing action to the employer, in accordance with the law.
4. Check that operations have been corrected without taking over employee management.

Set out a separate procedure for immediate safety risks as well. Waiting for authorisation should not be a reason to allow dangerous work to continue.

3. Prepare for employment costs and documentation

Before taking on your first franchisee, include realistic staffing requirements in your cost projections. Counting the people needed in the shop at its quietest time is not enough. Allow for breaks, rest days, leave, cleaning, receiving deliveries and closing duties.

Have the applicable minimum wage checked for the region and type of business. Include statutory benefits, such as thirteenth-month pay for covered employees, as well as overtime and holiday pay where applicable. Arrange registration and contributions under the current rules for the Social Security System (SSS), PhilHealth, the national health insurance programme, and Pag-IBIG, the national savings and housing finance scheme.

Develop template documents that the franchisee can have adapted by their lawyer or employment adviser: employment contracts, attendance records, payroll records, leave policies and disciplinary procedures. Make it clear that providing templates does not guarantee compliance with every legal requirement.

If you send your own employees to help with the opening, document the duration of the assignment, their duties, who will supervise them and who will cover the costs. Have any staff secondment or supply arrangement reviewed too, as it may raise separate employment issues.

4. Align the agreement with the law and actual practice

The Philippines has no single comprehensive law covering every aspect of franchising. There are specific regulations, including Executive Order No. 169, series of 2022, which establishes protections for franchisees that are micro, small and medium-sized enterprises. These include minimum requirements for franchise agreements and their registration with the Department of Trade and Industry (DTI).

This does not replace the Labour Code, wage orders or other employment laws. The Civil Code’s general rules on contracts also matter, but an agreement cannot be used to remove workers’ statutory rights.

Have the franchise agreement and staffing policies reviewed together. The responsibilities set out in writing should match day-to-day operations.

Practical takeaway: Before opening an outlet, make sure the employer is clearly identified, the staffing budget is adequate and the limits of each party’s authority are documented. A franchise network is stronger when responsibility for workers is clear.