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Franchise Management: Employment Issues

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Labour Inspect target Subway A Subway franchisee who failed to improve employment practices has made the company a ‘priority focus’ for investigators. How can other franchisors prevent a similar problem?


he Employment Relations Authority (ERA) has ordered a Dargaville Subway franchisee, Healthop Limited, to pay nearly $10,000 in penalties and costs for breaches of the Holidays Act and failure to comply with a Labour Inspectorate improvement notice. In this article, we’ll: 1. Outline this particular case; 2. Provide a simple summary of what went wrong; 3. Look at how franchisors and franchisees might avoid similar issues arising in their own networks.

What happened?

The Labour Inspectorate visited the Subway store as part of a proactive audit in 2017 and found it was not providing staff with correct pay for working public holidays, nor was it providing them with days in lieu. Part of the problem was that staff’s usual working days had been changed before Statutory Holidays, apparently in order to avoid having to pay employees their due entitlements. The Inspectorate subsequently issued an improvement notice on 18 April 2018 requiring Healthop to rectify its practices and calculate arrears to workers by 8 June 2018.

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When Healthop failed to comply with the improvement notice, the Inspectorate lodged the case with the ERA. The ERA heard submissions in June 2019 and issued its determination on 24 July 2019. ‘Subway Dargaville was given an opportunity to set things right but chose not to do so,’ said Labour Inspectorate Regional Manager Callum McMillan in a media release dated 31 July put out by MBIE (Ministry of Business, Innovation and Employment). ‘The ERA ruling sends a clear message that ignoring the Labour Inspectorate will result in substantial penalties.’ The ERA found that most employees of Healthop were school or university students, and as such are particularly vulnerable. It also found Healthop gained financial benefit by not paying its employees their entitlements when they were due. The determination ordered Healthop to pay $7,000 in penalties and $2,225 in costs, with 21 days to comply with the issued improvement notice. According to the Companies Register, the directors of Healthop are Karen and Mark Flannagan of Maungaturoto.

Other franchisees face checks

The failure of the Dargaville franchisee to address the issues identified in 2017 will have wider repercussions for the brand, and for the businesses of other Subway franchisees, Mr McMillan said in the media release. ‘Consumers are becoming more conscious of the ethics of the businesses from which they buy. It’s baffling that a highly visible brand such as Subway does not have assurance systems in place to ensure franchisees meet employment standards and comply with demands by the regulator. It also raises questions about Subway’s due diligence processes for those joining the brand.’ And he warned that ‘Subway franchisees can expect to be a priority focus for the Labour Inspectorate,’ suggesting that the brand’s franchisees will face further investigations over coming months. A spokesperson for Subway advised, ‘All Subway franchise owners are expected to meet employment laws. Non-compliance is unacceptable and can lead to termination of an owner’s franchise agreement. Subway Franchise New Zealand

Spring 2019

Year 28 Issue 03

Profile for Franchise New Zealand

Franchise New Zealand - Year 28 Issue 03 – Spring 2019  

In this issue, we look at changing trends in food franchising and cover some of the things to consider before you buy a hospitality franchis...

Franchise New Zealand - Year 28 Issue 03 – Spring 2019  

In this issue, we look at changing trends in food franchising and cover some of the things to consider before you buy a hospitality franchis...

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