By Drina Meyer-Jardine, MJSC Pro

A franchise brand represents the image and purpose of a business and needs to be controlled and managed to preserve the good name built over the years.  Protecting this image and brand remains a high priority to ensure franchising success.

However, suppose a franchisee operates in a manner that is not compliant with legislation, employee relations or financial governance. In that case, the brand may be threatened and exposed to brand damage, lawsuits and other damages.

Therefore, your brand must be protected when you have franchises. The most controlled manner would be to provide a centralised service provider for aspects such as payroll and Industrial Relations.

Your franchisee will be required to utilise these services from a preferred supplier who agrees with the franchisor on standards of operations and execution levels.

Many well-established employers, especially the larger ones, are starting to understand labour legislation and are trying to comply with it. However, new franchisees may be too busy with stabilising company finances, market penetration and growth to realise that they are not labour law compliant.

The result is that while the franchisee is trying to become established and to grow, it is bypassing labour legislation and landing up at the CCMA or bargaining council. These franchisees, who are otherwise engaged, need to hire a labour law expert to keep their industrial relations and labour law compliance on an even keel.

For example, they need to be made aware that the Labour Relations Act (LRA) codifies several principles which will substantially affect the ability of the new employer to manage its employees.

Some important provisions of the LRA are as follows:

  • The definition of dismissal includes the employer’s failure to renew a fixed-term contract on equal terms where the employee expected the contract to be renewed. Many new employers make extensive use of fixed-term contracts. However, because, unbeknown to the uninitiated employer, the LRA protects fixed-term employees, new employers land up spending their valuable time and money at the CCMA.

While the LRA does require employers to be much more careful about taking disciplinary action, it does not prevent employers from disciplining employees. But employers need to ensure that they operate within the bounds of the law. Those employers who wish to do so and to be able to control employees effectively should implement the following strategy as a matter of urgency.

  • Ensure that every existing and newly appointed employee fully understands all company rules.
  • Train management in IR, leadership and disciplinary skills.
  • Redesign disciplinary policies so that the implementation of discipline is based on constructive, effective, but fair corrective measures.
  • Use the services of a qualified expert to assist with training and facilitation of a disciplinary code.

When we consider a franchised business, the franchisee is responsible for his/her franchise’s compliance with the relevant labour legislation.  However, the reality is that the franchise’s entire brand, including the franchisor, is often implicated, and in some instances, even dragged into labour disputes between the franchisee and his/her staff.

One such example is a matter that transpired in October of 2019, where The Department of Employment and Labour welcomed the action taken by the Spar Guild Southern Africa Limited.  The group terminated the membership of the stores that fall within the Giannacopoulos Group for non-compliance to labour laws and the National Minimum Wage (NMW).

After raising its concerns with the Spar Guild Southern Africa about the conduct of the Giannacopoulos Group, the Department of Employment and Labour referred its owner Mr Christos Giannacopoulos to the Commission for Conciliation Mediation and Arbitration (CCMA) for violating the country’s labour laws and non-compliance to the NMW.

Issues raised in terms of labour laws violation included amongst others:

  • Failure by the employer to issue employees with contracts
  • Long working hours without overtime compensation
  • Sunday-pay, public holidays and leave not granted according to the law
  • The complaint also related to the hiring of illegal foreign nationals; and
  • Illegal deductions and long working hours,

In a letter dated October 17 2019, the Spar Guild of Southern Africa had disclosed that it had decided to terminate the membership of the stores that fall within the Giannacopoulos Group. The company said it had given the Giannacopoulos Group 30 days’ notice as is a requirement in terms of the Memorandum of Incorporation.

The franchisee was issued with an enforcement notice and given 14 days to rectify the situation. However, Giannacopolous had instead failed to remedy the situation and asked for extensions. He even asked for a meeting with the Department, which did not yield any results. Following this, the Department said in addition to being taken to the CCMA on July 31, the Giannacopoulos Group had a debt obligation of R13 million due to be paid to employees for unlawful deductions, non-compliance with NMW and overtime, among others.

From this matter, it is clear that it is in the interest of a franchise to ensure that all of its franchisees comply with the applicable labour legislation. Furthermore, it would be crucial for a franchise to ensure that all of its franchisees implement consistent and similar codes, practices and standards for its workforce that align with the group’s values as a whole. These standards and procedures should be provided to franchisees in the form of an operations and procedures manual and described by the franchise agreement as binding.

One way of achieving standardisation is to appoint an external labour expert that all franchisees may use on an outsourced basis. A labour consultant will ensure that all franchisees are compliant with the applicable legislation and that such franchisees adhere to policies and standards that align with the values and standards of the group of companies as a whole.  

Article supplied by MJSC Pro, specialist labour relations and payroll consultancy. For more information, see

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