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Ask the Experts: Understanding atypical provisions in franchise agreements

Pretty young business woman making notes when reading something on laptopBy Michael Kilgallin

Q: What responsibilities do franchisees have under employment contracts?

Michael says:
Whether a franchisee is taking over an operational business or starting one from scratch, his/her contractual relationship with employees is crucial. Terms of an employment contract can be implied (via court jurisprudence or legislation) and/or express (oral or written).

When taking over an operational business, the franchisee should review the contracts in place. In the eyes of the law, the franchisee will be viewed as the successor employer, inheriting all previous employment obligations (though this can be mitigated via express agreement with the franchisor or the previous franchisee).

If written employment contracts are either (a) missing or (b) poorly drafted, there is typically extra exposure for the franchisee. Additional steps will be required to implement enforceable contracts.

Employment contracts should be drafted specifically to the nature of each position. One size does not fit all. Such terms as duties, hours, compensation, benefits, termination and any policies vital to the business should be clearly set out. Care must be taken to ensure these terms are not inconsistent with applicable legislation. For more sophisticated employee positions, terms to protect the business should also be carefully drafted within legal parameters.

Finally, for an agreement to be enforceable, it should be agreed to prior to the employee starting work. Where that is not possible, options involving fresh consideration or notice of new terms are available. It is best to consult with a legal professional when drafting, reviewing or implementing employment contacts.

Q: What should franchisees know before taking on these responsibilities?

Michael says:
The law generally assumes the employer is the more powerful party to employment contracts. Employers are presumed to be more sophisticated and have more access to resources, rendering the employee more vulnerable throughout the relationship. As such, courts will interpret employment contracts—in terms of both the language used and application to the facts—with a view to protect employees.

Franchisees should ensure they fulfil their statutory obligations and draft employment contracts in clear, certain and reasonable terms. Ambiguous, unreasonable or illegal contractual terms will not be enforced by courts.

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