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Are franchises a small business?

To qualify as a small business under the Small Business Fair Dismissal Code, a business must employ fewer than 15 employees, including:

  • employees in related entities (including any subsidiaries or parent companies) including those outside Australia;
  • part-time employees; and
  • casual employees employed on a regular and systematic basis.

How does this apply to franchisees of large businesses?

This question was the subject of a recent Fair Work Commission hearing in which a Ray White franchise in Brisbane’s made a jurisdictional objection to an employee’s application for unfair dismissal remedy.

The employer’s objection was based on them being a small business as it only employed four people at the time of the termination. Given this, and as the employee had not served a 12-month minimum employment period, the employer’s position was that the employee did not qualify for unfair dismissal protection.

The employee however argued that her employer was not a small employer as it was an associated entity of Ray White (Queensland) Pty Ltd. The employee submitted that the franchisor exerted significant control over the business in the way that it conducted its operations (including training, mentoring and payroll)  and therefore a six-month minimum employment period applied.

In presenting its defence, the employer was able to produce a copy of its franchise agreement which included the following clause:

11.1 Relationship of the Parties

(a) No relationship

The relationship between the Franchisor and the Franchisee is as independent contractors, and does not involve any relationship of agency, fiduciary, servitude, employment, partnership, joint venture or association. Accordingly, the employees, agents and subcontractors of one Party are not for any purpose the employees, agents or subcontractors of the other Party.

This evidence satisfied that Fair Work Commission that the employer was a Small Business Employer within the meaning of section 23 of the Fair Work Act and the nature of the franchisee relationship was not one that fell within that of associated entities as described in the Corporations Act 2001”.

The employee’s application for unfair dismissal remedy was dismissed.

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