If you are a franchise owner in New Zealand, it is essential to understand the relevant consumer law that affects you. Unlike in other jurisdictions such as Australia and Canada, New Zealand does not have any franchise-specific legislation. Therefore, the law does not require you to register your business as a franchise, nor require you to provide any disclosure documents. However, like any business, franchisors are still subject to New Zealand consumer law. This article will explain how the consumer law applies to your franchising business.
Setting up a Company
Most franchisors are set up as a company, and there is a reason for this. It is so that owners can reap the benefits of limited liability. Consequently, if your franchise goes bankrupt, your personal assets cannot be taken to pay creditors. There are three requirements to set up a company in New Zealand. These are:
- there must be a physical location for the address of the business;
- one director must live in New Zealand; and
- there is a requirement for information about a holding company if registering a subsidiary.
Additionally, some rules require companies to disclose their financial statements with the Companies Register. These rules are where:
- a company holds 25% or more of the voting share of a company registered out of New Zealand; and
- the assets of a company total more than 20 million NZD.
Fair Trading
There are laws in New Zealand that govern how a business can trade and what guarantees consumers have. The main issue that franchisors should familiarise themselves with is avoiding false representations. This means that businesses have to make sure they are not misleading customers through their advertising or making false claims about their products. Additionally, New Zealand laws also prohibit Ponzi schemes such as pyramid selling and bait selling.
Consumers also have a set of rights that are enforceable against businesses. These include:
- acceptable quality of the product;
- delivery of the product;
- price guarantee; and
- fitness for purpose.
Competition Law
Franchisors must also take care when drawing up contracts. This is as most franchise agreements will have a set price for selling goods. A clause doing this can sometimes be seen as a ‘cartel arrangement’, which is where two parties collude to fix prices. Therefore, if your franchisor is in direct competition with your franchise, your franchise agreement should have a cartel provision that excludes liability for cartel arrangements.
Intellectual Property
Relevant New Zealand laws regulate Trade marks. To trade mark something in New Zealand, you must submit an application. If there is no objection to the trade mark within three months, the trade mark will be issued within six months. You must renew trade marks every ten years. Trade marks are also privy to international law, so trade marks are concurrently filed in 90 countries worldwide.
Employment Law
If your franchise has any employees, your franchise will be subject to employment law. Employees include those who:
- are under the direction or control of an employer;
- control or manage premises that are primarily used as a workplace; and
- are involved in the design, creation or supply of a product.
The main issues that employers must consider include:
- minimum wage increase;
- holiday pay; and
- health and safety regulations.
Key Takeaways
Even though there is no franchise-specific law in New Zealand, all franchises are still subject to consumer law. You must be aware of the legal requirements that come with this if you register your franchise as a company. This may include specific financial reporting requirements if an overseas entity partly owns your business. Some of the areas of law that may affect your business include:
- Fair trading;
- Competition Law;
- Intellectual Property law; and
- Employment law.
This is not an exhaustive list as there are other areas of law that you must consider. If you are unsure of your consumer law requirements, contact LegalVision’s franchise lawyers on 0800 005 570 or fill out the form on this page.
Frequently Asked Questions
No, your franchise can be set up as a sole trader, partnership or company. There are benefits and drawbacks to each business structure.
In that case, you will be responsible as the employer who broke the law.
Most franchise agreements will include a clause that states that any breaches of the law will terminate the franchise agreement.
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