Franchisors: Supervise your franchisees' dispute resolution activities - by Tristam Price

Here’s a PR disaster: Sanguine (Nelson) Ltd recently sued a young woman who had recently resigned, along with her new employer, and lost.

Sanguine is a one of about 50 franchises of the very successful and respected Caci Clinic.

Buying a franchise is a good way to get into self-employment. While franchisees don’t have as much autonomy as business owners who start from scratch, or buy a standalone business outright, franchisees generally enjoy a good level of security that comes from training and mentoring and having some of the technical decisions made by experts. Apart from not having full autonomy, the only disadvantage of franchising that I can think of is having to pay a percentage to the franchisor. I prefer a subcontracting business model because it’s a less formal relationship, but that’s mostly a reflection of the type of work done.

This appropriate determination by ERA Member Helen Doyle http://www.nzlii.org/nz/cases/NZERA/2020/189.html (although it incorrectly notes Sanguine as a franchisor when it’s actually a franchisee) shows that Ms Fenwick, who divides her time between working for the family retail business, working as a cosmetic nurse and studying, gave four weeks notice of resignation to Sanguine after accepting an offer of employment from EnhanceSkin Ltd (presumably also part-time).

Sanguine issued a Statement of Problem in the ERA attempting to enforce a restraint of trade clause in Ms Fenwick’s employment agreement.

They lost, and why they lost is in detailed in the above determination but is not relevant for the purpose of this blog. Sanguine has now caused reputational harm to Caci and its stakeholders (mostly other franchisees) for its mean-spirited and anticompetitive conduct in relation to a departing employee.

We have no idea what if any communications took place between Sanguine and the Caci Clinic Head Office when considering applying for, presumably, a Compliance Order in relation to Ms Fenwick’s restraint of trade clause. But if I were the big boss, I would have prohibited Sanguine from taking this action.