Enterprise agreements in the franchise space are common, especially among large franchisors. It provides certainty for employers and employees across the network, allows for greater financial forecasting and enables franchisors to put in place network-wide employment systems based on the terms of the agreement.
However, enterprise agreements can have potentially detrimental effects on franchise networks, particularly when the fixed terms of such an agreement ends. In this article, we revisit enterprise agreements and how their use in the Domino’s Pizza franchise demonstrates the negative flow-on effects of large scale enterprise agreements in franchising.
What is an Enterprise Agreement?
An enterprise agreement sets out the minimum employment conditions of workers and can apply to a single business, group of companies (e.g. franchisees of a franchise) or, in some cases, an individual employee. The agreement is only binding if a majority of affected employees agree to its terms. The Fair Work Commission must also approve the proposed enterprise agreement, and ensure it passes the ‘Better Off Overall Test’ (BOOT) (set out in section 193 of the Fair Work Act 2009 (Cth)). In effect, the Commission must find that each employee under the Agreement will be better off overall than under the relevant modern award.
In 2009, an enterprise agreement for Domino’s employees was registered, which has now expired.
The Domino’s 2009 wage agreement did not pay the penalty rates stated in the Fast Food Industry Award 2010. Although the Domino’s enterprise agreement may have passed the BOOT in 2009, the applicable award – particularly increases to penalty rates introduced post-2009 – meant their Agreement was very unlikely to pass the BOOT today. The current award includes loadings for work after 9 pm Monday through Friday, and on Saturdays, Sundays and public holidays.
As a result of their expired agreement, and the changes to the award, Domino’s franchisees will have to pay its staff significantly more than it had been. The likely effect is that Domino’s will experience a material increase in labour costs this year that could stifle expenditure on other areas, including innovation and promotion.
Therefore, while the previously operative enterprise agreement may have benefited the Domino’s franchise network significantly between 2009 to now, it makes the future of the pizza giant somewhat unclear. A potential franchisee, for example, cannot rely on the financial success of another franchise in assessing the viability of its potential investment. The significant increase in labour costs could see some employees at risk if, for example, Domino’s introduces a policy of hiring cheaper workers (such as young workers) and outsources tasks previously undertaken by employees.
At present, the likely result of the agreement ending is unclear, and negotiations for a new arrangement are ongoing. Although the future financial success of Domino’s will remain to be seen, at least for now, their employees will receive higher salaries and penalty rates for overtime and weekends.
Enterprise agreements can be a great way for you to bargain and negotiate with employees. However, to gain the Fair Work Commission’s approval, it must pass the BOOT test as well as a slew of other requirements. If you have an enterprise agreement in place in your company or franchise network, ensure that it has not become outdated in the face of amendments to awards. If you have any questions, get in touch with our employment lawyers or franchise lawyers on 1300 544 755.