In Short
- Franchisors can be held liable for wage underpayments and employment breaches within their franchise network if they fail to take reasonable steps to prevent them.
- Non-compliance can lead to heavy fines, reputational damage, and legal costs.
- To reduce risk, franchisors should train franchisees, monitor compliance, and enforce clear contractual obligations.
Tips for Businesses
Protect your franchise by educating franchisees on employment laws, conducting regular audits, and integrating payroll monitoring systems. Include compliance clauses in franchise agreements and support franchisees with resources. If unsure, seek legal advice to prevent costly penalties and ensure your network follows workplace laws.
As a franchisor, ensuring your franchise system complies with the law is a critical responsibility. In Australia, fair treatment and proper remuneration of franchisee staff are not just about protecting your brand reputation – they are legal requirements. Under Australian law, franchisors can be held accountable for wage underpayment or other employment law breaches within their network. This article explores how you can ensure fair pay across your franchise and avoid non-compliance risks.
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Understanding Franchisor Liability Under Australian Law
The Fair Work Act 2009 is the cornerstone of employment law in Australia. It sets out minimum wages, conditions, and protections for workers. All employers, including franchisees, must adhere to this. As a franchisor, you are not typically the direct employer of franchisee staff. However, you are not off the hook when it comes to liability.
The Protecting Vulnerable Workers Act 2017 introduced significant changes to the Fair Work Act, imposing potential liability on franchisors. This legislation holds franchisors accountable if franchisees fail to meet their employment obligations. It explicitly focuses on franchisors who knew, or should have reasonably known, about underpayments or breaches within their franchise network and failed to take reasonable steps to prevent them.
Penalties for Breaches
The penalties for non-compliance can be significant. If a franchisee breaches workplace laws and you, as the franchisor, are found to have been complicit or negligent, you could face:
- Fines: the maximum penalties for a serious contravention by an individual or small business will be $18,780 per contravention for an individual and $93,900 for corporations per contravention. For larger companies, the new maximum penalty has increased to $469,500 per penalty.
- Reputational Damage: Beyond financial penalties, being associated with worker underpayment can significantly harm your brand’s reputation. Publicised investigations by the Fair Work Ombudsman (FWO) can shatter brand confidence and deter potential franchisees and customers.
- Legal Costs and Remediation Orders: In addition to financial penalties, you may be ordered to pay outstanding wages to employees and cover legal costs associated with each breach.
- Potential Criminal Penalties: In extreme cases involving severe or repeated breaches, criminal penalties could be introduced as part of further legislative reforms.
Your Responsibilities as a Franchisor
To avoid these consequences, you must actively promote and ensure compliance with employment laws across your franchise network. This is how you can do so effectively:
1. Provide Thorough Training and Resources
One of your primary roles as a franchisor is to educate your franchisees about their obligations under the Fair Work Act. This includes providing clear information on:
- minimum wage rates: these vary by award, job classification, and employee age;
- penalty rates and overtime: ensure franchisees understand the entitlements for weekend, public holiday, and night or overtime work; and
- record-keeping and payslips: franchisees must maintain accurate records and issue payslips that meet Fair Work standards.
Offer regular training sessions and refreshers for all franchisees on these topics. You can also develop resources such as:
- compliance manuals;
- templates for employment contracts; and
- checklists for payroll management that can reduce your risk.
2. Implement Rigorous Compliance Systems
Establishing systems to monitor and ensure compliance is crucial. Consider:
- audits and reviews: conduct regular audits of franchisee payroll records. This proactive approach helps identify and rectify potential issues before they can escalate; and
- support mechanisms: set up support mechanisms for franchisees or franchisee employees to raise queries or concerns without fear of reprisal.
3. Set Clear Expectations in Franchise Agreements
Your franchise agreement should include provisions that mandate compliance with Australian workplace laws. It should outline:
- the franchisee’s obligations regarding employee entitlements;
- the franchisor’s rights to audit or inspect payroll records; and
- consequences of non-compliance, such as termination of the franchise agreement.
These clauses ensure franchisees understand their responsibilities and the seriousness of maintaining lawful operations.
4. Actively Supervise and Monitor
The courts have shown little leniency toward franchisors who adopt a ‘hands-off’ approach. To reduce risk, take a proactive stance in overseeing your franchise network by:
- using a payroll software that can be integrated across the network for consistency and transparency; and
- requiring franchisees to submit periodic compliance declarations or payroll reports that confirm their adherence to workplace laws.
By taking these steps, you create a culture of accountability and transparency. You will likely reduce the occurence of systemic underpayment issues across your network.
5. Support Franchisees in Meeting Obligations
Some franchisees may lack the expertise or resources to understand and fully comply with employment laws. As a franchisor, you can support them by offering:
- in-depth onboarding training regarding their payroll and employment responsibilities;
- payroll management services or partnering with providers to offer discounted rates; and
- legal or HR support to clarify award requirements and resolve disputes.
This collaborative approach helps franchisees meet their obligations. It also ensures you take all reasonable steps to support them across your network.
What To Do If a Breach Occurs
Despite your best efforts, breaches can occur. It is essential to act swiftly and decisively to address them:
- Investigate the Issue: Work closely with the franchisee to understand the scope of the breach. Thoroughly review payroll records and any employee queries or complaints.
- Rectify Underpayments: Ensure affected employees are paid their outstanding entitlements promptly. This includes back pay, interest, and any applicable penalties.
- Cooperate with Authorities: If the FWO becomes involved, cooperate fully with their investigation.
- Review and Improve Processes: Learn from the breach and adjust your systems to prevent similar issues in the future. Consider additional training and more frequent audits across the network.
The Benefits of Ensuring Fair Pay
While the legal and financial risks of non-compliance are significant, ensuring fair pay across your franchise network also offers substantial benefits:
- brand reputation: compliant practices enhance your reputation and make your brand more attractive to potential franchisees and customers;
- stronger franchise relationships: supporting franchisees in meeting their obligations fosters trust and loyalty within the network; and
- reduced employee turnover: fair treatment and pay improve employee satisfaction, leading to better retention and productivity.
Key Takeaways
As a franchisor in Australia, you must ensure fair pay across your network by:
- understanding your responsibilities;
- taking proactive steps to promote compliance; and
- providing ongoing education and support to your franchisee.
Doing so can protect your brand and contribute to a fair and equitable workplace. With the right systems and support, you reduce your liability risk and build a more substantial and sustainable franchise network.
If you have any questions, our experienced franchising lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page.
Frequently Asked Questions
Ensuring fair pay across your franchise network is not just about protecting your brand reputation – it is a legal requirement. Australian law holds franchisors accountable for wage underpayments or employment law breaches within their franchise system.
Yes. Under the Fair Work Act 2009 and the Protecting Vulnerable Workers Act 2017, franchisors can be held responsible if they knew – or should have known – about underpayments or breaches and failed to take reasonable steps to prevent them.
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