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In light of the recent parliamentary inquiry into the operation and effectiveness of the Franchising Code of Conduct (the Code), the Fair Work Ombudsman (FWO) is focusing its investigations on the franchise sector and the protection of vulnerable workers.

In this article, we will discuss:

  • the FWO and its role;
  • the vulnerable workers legislation as it applies to the franchise sector;
  • the FWO’s powers and the investigation process; and
  • what you, as a franchisor, can do to ensure compliance and avoid prosecution.

The Fair Work Ombudsman

The FWO is the regulatory body responsible for enforcing Australia’s workplace laws including the:

  • Fair Work Act;
  • National Employment Standards (NES); and
  • system of modern awards which sit within the NES framework.

Part of the FWO’s enforcement policy is to carry out workplace investigations to determine whether there has been a breach of workplace law. The FWO can carry out an investigation upon receipt of a complaint or at its own initiative.

Vulnerable Workers Legislation

Partly in response to large scale underpayment cases involving well-known franchises, the government introduced the vulnerable workers legislation. This legislation:

  • created a new offence under the Fair Work Act for ‘serious contraventions’, carrying penalties significantly higher than those which were previously available. For example, serious contraventions now carry penalties up to $630,000 for corporations and $126,000 for individuals;
  • provided that a franchisor can be held responsible for franchisee breach of workplace laws and that franchisor knew or could reasonably have been expected to know that the breach would occur;
  • armed the FWO with new investigative powers; and
  • heightened record-keeping requirements. For example, in some situations, if an employer who allegedly breaches workplace laws has not kept relevant records, they will be assumed to have breached the law.

The FWO’s Powers and Process

Powers of the FWO

The FWO is armed with a range of powers to assist in the enforcement of workplace laws. Among other things, FWO inspectors have the power to:

  • enter premises if they reasonably believe the Fair Work Act applies to the workplace or records relevant to compliance are on the premises. Inspectors must show ID on entry and may enter outside of business hours. They do not need the consent of the occupier to enter the premises;
  • inspect work, processes or objects and conduct interviews with the interviewee’s consent. They can also request and make copies of specific records and documents, including those on computers;
  • request a person’s name and address if the inspector reasonably believes that person has contravened the Fair Work Act, including requesting that the person provide their driver’s licence or other identification; and
  • issue a notice to produce records or documents within 14 days of the provision of the notice. In NSW, a person cannot refuse to comply with the notice on the grounds that doing so may incriminate them. This may differ in other jurisdictions.

The Investigation Process

Intentionally hindering or obstructing a FWO Inspector can constitute a breach of the Fair Work Act. If an employer is investigated by the FWO, the investigation will often take the following course:

  • firstly, collection of evidence. The FWO Inspectors will collect evidence, usually in the form of payslips, hours of work records and contracts of employment. The FWO may collect this evidence by requiring an organisation to provide it, interviewing individuals or otherwise by collecting it itself; and
  • secondly, considering whether a breach has occurred. The FWO will then consider whether there is sufficient evidence to deem that a workplace law has been breached.

FWO Enforcement

There are a broad range of options available to the FWO if it determines there is enough evidence to suggest a breach has occurred. These include:

Contravention or Compliance Letters The FWO may write to the organisation alleged to have breached a workplace law, outlining the contravention and advising how the breach can be fixed.
Caution Letter The FWO can issue formal warnings. These are relevant if the organisation breaches a workplace law a second time
Infringement Notices These notices are effectively on-the-spot fines for breaches of workplace laws of up to:

  • $1,260 per breach for an individual; and
  • $6,300 per breach for a corporation
Enforceable Undertakings An undertaking is a written agreement between the organisation and the FWO. Essentially, an enforceable undertaking is an alternative to prosecution that:

  • includes an acknowledgement of the breach;
  • requires a promise from the organisation to fix the breach; and
  • requires compliance with the laws going forward
Compliance Partnerships Compliance partnerships are like undertakings. However, they include an agreement from the organisation to work alongside the FWO, usually over a period of a few years, to ensure and promote compliance with workplace laws.
Prosecution The FWO can take an organisation to court and seek:

  • penalties against the organisation or individuals involved in breaches; and
  • orders to ensure entitlements are paid.

How You Can Avoid Prosecution


For franchisors, the FWO has recently released a ‘Guide to promoting workplace compliance in your franchise network’ which includes the following four recommendations:

  1. set expectations;
  2. educate and train;
  3. monitor compliance; and
  4. take further action where necessary.

Above all, franchisors need to take active steps to ensure the franchisees in their network are complying with workplace laws.


For franchisees, however, the following practical steps should be considered to ensure compliance with workplace laws:

  • review rates of pay: ensure employee pay rates sufficiently meet the minimum requirements set out in any legislation relevant to their employment. Ensure you consider whether those minimum rates consider things like penalty rates and overtime;
  • audit modern award coverage: determine whether a modern award applies to your business and employees. If so, ensure compliance with that award including things like minimum rates of pay, loadings, break times, overtime and penalty rates.
  • consider employee entitlements: permanent employees are entitled to minimum employee entitlements like annual and personal leave. Ensure your accounting practices accrue these (and other) employee entitlements.
  • consistently keep records: the Fair Work Act requires employers to keep time and wage records for seven years. The matters an employer must record are very detailed and broadly include things like employment details, pay records, hours of work and leave entitlements In some situations, you may need to keep records on individual flexibility agreements, superannuation contributions, guarantees of annuals earnings and transfer of business details.
  • confirm employment types: ensure each employee’s type of employment is correct. For example, ensure casual employees are not more appropriately characterised as permanent employees. Ensure independent contractors are not more appropriately characterised as employees.

Key Takeaways

Both franchisors and franchisees should carefully consider any employment-related legal requirements they have. Considering these requirements is vital, particularly in light of the recommendations made by the parliamentary inquiry into franchising and the FWO focusing its investigations on the franchising sector. To ensure compliance and avoid prosecution, franchisees can:

  • review rates of pay;
  • audit modern award coverage;
  • consider employee entitlements;
  • consistently keep records;  and
  • confirm employment types.

For franchisors, closely monitoring franchisee compliance with workplace laws is essential. Particularly considering that, in some situations, franchisors can be held responsible for franchisee breach of workplace laws. If you have any questions, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.


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