In 2016, a number of high-profile franchises were caught underpaying their staff. To strengthen Australia’s existing employment law framework, the Federal Government introduced the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill). The Bill amended the Fair Work Act 2009 (Cth) (the law) and introduced the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017. The amendment to the law sets out an employer’s obligations and employees’ rights in the workplace. Additionally, the amendment to the law holds the franchisor responsible for a franchisee’s workplace violations if the franchisor:
- had significant control or influence over the franchisee;
- knew or should have known about the underpayments; or
- failed to take reasonable steps to prevent the violations.
This article will discuss how the Act affects franchisors across Australia and their legal liability.
Franchisor’s Liability
Following the amendments to the law, a franchisor, in certain circumstances, now incurs legal liability. A franchisor incurs legal liability if the franchisor’s subsidiary or franchisee violates specific sections of the law. For example:
- National Employment Standards;
- Modern Awards;
- Methods and frequency of payments; and
- Record-keeping obligations.
These changes widened the ‘accessorial liability’ principle under the law as it applies to the franchise industry. Accessorial liability means that an individual or company ‘involved in’ the breach could also be potentially responsible. They may be held responsible in situations even where they were not directly participating in the breach itself.
A person or company can be involved if they:
- assisted or encouraged the breach; or
- were knowingly concerned about the breach; or
- conspired with others to effect the breach.
For example, if a franchisee is caught underpaying its employees, the franchisor may be ‘involved in’ the relevant contravention if they knew and/or participated in the decision-making process for making and setting wages.
In relation to the level of knowledge required, the person bringing the proceedings (usually the Fair Work Commission) does not need to show that the franchisor actually knew about the breaches or the likelihood of the breaches arising.
Higher Penalties
The changes to the law increased penalties for ‘serious contraventions’ of specific parts of the law, and failures to maintain proper records. A serious contravention is conduct by an individual or company that is:
- deliberate (or intentional); and
- forms part of a systematic pattern of conduct, where such conduct occurs in relation to at least one person.
A civil remedy provision under the law includes a breach of the National Employment Standards or a modern award. Individuals who engage in serious contraventions of specified civil remedy provisions face a maximum penalty of 600 penalty units, or $108,000. Companies could face a maximum penalty of $540,000.
Continue reading this article below the formBan on Employees Paying Back Wages
The amendments to the law included an express prohibition on any unreasonable request by an employer for their employees to make wage back payments to the franchise business. For example, an unreasonable request would include franchisees who pay their workers the full Award rate but then ask their employees to pay a portion back to the franchisee.
The explanatory memorandum for the Bill specifically references the Inquiry into the 7-Eleven scandal and their involvement in ‘cashback’ practices. In late 2016, the convenience chain faced fresh scrutiny after some franchisees reportedly paid their employees the lawful rate and then coerced their employees to pay back a portion of their wages in cash. In some cases, the franchisee then deliberately falsified records to disguise these underpayments. As a result, this manipulation of the books left the impression that the franchisee was lawfully paying their workers. In this instance, the franchisor was also found liable under the accessorial liability provisions and the amendments discussed above.
Fair Work Ombudsman’s Greater Investigative & Enforcement Powers
The law now provides the Fair Work Ombudsman (FWO) with greater investigative and enforcement powers to take legal action. For example, the FWO could issue a notice to individuals requesting an interview and conduct the interview under oath or affirmation. A recipient must comply with the contents of any notice (including any requirement to answer questions). If you respond to questions under oath or affirmation and make false statements, you may face further consequences. The FWO can issue notices to both individuals and companies.
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Key Takeaways
The amendments to the law significantly broadened the circumstances in which franchisors can be responsible for employment law breaches by their franchisees. If you, as a franchisor, have committed a ‘serious contravention’ of the law, you are liable to pay a higher fine than before. Notably, if you are found to be sufficiently connected to your franchisee’s ordering its employees unreasonably to pay back their wages, you likely will incur further liability. Additionally, the FWO’s enhanced investigative and enforcement powers mean that you, as a franchisor, would be well advised to ensure your franchisees are operating within the confines of the law.
If you have any questions about your liability as a franchisor following the introduction of this Act, contact our experienced franchise lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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