Earlier this month, a series of news reports revealed that the Fair Work Ombudsman was investigating the Caltex franchise, in particular, franchisees for underpaying its employees. The events clearly showcase the requirement of both franchisees and franchisors to operate and comply with Australian legislation. For franchisees, it’s an important reminder that the franchise agreement is not the only legal contract they are entering into when they operate a franchise. In fact, their responsibilities extend to their employees. This article will explore the Caltex case in light of Australia’s employment laws as well as set out three lessons for franchisees.

The Caltex Experience

The Fair Work Ombudsman (FWO) planned to conduct audits on wage fraud throughout the Caltex franchise network which consists of over 600 franchisees. The FWO based these claims on the underpayment of employees. Before commencing the investigations, the FWO informed the Caltex franchisor of their intentions to investigate. It allowed the franchisor to issue notifications to franchisees regarding the FWO’s planned audits. The notifications were intended to encourage compliance within the franchise network, and the franchisor notified the franchisees that the FWO would undertake the audits at random. Caltex publicly supported the planned audits.

1. Taking Responsibility

A key takeaway from the events that have occurred in the Caltex franchise network is that franchisees are responsible for their employees. Although you operate a franchise as part of a franchise network, the franchisee is ultimately entering into a legal relationship with the employee. That means, among other things, you are required to comply with the Fair Work Act 2009 (Cth) (‘the Act’).

An important aspect to note is that often many franchise agreements also require you to comply with workplace legislation. If this is the case, non-compliance with the Act could also be considered a breach of the franchise agreement. In the Caltex matter, the franchisor has stated that they have terminated franchise agreements based on such fraudulent behaviour.

2. Choosing Wisely

The publicity that the Caltex matter generated can impact on the general reputation and public image of the franchise as a whole, even if some franchisees are complying with the laws. If you are a prospective franchisee considering entering a franchise network, undertaking due diligence is a major factor in the process.

You should not only look at investigating the franchisor in general, but also the general impression the public have of the franchise. A potential franchisee should choose wisely as public perceptions may have an impact on the potential success of your business.

3. Understanding Your Obligations

Franchisees should be aware of their obligations, not only to the franchisor but also to third parties such as employees or suppliers. When it comes to workplace legislation and the Act, your minimum obligations to your employees are set out in the National Employment Standards. These standards regulate:

  1. The number of maximum weekly hours employees can work;
  2. Flexible working arrangements;
  3. Parental leave, annual leave, personal carer’s leave, community service leave and compassionate leave, long service leave and public holidays; and
  4. Termination and redundancy pay.

When it comes to minimum pay rates, keep yourself informed as it varies from industry to industry and the age of the employee. Further, an award, enterprise agreement or a registered agreement could cover the employee. For employees not covered by one of those listed agreements, the national minimum wage will apply which is currently $17.70 per hour. There are also special national minimum wages, for example, for trainees or apprentices and a casual loading of 25% for the national minimum wage.

Key Takeaways

Being a franchisee means running your own business. Although the franchisor should be available to provide you with support or guidance, you are the business owner. You will be responsible for complying with any applicable laws. The Caltex experience highlights this responsibility and showcases the franchisor’s willingness to act if the franchisee is not in compliance with any applicable laws.

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If you have any further questions about your employment obligations as a franchisee, please get in touch with our franchise lawyers on 1300 544 755.

Kristine Biason

Next Steps

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