Masao’s Musings – Proposal to Make Franchisors Liable for Employee Wages

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Table of Contents

• What can be done?

7-Eleven has been in the headlines for all the wrong reasons lately, and it seems like the Greens have decided to do something about it. For those of you who are not familiar with what has occurred, Fairfax Media and the ABC recently undertook an investigation into 7-Eleven and discovered that some its franchisees were underpaying its employees. According to Fairfax Media and the ABC, 7-Eleven employees are routinely paid $10 per hour by franchisees who exploit the visa status of the employee and blackmail them with threats that their visa will be revoked if they dob them in. Even more serious is the claim that the 7-Eleven model relies on this exploitation and that the franchisor is not only aware of it but is complicit to its practice. Whether true or not, the Greens want to prevent this from happening and have put together a private member’s bill that would  amend the Fair Work Act to enable underpaid employees to make a claim against the franchisor directly, skipping the franchisee entirely.

Although I can understand where the Greens are coming from, I don’t think this is the best way to fix the problem. One of these reasons is cost. The cost of enforcing the change and implementing systems of monitoring individual employee payments will likely result in a fee being charged by the franchisor to the franchisee.

As we all know, the franchise industry is already regulated by a code of conduct, and this was only recently updated to incorporate a number of changes, not least a brand new disclosure document. Any additional regulation is just another cost, which gets passed on and puts more pressure on franchisees.

Finally, it’s at least arguable that, should the bill be passed through parliament, employees of franchised business would be afforded a layer of protection not given to employees of non-franchised small businesses which, well, just seems a bit unfair really.

What can be done?

There are, in my view, less costly and more practical ways by which this issue can be addressed. For example, franchisors can simply require franchisees to use a standardised employment agreement, and put in place policies (to be incorporated in the operations manual) to apply in relation to employment issues. This ensures franchisees engage employees on terms and conditions that the franchisor and franchisee will both know comply with the law. Another way is to include employee information when financial reports are provided to the franchisor, and require this inclusion by way of update to the operations manual. This just adds one additional document to reporting obligations that almost all franchises already have in place.

It is also worthwhile to remember, the franchisor/ franchisee relationship is an interesting relationship which is different to many of the other types of commercial relationships for example employer/ employee, principal/ contractor, etc. Franchisees are independent businesses and are managed and owned independently. This is one of the main benefits for a franchisee. If employment becomes something that is regulated by a franchisor then the franchisee beings to lose some of that control that it has as an independent business owner.

It will be interesting to see what will happen with this proposed bill once it gets introduced to parliament. My feeling is that it won’t get very far. Nevertheless, it brings up a very important topic of franchise regulation, and if nothing else, draws some attention on the franchise industry and how the franchisor/ franchisee relationship works.