A hot topic at the National Franchise Convention 2016 was the concept of ‘accessorial liability‘ under the Fair Work Act 2009 (Cth) in the realm of franchising. The reality for franchisors is that under this law, they can be held liable for their franchisees breaching the Fair Work Act (and relevant industry awards) in particular circumstances. This article will explore a franchisor’s obligations and provide practical steps you can implement to avoid liability.

Accessorial Liability

Section 550 of the Fair Work Act renders liable anyone involved in a breach. The term ‘involvement’ refers to:

  • Aiding or abetting the breach; 
  • Being knowingly concerned in or a party to the contravention and/or;
  • Conspiring with others to effect the contravention. 

It’s not necessary for the parties to be bound by contract, simply being involved is enough for section 550 to apply.

The recent 7 Eleven controversy brings this issue to light. 7 Eleven received a significant amount of negative press for the underpayment of their workers. Indeed, since such scandal broke, the Fair Work Ombudsman (FWO) has demonstrated an increasing willingness to apply the section in a commercial context. In the last financial year, 46 of the 50 court proceedings brought by the FWO concerned orders against accessories.

Further, the FWO has been successful in many of these applications. They recently obtained orders for penalties and underpayment exceeding $70,000 directly from a former director of a now wound up frozen yoghurt company. They even joined a Master Franchisor and its manager personally to the proceedings involving the underpayment of wages.

We have identified seven practical steps those in the franchising community can undertake to avoid being deemed an accessory to breach.

1. Know Your Obligations Under Both the Fair Work Act and Relevant Award

It sounds simple, but this is the most fundamental step on the road to compliance. The Fair Work website or an employment lawyer will be particularly useful to help you identify the applicable award, and establish systems and alerts to keep on top of any updates or prescriptive wage increases.

2. Set Out a Prescribed Audit System Within the Operations Manual

Requiring franchisees to, themselves, put in place systems for ongoing compliance can reduce your risk as a franchisor and ensure there are checks and balances in place.

3. Issue a Prescribed Employment Contract for Use Across the Network

Not only will such a contract be legally compliant, but it will also assist the franchisor implement privacy and confidentiality obligations across all employees of the franchise brand. Protecting privacy and confidentiality can be very important when, for example, you’re trying to protect your important trade secrets.

4. Train Your Franchisees on Employment Related Issues

The best way to avoid accessorial liability is to keep your franchisees aware of the law. Make employment updates a regular feature of your franchise conferences or newsletters. Provide any extra training you think required.

5. Undertake Audits

Most franchise agreements contain an audit power. Use it. If your contract does not include an audit power, it would be advisable to get your contract reviewed and updated.

6. Prescribe or Suggest Software

Some software available that ‘automatically’ applies award rates and entitlements, thereby reducing the scope for human error. It would be advisable to do your research on this point. However, this is particularly useful in the retail and hospitality sectors.

7. Talk to Your Franchisees

Make yourself available for questions. Most franchisees don’t go into the franchise business knowing which particular awards apply or how to calculate leave entitlements. Instead, they should be able to turn to their franchisor for guidance.

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Still unsure about how accessorial liability works? Concerned about your potential liability? Speak with our franchise lawyers today on 1300 544 755. 

Emma Jervis

Next Steps

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