Obligations of franchisees to their employees under the Workplace Relations Amendment (WorkChoices) Bill 2005

Dibbs Abbot Stillman ’s January Franchising Update claims the Workplace Relations Amendment (WorkChoices) Act 2005 will provide greater business flexibility and reduce operating costs for franchisees, giving franchisees, as employers, greater powers to negotiate their employees’ terms and conditions of employment. This flexibility will be particularly important to purchasers of an existing franchised business. The transmission of business provisions in the WorkChoices legislation will allow the purchaser of a franchised business sold as a going concern the option to make employment arrangements with the employees they “inherit” on their own terms.

Following a 12-month period during which inherited employees remain employed under their existing award, collective agreement or Australian Workplace Agreement (“transmitted instrument”), employees will then be transferred to the incoming franchisee’s existing collective agreement or relevant award.

Alternatively, the incoming franchisee can negotiate a new agreement or AWA with the transferring employees any time before the 12 months expire. Any previous instrument will cease to operate upon a new agreement being entered into by the incoming franchisee and the transferring employee.

The Work Choices legislation prevents a franchisee employer from avoiding its obligations under existing agreements or AWAs by terminating and then purporting to re-employ employees on new conditions. The Act prohibits an outgoing franchisee from terminating a transferring employee’s employment any time within one month prior to the franchise transfer because of “operational reasons”, and where the employee is then employed by the incoming franchisee within two months of the purchase of the business. Under the legislation, a break in the transferring employee’s employment within these time periods would not allow the incoming franchisee to avoid its obligations under the Act.

The legislation provides that parental leave entitlements transfer to a new employer from an old employer when a business changes hands. Where an incoming franchisee assumes the outgoing franchisee’s liability for parental leave under the Australian Fair Pay and Conditions Standard (AFPCS), any entitlement to parental leave will be unaffected by the transmission of the business.

Notice obligations

The incoming franchisee must take reasonable steps to give transferring employees a written notice that complies with the Act within 28 days after they commence employment. The notice must:

Identify the transmitted instrument and when the instrument will cease to apply.

Identify any provisions of the AFPCS or other instrument that the employer intends to be the source for terms and conditions that will apply to matters that are dealt with by the transmitted instrument, when the instrument ceases to bind the employer.

Finally, the notice must Identify any collective agreement or award that binds the employer and would bind the transferred employee but for the transmission.

Notice is not necessary if the transmitted instrument is an award and the incoming franchisee and employees negotiate to use a collective agreement that is operating at the business at the time of the transfer of the business, or an AWA or collective agreement within 14 days of transmission.

The outgoing franchisee must:

Notify the incoming franchisee of transferring employees who are on parental leave pursuant to the AFPCS at the time of the transmission; They must also provide the incoming franchisee with documentation for parental leave that has been given to the outgoing franchisee by a transferring employee before the transmission with respect to an entitlement under the AFPCS.

Operation of the legislation

The transmission of business provisions will apply to those franchisees operating as “corporations”. Generally, this will catch “Pty Ltd” companies operating franchised businesses. The provisions also apply only to transferring employees. Any employees not taking up employment with the new franchisee would be entitled to have all their entitlements paid out by the outgoing franchisee.

The new legislation will simplify the process of selling a franchised business, and allow more flexibility to the incoming franchisee when they inherit employees. The legislation gives the incoming franchisee considerable leverage to renegotiate with transferred employees.

Powers under work choices legislation

Generally, incoming franchisees will be able to use the new legislation to cut costs and increase profits. They have an increased ability to register and approve individual agreements, given the elimination of the “no disadvantage” test, where employee contracts are compared with the award. Minimum wages will be set by the Australian Fair Pay Commission and penalty rates and overtime can be bargained away by employers. There are also no more unfair dismissal claims for franchisees and franchisors with 100 or fewer employees.

However, franchisors and franchisees should not abuse these increased powers under the new legislation. For example, in August 2005 the owners of a Bakers Delight franchise were ordered by the South Australian Industrial Relations Commission to compensate a 15 year old employee after they paid her 25% below the award rate on an individual contract, which was never lodged with the Office of the Employment Advocate.

In dismissing an appeal by the franchisee, Judge Peter McCusker held that there was “a manifest disadvantage in the respective bargaining positions of a 15-year-old, year 10 student negotiating her terms with an experienced business man” and that the “respondent worker was paid grossly less than she was entitled to as a minimum under the award”.

Although the legislation paves the way for greater business flexibility for franchisee employers, and potentially provides great cost-cutting advantages, any abuse of these advantages is unlikely to be tolerated.