Valuable lessons to be learnt from past prosecutions
Since that time the WO has been busy. At the time of writing, the WO has assisted 34,748 workers to recover $32,037,020 in underpayments and fined employers $1,569,393.75 in civil and criminal penalties for breaches. In this edition we look at 2 cases where franchises have been prosecuted by the WO for failing to meet their obligations.
Inspector Sharpe v Dogma Enterprises Pty Limited [2007 FCA 1550]
In the case of Dogma Enterprises, the Workplace Ombudsman sought to impose a penalty to ensure "specific and general deterrence" against the franchise trading as Video Ezy Charnwood. The circumstances of the case involved the underpayment of an 18-year old casual employee to the effect of $9,954 over a period of 21 months. The underpayment was as a result of six categories of breaches based on ordinary hours of work and work performed on a public holiday. The maximum penalty that could be imposed for each breach in this case was $33,000 equating to $198,000 in total.
Justice Gyles made reference to the age of the defendants together with their lack of experience in running a business, noting the defendants "lacked expertise". However, their lack of business savvy and ignorance of the law was not enough to avoid penalty as Justice Gyles stated:
"the non-adherence to the Award and the nature and scale of the underpayment here indicates that if the law is breached the business community should not get the idea that they can take the risk of underpaying and then buy their way out of it with a modest penalty. The penalty must be imposed at a meaningful level and, in a sense, the respondent must begin to actually hurt. " [our emphasis]
This case is a stark reminder to businesses that ignorance is not excuse and non-adherence to the law will be investigated by the Workplace Ombudsman and penalised, in this case to the amount of $25 000.
Inspector Fleming v Restaurant Services Group and 0 [2008 FMCA 455]
Our second example of a Workplace Ombudsman investigation is an Australian Franchisee of the American restaurant chain, "Chilli's". In this matter, the franchise ii Wollongong was investigated for underpayments totalling $554.40 together with making false and misleading statements with regard to employees' AWAs. Employees were encouraged to sign the now defunct AWAs on the basis that the new agreement provided for a pay rise. In evidence, it was also acknowledged that employees were not given time to consider the agreement or an Explanation statement as required by the Act.
Federal Magistrate Raphael found the Company liable for the underpayment together with a penalty of $10,00, based on the inaction of the sole director in the day-to-e management of the company. In his judgment, Federal Magistrate Raphael stated "a responsible director of an employing company would inform himself of the requirements of the Workplace Relations Aci and ensure that his staff complied."
The two case studies above demonstrate that inaction and/or ignorance by employers is no defence to a Workplace Ombudsman prosecution.
Special Note: Ketchell Decision Underlines Importance of Commercial Record Keeping
Whilst on appeal to the High Court, the current case of Ketchell v Master of Education Services P/L (“Ketchell”) highlights the importance of proper commercial record keeping for franchisors.
Ketchell’s inability to produce the franchisee’s written statement which confirmed that they had read and understood both the Code of Conduct and the disclosure document (as required by Clause 11 of the Code) resulted in the Court finding the franchise agreement void and all monies flowing from the contract unenforceable.
The Ketchell case highlights the importance of ensuring all franchisee records are complete, accessible and secure, and capable of being produced upon request.
Practical Tips to Manage Legal Obligations
- Ensure that contracts, whether employment or commercial, properly reflect the intentions of the parties and comply with legislative requirements;
- Ensure all documents, where required, are executedcorrectly and the executed copy is kept on file;
- Ensure there is a system to securely file/store important documents, and those documents are easily accessible for the life cycle of the agreement (including statutory requirements that they be held after termination of agreement;
- Conduct regular file audits to ensure commercial andemployment files are compliant and up-to-date; and
- Be aware of what is happening in your business.
Richard Breden is Managing Director of PeopleInsite and a Partner with FCB — Workplace Relations Specialists. PeopleInsite is a records management system that offers a solution to managing commercial and employment records for franchise systems. Special thanks to Nicola Cooper for her contribution to this article.
This article appears courtesy of The Franchise Review - the official Journal of the Franchise Council of Australia .
24.05.2008
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