The Fair Work Act can affect the franchise sector, so you need to make yourself aware of what is involved and find out how you can avoid being put at risk for contraventions.

In the July/August edition of Inside Franchise Business magazine, Suzanne Jarzabkowska, group CEO/partner, and Sophie Letherbarrow, managing partner, DC Strategy Lawyers looked at the issues. This is an abbreviated version of the full magazine article…

For various reasons, the 7-Eleven controversy will live in people’s minds for quite some time. The media highlighted the issues well for the franchise sector: franchisees underpaying employees, many of them on student and other visas, and images of young people at ATMs withdrawing cash to return a portion of their wages to employers who threatened to have their visas revoked.

This incident tarnished not only 7-Eleven’s reputation, but brought the entire franchise sector under increased scrutiny with the Fair Work and the migration offices. And there has been a growing stream of smaller players caught and fined for infringements, both for innocent mistakes and for egregious breaches.

This is a complex issue, particularly for franchise networks where business is governed by state-based awards that are updated annually. In many cases, franchisees in the quick-service restaurant (QSR) and retail space rely on casual and part-time workers, often students. Under the Fair Work Act they may be regarded as part-time sometimes and casual at other times.

Adding to the confusion, if they are on overseas student visa, they may be allowed to work only 20 to 40 hours a fortnight, creating extra compliance requirements under the Migration Act.

Many franchisors and franchisees also depend on working-holiday employees (417 visa) and skilled foreign workers sponsored under a Temporary Skill Shortage (TSS) visa (formerly known as 457).

While employers must meet industry-standard salaries, the minimum wage – temporary skilled-migration income threshold (TSMIT) – under the TSS visa class is currently $53,900. This is also subject to both Fair Work and migration compliance. About one in 8 of all workplace disputes has been found to be visa related.

As if this isn’t complicated enough, the Fair Work Commission reduced Sunday penalties across the hospitality, fast-food, restaurant, retail and pharmacy sectors in February with variations of 125, 150, 175 and 200 per cent depending on the industry sector and worker status, whether they are part-time, full-time or casual. There is also the application of different public-holiday penalty rates.

While most employers welcome these changes, transition to the fully reduced rates will be phased in over four years, apart from the public holiday awards that applied from July.

Of particular concern to employers, franchisees and franchisors is the issue of accessorial liability under the Fair Work Act, which stipulates that anyone who contravenes the Act is held responsible for that contravention.

A person is involved in a contravention if they:

• have aided, abetted, counselled or procured the contravention
• have induced the contravention, whether by threats or promises or otherwise
• have been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention
• have conspired with others to effect the contravention.

So franchisors, master franchisees, franchisees, individual company directors, in-house HR and account managers and outsourced providers of accounting, HR and wage-payment services can all be found to “involved” or accessorily liable for the infringement.

This means both back-paying employees, and for each of the parties found to be involved, fines of up to $10,800 per contravention for an individual and up to $54,000 in the case of a company.

What you can do?

Consider if the franchise business unit supports labour costs that meet the awards for your sector. Ask the franchisor for financial data such as profit-and-loss statements from their existing network that show basic costs and revenue.

Work out whether the labour costs are reasonable to support award wages. Unsurprisingly, many businesses underpaying employees do so because they would not be profitable if they met the award.

Expect the franchisor to demand your profit-and-loss statements with wages outlined clearly. This will allow the franchisor to request clarity for any month where wages as a percentage of turnover fall below an acceptable threshold.

It is not only the franchisor’s right to have this information, in order to protect themselves from accessorial liability under the Fair Work Act, it has now become their responsibility.

Expect your franchise agreement to contain clauses requiring that franchisees must comply with all state and federal workplace laws as a condition of the agreement. Find out if there is head-office support for franchisees to gain advice about where to source workplace relations advice such as awards, dismissal and other employment issues.

Find out if the franchisor educates new franchisees about their external statutory obligations to the Fair Work Act, the Migration Act (and others as relevant to your sector), the penalties for infringement and their obligations under the franchise agreement.

Does the franchisor provide a training module in the on-boarding phase that trains and tests franchisee understanding and ensures a passing grade? Franchisors can ensure franchisees do the same with their managers, so ask for access to the training module for your own employees.

Check if the Fair Work Act, the Migration Act, industry awards (and other statutory workplace requirements) are addressed in the franchise’s operations, procedures and training manuals.

Your franchisor might have introduced technology tools across the network such as rostering systems with software that can be programmed to determine the appropriate wages, part-time or casual designation, age, penalties, number of hours worked and so on in a payslip advice format that meets the Fair Work and award requirements.

Or they might provide a reliable outsourced provider with the appropriate technology and understanding of the legal requirements to handle wages. Ask other franchisees what they do to ensure they comply.

It is important that your franchisor provide clear expectations during the recruitment phase in relation to legal and operational compliance, and outlines specifically the Fair Work and Migration Acts and relevant awards and requirements.

Find out from other franchisees if the franchisor gives regular updates, training and support on workplace commitments. Does the franchisor promote a culture of accountability and compliance that encourages and supports franchisees with problems or concerns about meeting their obligations?

Knowing your responsibilities as a future employer, understanding the laws that govern your industry and going the extra mile in the due-diligence process before you commit to buying your franchise are your best investment in your future.

The Franchising Code advises you to take legal and financial advice. Do it. You wouldn’t buy a house without a pest and building report, so ask your specialist franchise lawyer about employment issues such as Fair Work Act compliance when you have your franchise agreement reviewed.