Franchisors could be liable for franchisee breaches in a proposed Bill that seeks to protect vulnerable workers.

On 1 March 2017, the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 had its first reading in Parliament. The Bill proposes to amend the Fair Work Act 2009 in an attempt to tackle the issue of employee underpayment in large franchise systems, brought into the spotlight through the media’s 2015 investigation into 7-Eleven.

This is to be achieved, in part, by making franchisors liable for franchisee contraventions.

Let’s look at this in more detail…

Liability of responsible franchisor entities and holding companies

The Bill introduces new civil penalty liability for franchisors.

Under the amendment a responsible franchisor (or a representative of the franchisor) will contravene the Act in the following circumstances: if they either knew, or could be reasonably expected to have known, that the contravention (or a similar contravention) by the franchisee either would, or was likely to, occur.

The Bill defines ‘responsible franchisor’ as one who has a significant degree of influence or control over franchisees’ affairs.

There is some limit to a franchisor’s liability if they had taken reasonable steps (before or at the time) to prevent the violation.

In determining the reasonableness of the steps taken, the Court may consider

• the size and resources of the franchise;

• the extent to which the franchisor had the ability to influence or control the contravening franchisee’s conduct in relation to the contravention;

• any action the franchisor took to ensure the franchisee had reasonable knowledge and understanding of the requirements under the applicable provisions of the Act;

• the franchisor’s arrangements for assessing the franchisee’s compliance with the applicable provisions of the Act;

• the franchisor’s arrangements for receiving and addressing complaints about alleged contraventions within the franchise;

• the extent to which the franchisor’s arrangements with the franchisee encourage or require the franchisee to comply with the Act or other workplace law.

Restitution from the franchisee

When it comes to franchisor payments made to a franchisee’s employees to reimburse them for underpayments relating to workplace contraventions, if the franchisee does not refund these costs they may face legal action from the franchisor.

Increasing maximum penalties for contraventions of certain civil remedy provisions

The Bill introduces increased civil penalties for ‘serious contraventions’ which can be up to $540,000 for corporations and $108,000 for individuals: that’s 10 times higher than the penalties currently set out in the Act.

So what exactly is a serious contravention?

It’s when the behaviour is considered deliberate and part of a systematic pattern of conduct relating to one or more individuals.

To establish whether or not there is a systematic pattern, the Court will consider:

• the number of contraventions committed by the person;

• the period over which the contraventions occurred;

• the number of people affected by the contravention;

• whether the person failed to keep employment records in accordance with the Act; and

• whether the person failed to provide a payslip in accordance with the Act.

Powers of the Fair Work Ombudsman

The Bill proposes to extend the Fair Work Ombudsman’s (FWO) ability to require any individual (including employees of the franchisor) to provide information, where the FWO reasonably believes that person:

1. has information or documents relevant to an investigation into a suspected contravention of the Act; or

2. is capable of giving evidence that is relevant to such an investigation.

These increased powers are a direct result of the FWO’s investigation into7-Eleven which highlighted that the FWO did not have sufficient muscle to require a person to provide evidence.

Hindering and obstructing the FWO and inspectors

Hindering or obstructing the FWO in its duties will, under the amendment, attract a civil penalty of 60 units (equating to $10,800 for individuals or $54,000 for corporations).

What you should do now

While the Bill is not yet enshrined in legislation, it is expected to pass through the Senate without too much impediment.

So franchisors should be taking proactive steps now to limit liability for the actions of their franchisees.

Such steps should include:

1. reviewing the franchise agreement to ensure franchisee obligations are clearly set out in relation to its employees, and that includes mandatory compliance with all employment laws;
2. introducing training programs to better educate the franchise network in relation to employment laws and the franchisee’s obligations as an employer;
3. appointing an employment lawyer to undertake regular audits of franchisees;
4. setting up a complaint service for employees of franchisees;
5. taking immediate action against franchisees where a complaint is made by an employee or non-compliance is identified following an audit. This may include issuing breach notices and/or requiring franchisees to undertake additional training.