Franchisees who underpay their staff will not be the only ones facing legal action and stiff penalties; now franchisors are in the line of fire following the passing of amendments to the Fair Work Act.

The Fair Work Amendment (Protecting Vulnerable Workers) Bill, which was introduced in response to highly publicised widespread and systemic underpayment practices in some major franchise chains, places liability for misconduct at the door of the franchisor if they knew, or reasonably should have known, about the contraventions and failed to take reasonable steps to prevent them.

The laws will apply to franchisors that have a significant degree of influence or control over the franchisees’ affairs. The definition of this requirement is not yet clear, and the franchising community is pouring over Senate amendments to the Bill which Parliament passed earlier this week.

The franchising sector’s representative body, the Franchise Council of Australia, has also been concerned about the definition of a franchisor’s culpability in ‘knowing or reasonably knowing’ of workplace breaches by a franchiseee and believes there could be a significant impact on the sector.

Franchisor Giro Maurici, CEO at San Churro, is more positive about the legal changes. He told Inside Franchise Business, “This bill represents a huge opportunity for the franchising industry to get on the front foot and give the public the assurance that when their children are looking for work, for their first opportunity to join the workforce – that they can rest assured that they will be looked after and paid properly.

“If anything the singling out of the franchise industry actually will help this industry establish themselves as employers of choice, secure the best staff, create the best cultures and deliver superior service outcomes for customers as a result.”

Dr Ashlea Kellner, research fellow and course convenor at the Centre for Work, Organisation and Wellbeing at Griffith University, also believes the Bill could have a positive effect on the franchising sector.

“This legislation has evolved out of good intentions,” she told Inside Franchise Business. “It means that business models which are only viable when franchisees underpay staff or avoid other employment responsibilities will struggle to continue operating or attracting new franchisees.

“It may help to influence franchisors to pay more attention to how employment processes are being managed in their organisation. If franchisors in Australia can’t see value in ensuring staff are treated fairly, they won’t have a sustainable business,” she said.

While not all franchisors will embrace the changes, Kellner suggested proactive franchisors may develop ongoing training programs for franchisees and store managers “that ensure not only employment compliance but development of associated people management skills”.

“Proactive franchisors could encourage franchisees to conduct self-audits of employment process (for which they provide a template or checklist).

“They could facilitate franchisees to talk and share and learn from each other about the best systems to ensure compliance and how achieve best practice. Franchisors might revise policies and processes to keep them up to date and focused on staff wellbeing and satisfaction,” she suggested.

The legal amendments that could affect you

• Certain franchisors and holding companies become responsible for underpayments by their franchisees or subsidiaries where they knew, or reasonably ought to have known, about the contraventions and failed to take reasonable steps to prevent them
• A new category of serious contraventions has been introduced, with penalties that are 10 times the current maximum where employers knowingly contravene and it is part of a systematic pattern of contravening conduct
• New penalties for providing Fair Work inspectors with false or misleading information or records, and new prohibitions for hindering or obstructing them
• The prohibitions against unreasonably requiring employees to make payments, commonly seen as cashback arrangements, have been strengthened and extended to prospective employees
• Maximum penalties for record-keeping and pay slip breaches have been doubled, and the maximum penalty for false or misleading employment records has been tripled.  New penalties apply for giving false or misleading pay slips
• Employers who do not meet record keeping or pay slip obligations and cannot show a reasonable excuse, will need to disprove wage claims made in a court
• The Fair Work Ombudsman’s evidence-gathering powers have been strengthened.