Thursday, 11 January 2018

Exploitation of vulnerable workers, Franchising and changes to the Fair Work Act 2009

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 passed both Houses of the Australian Parliament on 05/09/2017. The Bill received assent on 15/09/2017 and the obligations under the Act in relation to Franchisors commenced from 27/10/2017.

The Bill arose due to increasing community concern about the exploitation of vulnerable workers (including migrant workers) by employers who breached their obligations. In particular, the Bill follows:

(a) a number of high profile cases involving Franchisees underpaying their staff, for example, within the Dominos franchise network and the 7-Elevan franchise network, where the Franchisor is seen to have ignored the problem; and

(b) recent government enquiries, such as the Fair Work Ombudsman’s - A Report of the Fair Work Ombudsman’s Inquiry into 7-Eleven, April 2016.

A range of measures were introduced, including an increase in the maximum penalties for employers who deliberately flout the minimum wage and other entitlements under the Fair Work Act 2009. 
Some of these changes are:

(a) increased penalties for ‘serious contraventions’ of workplace laws;

(b) employers cannot ask for ‘cashback’ (or payments) from employees

(c) increased penalties for breaches of record-keeping and pay slip obligations

(d) stronger powers given to the Fair Work Ombudsman in relation to its investigations

(e) new penalties for giving false or misleading information to the Fair Work Ombudsman, or hindering or obstructing their investigations.

Importantly for Franchisors, the Franchisor (or one of their officers) can potentially be held responsible if their Franchisees do not follow workplace laws. This is on the proviso the Franchisor:

(a) has a significant degree of influence or control over the Franchisee's affairs; and

(b) knew about the Franchisee’s breach; or

(c) should have known of the breach; and

failed to take reasonable steps to prevent the breach.

For example, a Franchisor could potentially be held liable if a Franchisee underpays its employees and the Franchisor could reasonably be expected to have known the contravention would occur.

What constitutes a ‘significant degree of influence or control’ is not defined in the Fair Work Act 2009, so we will have to see how the courts interpret this phrase.

Where a ‘serious contravention’ of workplace laws has been found to have occurred, a court could impose a maximum penalty of $630,000 (corporations) and $126,000 (individuals) per contravention. The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 also inserted a new section 557A defining what is meant by a ’serious contravention’ – which in essence requires the contravention to be:

(a) deliberate; and

(b) part of a systematic pattern of conduct.

From a Franchisor's perspective, it will be important that they incorporate internal organisational processes to show they have taken all reasonable steps to prevent Franchisees from contravening workplace laws.

What are reasonable steps will vary from organisation to organisation. The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 also inserted a new section 558B(4) into the Fair Work Act 2009, which sets out a range of matters relevant to determining whether a Franchisor has taken reasonable steps. These include (in summary form):

(a) the size of the franchise (ie. franchisee’s business);

(b) the resources of the franchise (ie. franchisee’s business);

(c) the extent to which a person (eg. the Franchisor) had the ability to influence or control the contravening employer’s (ie. franchisee’s) conduct in relation to a contravention of workplace laws;

(d) any action the person (eg. Franchisor) took to ensure that the contravening employer (ie. franchisee) had a reasonable knowledge and understanding of the requirements of workplace laws;

(e) the person’s (eg. Franchisor’s) arrangements (if any) for assessing the contravening employer’s (eg. franchisee’s) compliance with workplace laws;

(f) the person’s (eg. Franchisor’s) arrangements (if any) for receiving and addressing possible complaints about alleged underpayments or other alleged contraventions of workplace laws within the franchise;

(g) the extent to which the person’s (eg. Franchisor’s) arrangements (whether legal or otherwise) with the contravening employer (ie. Franchisee) encourage or require the contravening employer (ie. Franchisee) to comply with Fair Work Act 2009 or any other workplace law.

To minimise a Franchisor's risk of being held liable for breaches of workplace laws by its  franchisees, below are a few suggestions:

(a) take appropriate steps to get a better understanding of its obligations;

(b) provide relevant information to its franchisees to assist them in understanding their obligations to their employees;

(c) in the event the Franchisor becomes aware of a suspected or identified breach by a franchisee, the Franchisor should act promptly and be proactive in directing/assisting the franchisee to address the breach;

(d) consider including provisions in the Franchise Agreement which: (I) emphasises the franchisees obligations to their employees; and (ii) includes further termination provisions in the Franchise
Agreement to deal with breaches by franchisees of workplace laws;

(e) ensuring the Franchisor has an appropriate internal paper trail documenting the ways in which it has assisted franchisees to comply with workplace laws, for example, having appropriate policies in place and conducting spot audits of franchisee employment records from time to time.

Appropriate legal advice should be sort where applicable.

Contact us for further information:


The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

Copyright © Greyson Legal 2018, All rights reserved.

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