Running a business | Managing your business | 4 min read

Workplace compliance: What does it mean for franchisors?

In response to community outrage about the exploitation of employees following breaches of workplace legislation by some franchisees, the Federal Government introduced the Fair Work Amendment (Protection of Vulnerable Workers) Bill 2017.

To find out more about how the proposed new laws are likely to effect franchisors we caught up with Helene Lee from Norton Rose Fulbright Australia. Keep reading for Helene’s summation of the proposed Bill, and the steps she recommends franchisors take to prepare.

About the Bill

The amendment makes parent companies and franchisors liable for the workplace relations breaches of their subsidiaries and franchisees in certain circumstances. The Bill also strengthens the evidence gathering powers of the Fair Work Ombudsman and introduces a higher scale of penalties for some offences.

While the requirement to comply with workplace laws is not new, as a result of the proposed changes, it is expected that franchisors will take a more active role in ensuring compliance with workplace laws across their franchise networks.

Franchisees, like all employers, are required to provide minimum rates of pay, meet obligations in relation to overtime, penalties and allowances, keep and maintain employment records and provide payslips to all their employees.

However, under the Bill, a responsible franchisor will be liable for workplace breaches by a franchisee where the franchisor, or an officer of the franchisor, knew or could reasonably have been expected to have known that the contravention would occur, or a breach of the same or similar character was likely to occur.

A franchisor will not be liable for the breaches of its franchisees where it is able to establish that it has taken reasonable steps to prevent the contravention by those franchisees.

The Bill sets out a number of factors that may be taken into account by a court in deciding whether or not a franchisor has taken reasonable steps. These factors include:

  • The size and resources of the franchisor.
  • The extent to which the franchisor had the ability to influence or control the franchisee’s conduct in relation to the contravention.
  • Any action taken to ensure the franchisee had a reasonable knowledge and understanding of the legal requirements.
  • The franchisor’s arrangements for assessing compliance with the law.
  • The franchisor’s arrangements for receiving and dealing with possible complaints about underpayments and other workplace breaches.
  • The extent to which the franchisor’s arrangements encourage or require compliance by the franchisee.

The Bill is currently before Federal Parliament. The Senate Committee handed down its report on the Bill in May 2017 and it is expected to be debated by the Senate in August 2017. If the Bill becomes law, the new provisions will apply within six weeks of commencement.

How to prepare

Franchisors should look at their current procedures and contemplate implementing new processes where necessary to support their network through any potential changes. Follow these steps to get started:

1. Review your franchise business model to ensure that it is financially viable at franchisee level and no argument can be raised about franchisees having no alternative but to break the law. After an internal review, consider having an external advisor validate it.

2. Assess what representations have been made to franchisees about revenue, expenses and profitability.

3. Conduct a risk assessment of your franchise network to assess the extent of any problems, including looking for “warning signs” like:

  • What is the excess of costs over revenue?
  • What are the total costs of a typical franchisee? Are the franchisees able to operate profitably?
  • What is the workplace diversity? Are franchisees and employees from the same ethnic background?
  • Are there “ghost” employees? These are relatives of the franchisee listed on the roster who are never seen in the business
  • Are any employees international students?
  • Does the extent of any unpaid leave seem excessive?
  • Are employment records being maintained?
  • Are payslips being provided?

4. Consider what you can implement amongst your franchisees to promote compliance and enable you to rely on the “reasonable steps” defence under the proposed new laws. This may include:

  • Conducting training for franchisees on their obligations under the Fair Work Act, Fair Work Regulations, Federal superannuation legislation and the Migration Act.
  • Providing franchisees with information about their obligations to their employees by way of updates or bulletins, including Fair Work Ombudsman pay guides, fact sheets and the Fair Work Handbook.
  • Establishing a compliance framework amongst your franchisees by introducing a compliance programme and regular audit program.
  • Introducing a whistle-blower policy and establishing a phone number for employees to report any potential underpayment or breach of workplace laws.
  • Ensuring that the terms of the franchise agreement require the franchisees to comply with workplace laws.

Franchisors are encouraged to work collaboratively with their franchisees to promote compliance and remedy any breaches that may be occurring as soon as possible. This will help to ensure that franchisees are complying with existing laws and will provide protection for franchisors and franchisees alike, against greater liability under the proposed new laws.

Find out how this award winning franchisor is improving and changing how they support their franchisees.