New Laws Hold Franchisors Responsible for Vulnerable Workers

October 2017

Franchisors and holding companies could be held responsible if their franchisees or subsidiaries don't follow workplace laws. 

Whether you're currently a franchisor or thinking of buying into a franchise there are many elements to running a business you need to keep on top of, particularly workplace laws. The Government has stepped in to protect workers after months of controversial headlines across various franchises, uncovering issues such as: 

  • Poor record keeping;
  • Questionable workplace practices; and
  • Exploitation, underpayment, deception, and superannuation guarantee fraud.

The Protecting Vulnerable Workers Bill amends the Fair Work Act to address these and other issues, which we explore below.

Increase penalties for 'serious contraventions' of workplace laws

The legislation acts to increase penalties where a 'serious contravention' of workplace laws occur if someone knowingly contravenes the law and their conduct is part of a systematic pattern. A breach is more likely to be a 'serious contravention' if:

  • There are concurrent contraventions of the Fair Work Act occurring at the same time (e.g., breaches of multiple award terms and record-keeping failures);
  • The contraventions have occurred over a prolonged period of time (e.g., over multiple pay periods) or after complaints were first raised;
  • Multiple employees are affected (e.g., all or most employees doing the same kind of work at the workplace, or a group of vulnerable employees at the workplace); and
  • Accurate employee records have not been kept, and pay slips have not been issued, making alleged underpayments difficult to establish.

The penalties for breaches vary according to the offence and have increased up to 10 times higher than cases without the aggravating features. 

Prevent record-keeping failures

Keeping records is an essential part of a business and the new laws stipulate that the onus of proof is the responsibility of the franchise owner. This is intended to prevent poor employer practices being used as a defence and stymieing employee complaints for lack of evidence.

The penalties for poor record keeping have also increased dramatically. A standard breach will now attract a penalty of up to $12,600, while serious contraventions will attract penalties of $126,000 for individuals and $630,000 for corporations.

Maximum penalties are likely to apply where the employer knowingly falsified records and provided false or misleading payslips. 

Hold franchisor entities and holding companies liable

New provisions hold franchisors and holding companies responsible for certain contraventions of the Fair Work Act by businesses in their networks.  The Government is concerned that some franchisors have either been blind to the problem of underpayments to workers or have not taken sufficient action to deal with it once it was brought to their attention.

The provisions only apply to responsible franchisors that have a significant degree of influence or control over the relevant franchisee's affairs, for example, holding companies are assumed to have control. This means that franchisors and holding companies are held responsible "… if they knew or could reasonably be expected to have known that the contraventions would occur, or that contraventions of the same or a similar character were likely to occur and they had significant influence or control over the companies in their network."

Where franchisors (or their officers) recognise a problem and take action quickly to resolve it, it is unlikely that they will be held liable.

Affected companies will need to have appropriate systems and monitoring in place to ensure that franchisees are acting within the law. This might include:

  • Ensuring that franchise agreements or other business arrangements require franchisees to comply with workplace laws;
  • Establishing a hotline or contact point for employees; and
  • Auditing the businesses in the network.

Ban 'cashback' from employees or prospective employees

Asking an employee for 'cashback' so the person can keep their job or to keep wages below minimum entitlements will always be unreasonable and prohibited. Penalties have increased tenfold for cases where these aggravated circumstances apply.

The recent case of 7-Eleven reported that workers were paid correctly but then required to hand cash back to the franchisee or lose their job. The Fair Work investigation found that this practice "… was not isolated and was prevalent in a number of 7-Eleven stores."

Powers and penalties of the Fair Work Ombudsman ramped up

During the 7-Eleven investigation, the Fair Work Ombudsman (FWO) expressed frustration at their limited investigative powers.

New laws will provide the FWO with similar powers to the Australian Securities and Investment Commission and the Australian Competition and Consumer Commission. This will not only bolster information gathering but also provide the FWO with an enforceable power of questioning for the first time.

The FWO can also now issue an 'FWO notice' requiring someone to give information, produce documents, or attend before the FWO to answer questions. New penalties will apply for giving false or misleading information, or hindering or obstructing a Fair Work investigation. The maximum penalty for failing to comply with an FWO notice is $126,00 for individuals and $630,000 for corporations. 

If you are a franchisor or thinking about buying into a franchise, one of the first steps is to talk to your accountant about what records you need to keep, however, your accountant can also look at the numbers and ensure you're on track. Contact us on 02 9957 4033 for more information.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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