Amendments to Fair Work Act to create new compliance issues for the franchising sector

3 March 2017
Siobhan Mulcahy, Partner, Melbourne David Smith, Consultant, Melbourne

Following a number of recent high profile cases involving franchisees breaching their obligations as employers, the Government introduced the Fair Work (Protecting Vulnerable Workers) Bill 2017.

The Bill proposes amendments to the Fair Work Act 2009 (Cth) to:

  • introduce increasing civil penalty provisions of up to 600 penalty units ($108,000) for individuals or 3,000 penalty units for a body corporate ($540,000) for “serious contraventions of civil remedy provisions” – these arise where the contravention was deliberate and part of a systematic pattern of conduct relating to one or more other persons;
  • of particular note, make responsible franchisor entities liable for contraventions of the Fair Work Act by their franchisees if they knew, or could reasonably be expected to have known, that a contravention by the franchisee entity of the same or a similar character was likely to occur; and
  • provide responsible franchisor entities with a defence if they have taken reasonable steps to prevent a contravention.

A franchisor will be a “responsible franchisor entity” when it has a significant degree of influence or control over the franchisee entity’s affairs.

A Court will assess a number of factors in deciding whether an entity has taken reasonable steps to prevent a contravention, including:

  • the entity’s ability to influence the franchisee;
  • the actions taken by the entity to ensuring the contravening employer (franchisee) has reasonable knowledge of their workplace obligations;
  • any arrangement created by the entity to receive and address complaints about contraventions of workplace obligations within a franchise or the wider body corporate of the entity; and
  • any contractual or other obligation which encourages the contravening employer to comply with workplace obligations.

Franchisors who are required to pay amounts to comply with Court orders as a result of the contravention by their franchisees can seek recovery of those amounts from their franchisees.

While the Bill has yet to pass, it has the potential to fundamentally change the franchising relationship. The usual separation of a franchisee as the owner of its own business, responsible for the conduct of that business, will be challenged. Given the lack of immediate clarity as to what it means, for the purpose of the Bill, for a franchisor entity to have a significant degree of influence or control over the franchisee entity’s affairs, and the potential for a franchisor to be in contravention despite not having actual knowledge of the contravention, this has the potential to place significant burdens on franchisors to monitor the conduct of franchisees. In its current form, the Bill also does not provide clarity as to when the defence will be available in any given circumstance. Given the accessorial liability provisions already found in the Fair Work Act, this development is significant, with the potential for a marked shift in a franchisor’s liability for the conduct of franchisees who, until now, have been responsible for their own operations.

Gadens can assist clients involved in franchising (whether franchisors or franchisees) to understand both their franchising and employment obligations in the context of these proposed amendments.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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