Franchisors to be liable for franchisee underpayments

Franchisors with 'significant' influence over their networks will be responsible for franchisee breaches of workplace laws if parliament accepts amendments to the Fair Work Act.

The introduction of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 has stirred up the franchising industry.

The Bill aims to provide a safety net of minimum entitlements and imposes obligations on both employers and employees. It will:

  • Introduce a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws.  

  • Increase penalties for record-keeping failures.  

  • Make franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them. The new responsibilities will only apply where franchisors and holding companies have a significant degree of influence or control over their business networks.  

  • Expressly prohibit employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).  

  • Strengthen the evidence-gathering powers of the Fair Work Ombudsman to ensure that the exploitation of vulnerable workers can be effectively investigated.

An Explanotory Memorandum, circulated by Minister for Employment, Senator the Hon Michaelia Cash, explains the Bill addresses increasing community concern about the exploitation of vulnerable workers by unscrupulous employers.

It said the exploitation of vulnerable workers has been examined in a range of reports, including the Fair Work Ombudsman’s A Report of the Fair Work Ombudsman’s Inquiry into 7-Eleven, April 2016, and concluded more could be done to protect vulnerable workers.

According to the Memorandum, current penalties are too low to ‘deter unscrupulous employers who exploit vulnerable workers because the costs associated with being caught are seen as an acceptable cost of doing business’.

Responding to the introduction of the Government's the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, the Franchise Council of Australia said it shares the Government's ambitions to improve protection for vulnerable workers but has seen no justification as to why franchising should be targeted.

In a statement the FCA said “The fact is the risk of worker underpayment exists across the economy and commercial relationships create a degree of control from one business over another that may impact on Fair Work Act compliance, yet the Government's Bill targets only franchising.

“No-one in the franchise community wants to see an employee underpaid or knowingly taken advantage of, in a franchise setting or any other kind of workplace.”

The organisation welcomed the proposed boost to Fair Work Ombudsman resources and greater powers to collect evidence along with increased penalties for Fair Work Act breaches.  

“However, to overcome significant uncertainty and harm from the 'joint employer' provisions in the Bill that are in laws nowhere else in the world, the concept of 'control' must relate to workplace relations if the aim is to impose 'joint employer' liabilities onto franchisors for the workplace non-compliance of franchisees," the statement reads.

“The FCA will continue to engage constructively with the legislative process with the aim of improving protections for vulnerable workers while not undermining the franchise sector and model of enterprise.

“Our focus will be on advocating improvements to the legislation, that:

  • reflect reassurances about 'right sizing' the law for the diverse and small business nature of franchising;

  • use a trigger for liability being substantial control over workplace relations;

  • require Courts and regulators to take account of a system's size and resources;

  • clarity about what 'reasonable steps' actually means;

  • focus of underpayment not paper work and technical judgements; and

  • provide for an approved compliance program as a clear defence against prosecution.