Should franchisors take the blame for franchisees’ workplace breaches?

Could franchisors become responsible for the actions of franchisees? A Senate enquiry reviewing  7-Eleven underpayments has recommended a review of the Franchising Code of Conduct.

The Senate Committee has suggested the Australian Competition and Consumer Commission, and the Treasury, review the current Code (which came into force January 1, 2015) and consider whether franchisors should be held responsible for any worker exploitation by franchisees.

"With respect to the balance of power and responsibility in a franchise relationship, the Franchising Code is designed to protect the franchisee from a franchisor abusing its more powerful position in the relationship. However, a conflict exists between competition law (including the Franchising Code) and workplace law," the report reads.

According to Fairfax Media, there was also a recommendation exploring whether the franchisor should have the authority to terminate a franchise agreement without notice, should there be reasonable grounds for a breach of the Fair Work Act.

In response, a statement from an ACCC spokesperson said “Proposals to amend the Franchising Code are the responsibility of the Government and are subject to parliamentary approval.

“As the agency responsible for enforcing the Franchising Code, we are watching developments with interest. We are aware of the recommendation and it is now a matter for Government to consider the next steps.”

Bruce Billson, newly elected chair of the Franchise Council of Australia, told Franchise Business the FCA had played a significant role in the formatting of the current Code of Conduct and was keen to be involved in any follow-up contribution.

The FCA is interested in the Government’s response to the Senate Committee’s recommendation, he said.

“The Senate recommendations don’t make particularly strong grounds to revise the Code but if there is an opportunity to improve it, we would be open to that.”

Billson stressed the need for franchisees to understand their responsibilities as small business owners, including the need to comply with workplace regulations. Being a franchisee “doesn’t negate the need to comply with the law”, he pointed out.

“The FCA will support good communications between franchisors and franchisees that reiterate their contribution to business.

“A Code review may be helpful to make it absolutely clear that grievous breaches of workplace legislation can place a franchise agreement in jeopardy,” said Billson.

Franchisees are independent business owners, he reiterated. “There’s a lot of work to be done to make it clear an independent business owner should be aware of their responsibilities under law.”

There are effective ways to achieve this beyond revisions to the Code, he suggested.

The Senate Committee had prompted some franchise systems to review their franchise relationships and how clear communications have been with franchisees about their responsibilities, he said .

“Would the Code play a role in reiterating [franchisees’] responsibilities? We can probably do that best through communication,” Billson said.