As at 27 October 2017, franchisors may now be held directly liable for their franchisee’s contraventions of certain civil remedy provisions of the Fair Work Act 2009 (Cth) (“FWA”):
i. The amendments are pursuant to the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) (“Amendments”).
As a result of the Amendments, a ‘responsible franchisor entity1 (hereon defined as “Franchisor”) will be liable for contraventions of the relevant franchisee entity2 (hereon defined as the “Franchisee”) where, either:
i. The Franchisor or an officer (within the meaning of the Corporations Act 2001 (Cth) of the Franchisor knew or could reasonably be expected to have known that the contravention by the Franchisee would occur; or
(“First Test”)
ii. At the time of the contravention by the Franchisee, the Franchisor or an officer (within the meaning of the Corporations Act 2001 (Cth) of the Franchisor knew or could reasonably be expected to have known that a contravention by the Franchisee of the same or a similar character was likely to occur.
(“Second Test”)
What are the Relevant Civil Remedy Provisions?
The relevant civil remedy provisions are set out in s558B(7) of the FWA and are as follows:
(a) subsection 44(1) - which deals with contraventions of the National Employment Standards;
(b) section 45 - which deals with contraventions of modern awards;
(c) section 50 - which deals with contraventions of enterprise agreements;
(d) section 280 - which deals with contraventions of workplace determinations;
(e) section 293 - which deals with contraventions of national minimum wage orders;
(f) section 305 - which deals with contraventions of equal remuneration orders;
(g) subsection 323(1) - which deals with methods and frequency of payment;
(h) subsection 323(3) - which deals with methods of payment specified in modern awards or enterprise agreements;
(i) subsection 325(1) - which deals with unreasonable requirements on employees to spend or pay amounts;
(j) subsection 325(1A) - which deals with unreasonable requirements on prospective employees to spend or pay amounts;
(k) subsection 328(1), (2) or (3) - which deal with employer obligations in relation to guarantees of annual earnings;
(l) subsection 357(1) - which deals with misrepresenting employment as an independent contracting arrangement;
(m) section 358 - which deals with dismissing an employee to engage as an independent contractor;
(n) section 359 - which deals with misrepresentations to engage an individual as an independent contractor;
(o) subsections 535(1), (2) or (4) - which deal with employer obligations in relation to employee records;
(p) subsections 536(1), (2) or (3) - which deal with employer obligations in relation to pay slips.
(“Relevant Civil Remedy Provisions”)
Accordingly, a Franchisor may now be held directly liable for a Franchisee’s contraventions of the Relevant Civil Remedy Provisions if either the First Test or the Second Test is satisfied.
Defences:
Subsection 558B(3) of the FWA provides a defence for the Franchisor to rely on if reasonable steps were taken by the Franchisor to prevent a contravention by the Franchisee, “of the same or a similar character” (e.g. a contravention of for instance, section 45 of the FWA or of a similar character to such a contravention).
Subsection 558(4) of the FWA sets out what factors a Court may have regard to in relation to this. These are:
(a) the size and resources of the Franchisor;
(b) the extent to which the Franchisor had the ability to influence or control the contravening Franchisee’s conduct or a contravention of the same or a similar character;
(c) any action the Franchisor took directed towards ensuring that the contravening Franchisee had a reasonable knowledge and understanding of the requirements under the applicable provisions referred to in ss558B(7) of the FWA;
(d) the Franchisor’s arrangements (if any) for assessing the contravening Franchisee’s compliance with the applicable provisions referred to in ss558B(7) of the FWA;
(e) the Franchisor’s arrangements (if any) for receiving and addressing possible complaints about alleged underpayments or other alleged contraventions of the FWA within the franchise;
(f) the extent to which the Franchisor’s arrangements (whether legal or otherwise) with the contravening Franchisee encouraged or required the contravening Franchisee to comply with the FWA or any other workplace law.
Practical Steps for Franchisors to Take:
All Franchisors should be aware of the potential impact of the Amendments. Whilst the position is not settled (as there is no existing case law) the following activities may constitute reasonable steps by a Franchisor to prevent a contravention of the FWA by a Franchisee of the same or a similar character:
1. Ensuring that the franchise agreement or other business arrangements (policies) are up to date and clearly set out the Franchisees’ obligations under the FWA;
2. Providing Franchisees with a copy of the Fair Work Ombudsman’s free Fair Work Handbook;
3. Providing training sessions to Franchisees regarding their obligations under the FWA;
4. Undertaking regular inspections/ visits and/or reviews/ audits of the Franchisee entity;
5. Establishing a contact or phone number for the Franchisee’s employees to report any potential contraventions by the Franchisee of the FWA to the Franchisor;
6. Consider bonus or incentive schemes for Franchisees in respect of reporting and compliance with the FWA;
7. Recommending that Franchisees obtain independent legal advice on their compliance with obligations under the FWA.
Gavin Parsons and Associates can assist you with any questions you may have regarding the impact of these new laws.
1 Defined as a person who is a franchisor, or a sub-franchisor, in relation to a franchise, and has a significant degree of influence or control over the franchisee entity’s affairs.
2 Defined under the Amendments as ‘..franchisee in relation to the franchise and conducts a business that is substantially or materially associated with intellectual property relating to the franchise.
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