Franchisor’s obligations to promote fair work compliance

Corporate & Commercial 24 August 2018

Following the commencement of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 late last year which amended the Fair Work Act 2009 (“the Act”), franchisors must be now be even more vigilant to ensure that their franchisees comply with their obligations to their employees under the Act

As a result of the amendments to the Act, any franchisor who falls within the definition of a ‘Responsible Franchisor Entity’ may be liable under the Act for the actions of their franchisees. A Franchisor will be considered a Responsible Franchisor Entity where:

1. a franchise arrangement or agreement is in place; and
2. the franchise business is substantially or materially associated with the intellectual property relating to the franchise; and
3. the franchisor has a significant degree of influence or control over the franchisee.
The very nature of the franchise relationship means that the vast majority of franchisors will be considered a Responsible Franchisor Entity.
Under the Act, a Responsible Franchisor Entity can be held liable for any of the following breaches by its franchisee:
1. contravention of the National Employment Standards;
2. contravention of modern awards, enterprise agreements or work place determinations;
3. contravention of national minimum wage orders or equal remuneration orders;
4. contravention of the requirements for methods and frequency of payment;
5. imposing unreasonable requirements on employees (including prospective employees) to spend or pay amounts;
6. contravention of guarantees of annual earnings;
7. misrepresentation regarding employees being engaged as independent contractors (also known as sham contracting); or
8. failure to comply with obligations regarding employee records and payslips.
Franchisors may be held liable for these franchisee breaches if:
(a) the franchisor knew or could reasonably be expected to know that the contravention would happen or that a contravention of the same or similar kind was likely to happen; and
(b) the franchisor has not taken reasonable steps to prevent the contravention (or a contravention of the same or similar kind).
Where a franchisor is considered to be liable for its franchisee’s conduct it may be required to pay any unpaid entitlements to the franchisee’s employees and may also be ordered to pay penalties of up to $12,600.00 (per contravention) for individuals and $63,000.00 (per contravention) for corporations. Whilst any money paid by a franchisor to the franchisee’s employees may ultimately be recovered from the franchisee, penalties imposed will remain the franchisor’s sole responsibility.

As such, it is essential for franchisors to ensure they protect themselves and their franchisee’s employees by taking all reasonable steps to ensure their franchisees comply with their obligations under the Act
Ultimately, it will be up to a court to decide if a franchisor took reasonable steps to prevent their franchisee from breaching their obligations.
Coulter Roache has a team of specialist lawyers that can assist franchisors in this new and uncertain environment. We can guide you to ensure you take the necessary steps to enable, support and monitor your franchisees’ compliance.

If you require further advice in relation to franchising, including the steps franchisors should take to protect themselves, please contact Tom White or Alicia Carroll on (03) 5273 5263. If you require specific advice in relation to obligations under the Fair Work Act 2009 or employee entitlements more generally, please contact Martin Reid on (03) 5273 5236.

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