Franchisor’s to be held responsible for Franchisee’s breaches of Fair Work

Corporate & Commercial 4 October 2017

Franchisors should be aware that as of 27 October 2017 they may be held liable for franchisee’s breaches of the workplace laws.

The Fair Work Commission has been successful in their commitment to protecting vulnerable workers with the passing of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017.  This legislation is intended to protect employees who are exploited and underpaid in Australia. To achieve this objective, the new legislation will hold franchisors responsible for breaches of the Fair Work Act 2009 (Cth) (Fair Work Act) by their franchisees.

The new legislation has a wide scope.  A franchisor may be held liable for a franchisee’s failure to remunerate its employees in accordance with the Fair Work Act where the franchisor knew or could reasonably be expected to have known that the contravention (or a contravention of a similar character) by the franchisee would occur.

Franchisors can however take steps to protect themselves.  A franchisor will not be liable for the franchisee’s breach if they have taken reasonable steps to prevent a contravention by the franchisee. To determine whether a franchisor took reasonable steps, the Court may have regard to the following:

(a)          the size and resources of the franchise or company;

(b)         the extent to which the franchisor has the ability to influence and control the franchisee’s conduct;

(c)          any action taken by the franchisor to ensure the franchisee had reasonable knowledge and understanding of the requirements of the Fair Work Act;

(d)         the franchisor’s arrangements for assessing franchisee’s compliance with the Fair Work Act and addressing any complaints received regarding such compliance; and

(e)         the extent to which the franchisor encouraged or required the franchisee to comply with the Fair Work Act.

As a result of this new legislation, a franchisor can no longer turn a blind eye to their franchisee’s treatment of employees.  Franchisors must proactively ensure compliance with the Fair Work Act.

Franchisors have one month before these changes take effect and should use this time to review their Franchise Agreements, operations manuals, policies and procedures to ensure that they are taking a proactive approach to ensuring franchisee’s compliance with the Fair Work Act.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Corporate & Commercial team on 03 5273 5263.

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