On 1 March 2017, the Federal Government introduced the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (“Amendment Bill”) to amend the Fair Work Act 2009 (Cth) (“FWA”), which for the franchising industry will effectively make franchisors and their holding companies potentially liable for their franchisees and subsidiary’s dealings with its employees in certain situations.
This development has caused confusion and/or concern to a number within the franchising industry that see this as an unwarranted blurring of franchisor and franchisee roles and responsibilities, and with the current drafting are unsure how involved franchisors may need to get to avoid liability. Saying this, it should be emphasised that this liability will only be applicable in certain situations and franchisors and their holding companies will have defences that they can rely upon to avoid liability.
This development is not unexpected, indeed it is a follow through by the Government from its election promises following the well publicised 7 Eleven franchise network investigations, which we have previously commented upon.
The main goal of the Amendment Bill (which is not yet law) is to stop franchisors and holding companies from being able to potentially turn a “blind eye” to contraventions that may be happening within their networks.
Briefly, where the Franchisor or holding company knew, or could reasonably have been expected to have known, that a FWA contravention, the kind that did occur or something of a similar character was or likely to occur, and they failed at the time of the relevant FWA contravention to have reasonable steps in place to prevent a FWA contravention by their franchisees and/or subsidiaries, then they will likely be liable.
A side effect of this maybe that to avoid potential liability you may find some franchisors become more involved in franchisee operations and may seek to pass on some of the compliance costs to their franchisees.
It should be noted that this potential liability is in addition to the FWA liability provisions that already apply, and the Amendment Bill also seeks to extend the rights of the Fair Work Ombudsman to investigate these matters and substantially increase the maximum civil penalties for certain “serious contraventions” of the FWA.
Again, while these changes are not yet law, and the final version could be different from that proposed by the Amendment Bill, this type of liability is coming and franchisors and holding companies should, if they have not already, speak with their legal and employment advisors, experienced in franchising law, to:
1. Review and ensure that they are aware of their potential FWA risks;
2. Review what are, and the effectiveness of, their processes and systems that deal with workplace issues, commencing from franchisee induction to throughout the franchise relationship;
3. Review what are, and the effectiveness of, their processes they have to monitor their franchisee and subsidiary’s compliance, and achieve a positive FWA compliant culture; and
4. Determine what if any additional steps and/or changes they should implement after undertaking the above reviews.
Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.