A franchisor can be penalised for the failure of its franchisees to comply with theFair Work Act 2009 (Cth) (FW Act), and things may be about to get tougher.

The Fair Work Ombudsman's approach so far suggests that the more day to day involvement and control a franchisor has in the operation of the businesses of its franchisees, the more likely that it would have the requisite knowledge and involvement in contraventions of the FW Act to be liable as an "accessory" under s550.

A High Standard for Franchisors 

The threshold required to satisfy the accessorial liability test is a high one. A franchisor must be "knowingly involved in" a contravention by a franchisee of a civil remedy provision in order to be an "accessory" to that contravention.

A franchisor (including its managers, human resources practitioners and other senior leadership personnel) is "involved in a contravention" if it:

  • aided, abetted, counselled, procured or induced the contravention
  • conspired with others to effect the contravention
  • were in any way, directly or indirectly, knowingly concerned in or a party to the contravention.

The franchisor must also have actual knowledge of the essential facts that make up the contravention, or have participated itself in the contravention.  Actual knowledge includes:

  • being 'wilfully blind;' or
  • deliberately shutting one's eyes to the facts.

Are Things About to Get Tougher? The Coalition's Policy to Protect Vulnerable Workers 

The Coalition's signature workplace policy proposes to strengthen the FW Act to protect vulnerable workers engaged within franchise networks.

The Coalition's Policy to Protect Vulnerable Workers takes a tougher stance against employers, including franchisors, who ignore their workplace relations obligations.  The Policy does this by:

  1. increasing the penalties for deliberate non-compliance with record keeping obligations from a maximum of AUD27,000 per breach to AUD270,000 per breach; and
  2. making franchisors who fail to deal with the exploitation of workers by its franchisees liable for  breaches of the FW Act where:
  1. the franchisors should have been reasonably aware of the franchisees' breaches; and
  2. the franchisor could have reasonably taken action to prevent the breaches from occurring.

Importantly, the proposed amendments to the FW Act will exempt franchisors who have taken reasonable steps to educate their franchisees about their workplace obligations and have assurance processes in place.

Actions for Franchisors Post 2 July 2016 

Now that the Coalition has been re-elected, if the proposed amendments to the FW Act are passed, franchisors will need to look at what reasonable steps can be taken to minimise the risk of being found to have failed to address non-compliance within its network.

Actions for franchisors may include:

  • implementing learning and development programs for new and existing franchisees focusing on employee entitlements and workplace obligations
  • providing ongoing workplace relations and human resources training to ensure all persons who have a supervising or management responsibility within the franchise network  are aware of their legal obligations and the rights and entitlements of workers from a workplace, safety and migration law perspective
  • reviewing franchise agreements to express the obligation for franchisees to comply with workplace laws and give the franchisor the ability to require the notification and rectification of breaches within specified timeframes
  • considering available auditing methods to monitor franchisee compliance such as:
    • sample auditing of employee time sheets, pay slips and entitlements
    • external specialist random auditing of franchisees, and/ or
    • establishing a dedicated telephone hotline service for workers to report potential non-compliance with workplace laws.