As is often the case in franchising, Australia is following the lead of the United States and introducing laws to make franchisors responsible where franchisees have contravened the employment laws.
Franchisors in the US have had similar responsibilities for over 30 years.
Due to events in recent years in the US, this issue of joint responsibility was the topic of much debate at the International Franchise Association conference I attended earlier this year – which was timely given what was happening here in Australia.
Until 2015, the law in the US, referred to as the joint employer standard, was similar to the laws soon to be introduced in Australia. In order to be liable a franchisor would need to have some type of “direct and immediate” control over the franchisee’s actions in relation to employees such as hiring, firing, supervision and direction.
In 2015 this all changed and franchisors in the US potentially face being liable for the actions of franchisees where control is direct, indirect or where the franchisor has a right to control, even if the franchisor has never exercised that right.
So what is the reason for the change? It’s not dissimilar to the reason for the new laws in Australia – to protect low wage and vulnerable employees.
Some are saying that the new US standard is diametrically opposed to the franchise model, which relies on the franchisor providing franchisees with systems to follow, whilst at the same time franchisees operating independently of the franchisor.
There is even talk of franchisors in the US scaling back the support they provide to franchisees as a result of the new standard. Also, a number of States in the US have and are introducing laws to combat the new standard.
I would like to think that Australia has learnt from the US, as the new laws in Australia:
- are more in line with the previous US standard, requiring a franchisor to have a “significant degree of influence or control” over a franchisee;
- will not impose liability on a franchisor where they have taken reasonable steps to prevent contravention.
Whilst there can be no doubt that the new laws increase risk and compliance costs for franchisors, like their US counterparts, franchisors in Australia will be looking at ways to minimise/offset the risk. This can be done by –
- reviewing franchise agreements;
- reviewing systems and processes, including audit, training and reporting requirements for franchisees;
- assisting and educating the franchisees.
Canada is also in a state of change, with there being a real possibility that Canada will follow suit with the US.