Increased responsibility for franchisors under new laws

By Simon Dewberry
Employment & Safety Franchising Industrials Litigation

In brief

From 27 October 2017, franchisors may be liable if their franchisees contravene certain workplace laws. Senior Associate Chloe Wilton reports on practical steps that franchisors can take to reduce the risk of being held liable under these new laws.

How does it affect you?

Franchisors will contravene the Fair Work Act if a franchisee contravenes certain provisions of the Act relating to minimum terms and conditions of employment, payments, sham contracting and record keeping, and the franchisor:

  • exerts a significant degree of influence or control over the affairs of the franchisee. This is not limited to the franchisee's employment affairs;
  • knew or could reasonably be expected to have known that the relevant contravention or a contravention of the same or similar character was likely to occur; and
  • did not take reasonable steps to prevent a contravention of the same or similar character.

Practical steps to reduce the risk of liability

What constitutes 'reasonable steps' to prevent a contravention will depend on the franchisor's size, the sophistication of its franchisees and the types of people employed by the franchisees, including whether the employees are considered vulnerable, such as young people or migrant workers. At the recent National Franchise Convention, the Fair Work Ombudsman, Natalie James, confirmed that franchisors are expected to take at least the following steps.

Set clear expectations

Make it clear to franchisees that they are expected to comply with the requirements of the Fair Work Act. Best practice would be to include a requirement in the franchise agreement requiring compliance and stipulating the consequences for failure to comply.

Provide support to franchisees to comply with the Fair Work Act

At a minimum, franchisors should send franchisees a link to the Fair Work Ombudsman website and encourage them to sign up to 'My Account', which will help keep them up-to-date about changes to workplace laws, including wage rates in their industry. Other types of support could include centralised payroll, HR support and encouraging franchises to join an industry association such as the Franchising Council of Australia. Less sophisticated franchisees employing vulnerable workers will require a greater level of support.

Monitor compliance

There are various ways franchisors can monitor their franchisees' compliance, including:

  • setting up employee hotlines or an email address that franchisees' employees can use to contact the franchisor about any employment issues;
  • auditing franchisees' employee records; and
  • encouraging franchisees' employees to use the Fair Work 'Record My Hours' app to record their hours of work and help them check their payslips.