Australia: Grill'd – a cautionary tale for the franchising sector

Last Updated: 15 October 2015
Article by Emily Dempster

In perhaps one of the best real life examples of how wrong things can go when an employee raises concerns in relation to pay rates, a Grill'd franchisee has recently come under intense media scrutiny regarding its sacking of Ms Kahlani Pyrah.

What happened?

Ms Pyrah, a union member, was employed by a Grill'd franchisee in Camberwell (Franchisee). Ms Pyrah became aware that her pay rates with the Franchisee were in accordance with the Grill'd Camberwell Greenfields Agreement 2007 (2007 Agreement), but less than the minimum award rate. Ms Pyrah alerted her workmates to this and the employees signed a petition demanding the minimum award rates which Ms Pyrah subsequently presented to the Franchisee.

When the Franchisee did nothing toward either responding or fixing the issue, Ms Pyrah then, with union assistance, filed an application with the Fair Work Commission (Commission) seeking to terminate the 2007 Agreement. Shortly after this, Ms Pyrah's assistant manager lodged a bullying claim against Ms Pyrah. The Franchisee then terminated Ms Pyrah's employment 10 days later.

Ms Pyrah has since, with union assistance, filed an application in the Federal Circuit Court alleging that her dismissal was in contravention of a general protection (Court Application). In the Court Application, Ms Pyrah is likely to be alleging that the Franchisee terminated her employment because, among other things:

  • she complained about her rate of pay;
  • she engaged in industrial activity by way of filing an application with the Commission seeking to terminate the 2007 Agreement; and
  • she was a member of the union.

An interim order of the Federal Circuit Court has reinstated Ms Pyrah to her employment on leave without pay pending the final hearing of the matter later this month.

Perhaps succumbing to the public pressure, the Franchisee has announced that it is not opposed to the termination of the 2007 Agreement and that it will immediately enter into bargaining with the union and its employees with a view to negotiating an enterprise agreement. If no agreement is reached, the employees will be covered by the modern award (and presumably, therefore paid accordingly).

The Aftermath

While remunerating employees in accordance with the 2007 Agreement is not illegal, in addition to attracting union attention, it has turned out to be a public relations nightmare for the franchisor and its franchisees. Since the initial story broke in the media, it has come to light that:

  • the Franchisee has agreements in place in four other Grill'd restaurants in Victoria that are very similar to the 2007 Agreement; and
  • the 2007 Agreement is reportedly similar to those covering about 60 other Grill'd outlets which are directly owned by the franchisor.

It is likely that the Franchisee and the franchisor will be embroiled in intense bargaining with the union in order to renegotiate these agreements in the near future.

As for Ms Pyrah's Court Application, if it succeeds, she could stand to:

  • be reinstated to her employment;
  • receive damages for hurt and humiliation, lost remuneration and other economic loss (such compensation is uncapped); and/or
  • if the Franchisee is ordered to pay any pecuniary penalties, the court could order that these be paid to her (up to a maximum of $51,000 per breach).

Further, as the owners of the Grill'd Camberwell franchise have been individually named as defendants in the Court Application, the owners could also individually be ordered to pay additional pecuniary penalties of up to $10,200 per breach.

Perhaps the biggest consequence of the above course of events is the damage to the entire Grill'd brand. It is likely to take some time - and much effort - before Grill'd can repair that.

What should franchisees do?

Franchisees should ensure that the pay and conditions of employees are in compliance with the National Employment Standards in the Fair Work Act 2009 (Cth) and the relevant modern award or, if applicable, any enterprise agreement.

In the Grill'd scenario, the franchisee was remunerating employees in accordance with the relevant industrial instrument – namely, the 2007 Agreement.

Where the Franchisee went really wrong is failing to respond to the queries raised by Ms Pyrah and then terminating her employment.

It is best practice to respond to any employee queries about the terms and conditions of their employment – even if the response is to inform employees that they are being paid correctly. This opens the lines of communication and is likely to make things more amicable.

While we do not know the reasons for Ms Pyrah's dismissal, the timing of the dismissal (shortly after she raised concerns regarding her pay and filed an application in the Commission) is very likely to work against it in the Court Application.

It is unlawful to dismiss an employee for raising concerns in relation to the terms and conditions of their employment and/or because the employee engaged in industrial activity and/or because the employee is a member of the union. As there are often many issues to navigate when terminating an employee's employment, franchisees should seek legal advice prior to implementing a dismissal to ensure that the franchisee:

  • is not breaching any laws; and
  • is putting itself in the best defensible position in the event that the employee makes a claim in relation to the termination of their employment.

What should franchisors do?

The 'Grill'd saga' is a good case in point for franchisors as it has demonstrated that the actions of one franchisee can impact negatively on the entire franchise.

While a franchisor cannot necessarily prevent an instance like the Grill'd case from occurring, there are measures that can be put in place to make such instances less likely to occur and if they do, less likely to escalate.

One such strategy is assisting a franchisee with employment policies and processes from the outset to ensure that all franchisees are adequately set up and aware of their obligations as an employer.

One way we have seen franchisors do this is working with a law firm to develop a package of up to date template contracts, policies and procedures and/or training for franchisees.

Although these precautionary steps involve some up-front investment, in the end, given the costs involved in legal action and penalties - not to mention brand damage, an investment in prevention would have been the best strategy for both the franchisee and the franchisor.

Update: In late July, the Fair Work Commission ruled that the 2007 Agreement will be scrapped within 60 days.The decision will mean pay rates at the Camberwell franchise will increase from current wages, which range between $9.50 and $17.50.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

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