A recent Fair Work Ombudsman (FWO) investigation into
fast food giant Pizza Hut has identified widespread non-compliance
with the Fair Work Act 2009 (Cth).
What you need to know:
Following its audit, the FWO found that of the 32 Pizza Hut
franchisees (Franchisees) audited, at least 24 were
Pizza Hut, whilst not involved in the actual non-compliance of
its Franchisees, did not put adequate preventative measures in
There are a range of strategies that franchisors can utilise to
prevent non-compliance on behalf of franchisees and/or limit
liability in the event that non-compliance occurs.
The FWO has estimated that Pizza Hut employees are owed over
$12,000 in underpayments resulting from Franchisees misclassifying
employees and/or incorrectly applying modern award rates and/or
failing to increase pay rates in line with the Fair Work
Commission's annual minimum wage decisions.
As a result of the audit, FWO has issued three enforceable
undertakings, 11 infringement notices, 11 compliance notices and 17
letters of caution, and it is considering pursuing further legal
action against at least one Franchise.
Interestingly, Pizza Hut sought to extract itself from the
underpayments made by Franchisees on the basis that it had:
engaged the services of an employee relations advisory business
in 2009 to preparen pay summaries for industrial instruments which
may have governed the terms and conditions of the workforces of the
forwarded the payment summaries to the Franchisees.
However, the FWO did not consider that Pizza Hut could extract
itself entirely from the underpayments on the basis that:
the payment summaries did not contain any guidance on how
Franchisees could determine the applicable industrial instrument
which applied to their respective workforces;
Pizza Hut failed to have any adequate systems or processes in
place to test whether Franchisees were complying with the relevant
industrial instruments and/or following the pay summaries; and
Pizza Hut did not take steps to test whether Franchisees could
remain profitable whilst complying with the relevant industrial
The FWO was additionally concerned that despite it having raised
concerns regarding the misclassification of delivery drivers as
independent contractors with Pizza Hut in April 2016, some
Franchisees continued to advertise delivery drivers as independent
contractors in online job advertisements.
Whilst the FWO did not find sufficient evidence of Pizza
Hut's involvement in any contraventions arising within
Franchisees, it decided that the extent of the non-compliance was
demonstrative of a pattern that Pizza Hut must address.
Now that Pizza Hut is on notice as to the non-compliant
practices of its Franchisees, if it fails to adequately address the
non-compliance identified, it is at risk of being held accountable
as an accessory in any subsequent contraventions committed by its
Franchisees. As such, moving forward, it will be imperative for
Pizza Hut to gain a greater understanding of how its Franchisees
are operating and exercising its leverage as head franchisor to
ensure that the Franchisees are legislatively compliant.
Perhaps one of the biggest consequences of the above course of
events is the damage to the entire Pizza Hut brand. It is likely to
take some time – and much effort – before Pizza Hut can
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 industrial
instrument. Further, where any non-compliance is identified,
franchisees should ensure that it is immediately recited.
What should franchisors do?
While a franchisor cannot necessarily prevent all non-compliance
instances on the behalf of franchisees, there are measures that can
be put in place to make such instances less likely to occur and if
they do, provide a level of protection to the franchisor in any FWO
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
One way we have seen franchisors do this is working with a law
firm to develop a package of up-todate template contracts, policies
and procedures and/or training for franchisees.
Another strategy is to regularly audit franchisees to ensure
that they are complying with their obligations as an employer.
Although these precautionary steps involve some up-front
investment, in the end, given the potential costs involved in legal
action and penalties (not to mention brand damage) it would appear
to be a worthwhile investment.
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
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This decision outlines the potential pitfalls of an employee making public comments on Facebook outside of work hours.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).