The proposed legislation implements the Coalition's election
promise to take strong action to curb the exploitation of workers
on limited visas or without a visa at all in franchises such as
7-Eleven. The Bill is before Parliament, and you would expect it to
pass, as the ALP and the minor parties in the Senate are likely to
be in favour.
The purpose of the legislation is to overcome the enforcement
problem implicit in the franchise model: each franchisee is
running, and is responsible for, its own business, and is a legal
entity separate from the franchisor and its related companies. So,
an offence occurring in the operation of a franchisee's
business will be its legal responsibility, but not the legal
responsibility of the franchisor. Of course, from a media
perspective, the distinction is often ignored, and the headline
will be the franchise name, not the name of the individual
franchisee but legally, the entities, and therefore the respective
legal situations, are distinct.
While the Fair Work Ombudsman has become increasingly bold, and
successful, in seeking penalties from parties beyond the immediate
legal entity (such as directors and officers and other advisers
"knowingly involved" in contraventions), it is still
difficult in a legal sense (an exception rather than the rule) to
fix liability on corporate entities higher up the franchise chain.
When Yogurberry was held liable for knowingly being involved in
infractions at a franchisee's store in November last year, and
fined $146,000, that was a significant step, and could happen again
as the law stands. However, the Federal Government's proposed
legislation will put a stronger basis under this sort of claim, and
make it a top-of-mind issue for franchisors, rather than a
relatively unlikely legal risk.
The new legislation, the Fair Work Amendment (Protecting
Vulnerable Workers) Bill will make a franchisor liable
for underpayments by franchisees or subsidiaries, when they knew,
or ought to have known, of the contravention, and failed to take
reasonable steps to prevent it. The changes will also
increase penalties 10-fold (up to $108,000 for individuals and
$540,000 for companies) for "serious contraventions."
liability would not arise because of one rogue manager, and the
conduct of a franchisor company would need to be considered
there does not need to be any express direction for a
franchisor to be liable: tacit or implicit condoning of dodgy pay
practices in franchisees' businesses would be enough –
for example, business models which only work (eg produce a return
for the franchisee) if the franchisee pays under award;
mere suspicion is not enough, but actual knowledge of
infringements (or who or how much is underpaid and exactly how)
will not be necessary: if there are reasonable grounds for the
franchisor to suspect pay irregularities, such as a pattern of
complaints, or knowledge of inadequate record keeping, and it turns
a blind eye, that would be enough for a conviction;
demonstrable due diligence, proof of having taken reasonable
steps to avoid breaches by franchisees, would avoid liability;
franchisors can be liable for the underpaid wages, as well as
penalties, but do have the right to recover the wage component from
the errant franchisee (if the franchisee is worth suing!);
officers and employees of franchisor entities could also be
individually liable if knowingly involved in infringements;
the increased penalties will not apply to inadvertent and
non-systematic oversights: the "serious contravention"
category is aimed at employers deliberately failing to keep proper
records, issue payslips and so on, in order to cover up
underpayments and disguise wrongdoing: markers of this would be
multiple infringements, all at the same time or over a long period,
affecting multiple employees.
It follows from these points that it will not be enough to have
contractual provisions requiring compliance with workplace laws,
and leave it at that. The smart franchisor will have due diligence
systems in place to monitor franchisee compliance, and use them,
taking action where the rules are broken.
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.
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