ATTENTION FRANCHISORS! NEW LAWS WITH BIG CONSEQUENCES AFFECTING FRANCHISORS FOR FRANCHISEE MISCONDUCT.

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This year the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 was passed by the House of Representatives. The Bill introduces a number of reforms to the Fair Work Act 2009 that form part of the Government’s election commitment to do more to protect vulnerable employees after revelations of systematic exploitation of vulnerable workers by franchisees within a number of well-known franchise networks. The Bill has since received Royal Assent bringing all regulations into effect.

As a franchisor, the most crucial thing to take away from this is that these laws apply to franchisors who have a significant degree of influence or control over their franchisees’ affairs. What this means for a number franchisors / holding companies is that they can be held responsible for underpayments of their franchisees. This includes the franchisor knowing about the contraventions yet failing to take reasonable steps to prevent it from happening.

The Big Consequences

  • A person who has suffered loss from a contravention by a franchisee can now seek a compensation order against a franchisor or holding company. For example, an employee working in a franchised business for a franchisee can seek to recover unpaid amounts that its employer failed to pay directly from the franchisor or holding company.
  • It opens up franchisors and holding companies to financial penalties that have been increased by a factor of 10 for ‘serious contraventions’. In handing down any penalties, the Court will look for situations where an employer knew they were breaching their obligations and this conduct formed part of a systematic pattern of behaviour. In such cases, corporations and individuals could face maximum penalties of $630,000 and $126,000 per contravention, respectively.
  • When it comes to record-keeping and pay slip breaches, there are more penalty hikes with maximum penalties doubling from $12,600 per contravention for individuals and $63,000 for companies. The new laws also triple existing penalties in cases where employers give false or misleading pay slips to workers or provide the Fair Work Ombudsman with false information.
  • Employers who are not abiding by these new record keeping and pay slip obligations, and who are unable to show reasonable excuse, will be required to disprove any wage claims made against them in court.

What franchisors can and should do now

  • Get a franchise lawyer to review your current franchise agreements, paying particular attention to the franchisee’s obligations in respect of its employees, ensuring there are mechanisms in place that allow the franchisor access to employee records and payroll information to allow for audits. Essentially, the franchisor needs to make clear the obligation on franchisees to comply with all workplace relations laws.
  • Educate your franchisees! Implement mandatory training programs across the franchise network to bring franchisees up to speed with these changes to workplace relations laws and their obligations as employers. This could be complemented with fact sheets and guides outlining minimum pay rates or by providing sample engagement letters and pay slips.
  • Most importantly, considering the impact the new laws have on franchisors, immediate corrective action should be taken against franchisees in circumstances where a complaint is made by an employee or non-compliance is identified following an audit.

Remember, we’re here to help

While it is important to understand the reach of these laws, we advise franchisors not to panic. The next step, to ensure your franchise network is doing the right thing by its employees, is to seek legal advice. Our expert legal team will sit down with you, provide a detailed, step-by-step review of these laws to see how they may affect your business.

Should you require further information on this new legislation or have any franchise related questions – we can help you Rise Above the Profit Margins. Please contact our commercial lawyers or call Lazarus Legal on (02) 8644 6000.

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