Further to our article titled ‘Under New Legislation, Franchisors could be liable for Franchisees’ breaches of the Fair Work Act’, there have been a number of amendments proposed to the legislation in the Senate following a raft of high profile cases emerging where franchisees have been found to be significantly underpaying their employees, with a particularly high incidence of this occurring among franchisees that rely heavily on foreign and young workers.
The Commonwealth Government introduced the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (‘Bill’) principally in response to the 711 wage scandal last year, where there was found to be systematic underpayment of foreign workers by 711 franchisees despite the franchisor having access to its franchisees’ payroll and wage payment records.
As detailed in our earlier article, under the Bill, provided that a franchisor exercises a ‘significant degree of influence or control over a franchisee’s affairs’ and there are reasonable grounds for a franchisor to suspect that a franchisee is underpaying wages, such as a pattern of complaints or knowledge of inadequate record keeping, and it turns a blind eye, it will be liable for pecuniary fines. The Bill proposes to make Australia the only jurisdiction in the world where franchisors would be subjected to such a regime, whereby they are in effect responsible for monitoring their franchisees’ workplace relations compliance systems. It has come under criticism by bodies such as the Australian Chamber of Commerce, which has stated that:
“The significant scope for liability pursuant to the bill’s terms does create… risk that businesses will restructure their affairs in such a way that they are not captured by the provisions. For franchisors, this may see a withdrawal of support of the nature that could give rise to a finding of influence and control. Other organisations may elect to conduct their operations completely outside Australia.”
The Bill has been under intense debate since it was referred to a Senate review committee on 15 August 2017 with a number of proposed amendments made, some of which strengthen the Bill and some of which weaken it.
Senator David Leyonhjelm of the Liberal Democratic Party and Senator Corey Bernardi of the Conservative Party have proposed an amendment to water down the Bill whereby the term ‘affairs’ would be restricted to workplace relations matters only, allowing franchisors to avoid being captured by the legislation if they refrain from exercising a significant degree of influence or control over a franchisee’s workplace relations compliance systems, rather than over a franchisee generally. Senator Leyonhjelm said, “”The bill runs the risk, as it is drafted, of making franchisors liable for the misbehaviour of franchisees even when the franchisor really wasn’t in a position to do anything about it… What I am trying to do is ensure that the franchisor is only held accountable for misbehaviour when they are genuinely responsible for it”, echoing a position long advocated by industry advocate and former Liberal cabinet minister Bruce Billson of the Franchising Council of Australia.
On the other hand, Labor and the Greens have opposed the amendment proposed by Senators Leyonhjelm and Bernardi with Greens’ employment critic Adam Brant saying, “The bill should put more responsibility on head offices, not give franchisors more ways to wriggle out of legal liability.”.
The Greens also supported amendments put forward to the Bill by Labor Senator Doug Cameron which proposes to expand the Bill’s coverage to include “indirectly responsible entities”, which are effectively defined as labour hire entities. The purpose of the amendment is to close a loophole in the legislation by preventing franchisors from escaping liability by simply advising their franchisees to establish separate entities to hire out staff to their trading companies, a commonly employed asset protection strategy.
Senator Doug Cameron has also proposed amendments to:
- weaken certain proposed powers of the Fair Work Ombudsman to demand and compel evidence in light of concerns that the government may be affording the Fair Work Ombudsman excessive coercive powers; and
- reverse the onus of proof in relation to certain civil penalty provisions where an allegation of underpayment is made, such that an employer must prove that an alleged underpayment did not occur by producing records such as payslips, payment transmission evidence, etc.
Labor’s employment spokesman Brendan O’Connor said that “If the government does not support Labor’s amendments they will be exposed and will fail to stop workers being ripped off”.
The amendments will be voted on after Parliament resumes on 4 September 2017, at which time Marino Law will provide an update on the outcome of the final parliamentary vote in the Senate in light of the uncertainty prevailing around the final version of the Bill currently.
Given the extensive fines that could be imposed pursuant to the proposed legislation, all franchisors ought to take proactive steps as soon as possible to address any non-compliance within their franchise networks. In particular, franchisors should ensure that appropriate due diligence systems are in place that will enable them to monitor the compliance of their franchisees and to take appropriate action when an underpayment, or an allegation of underpayment, has been identified.
Marino Law can review your franchise documentation and franchisee compliance systems and provide you with advice as to whether your franchised operations will be captured by the Bill and if so, what steps you need to take to amend your documentation and compliance processes moving forward to avoid incurring significant liability.
Marino Law has extensive experience acting for franchisees and franchisors with respect to the negotiation and preparation of franchise agreements and associated documentation. Marino Law also has extensive experience in dealing with disputes between franchisors and franchisees.
Should you require assistance in any of the above areas, please contact one of our highly experienced lawyers.
