Franchisors and holding companies face increased risks under proposed Fair Work Act changes Franchisors and holding companies face increased risks under proposed Fair Work Act changes

Franchisors and holding companies face increased risks under proposed Fair Work Act changes

15 March 2017 | Employment and Safety

The Background

A number of well-known businesses have been in the media spotlight in recent times because of claims relating to breaches of workplace laws.

However, existing limitations in the Fair Work Act 2009 (Cth) (FW Act) have limited the exposure of franchisors and holding companies for workplace breaches by rogue franchisees and subsidiary companies.

The Federal Government has now introduced legislation to amend the FW Act to address this situation and to further protect vulnerable workers from exploitation by employers.

Proposed Changes

On 1 March 2017 the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Bill) was introduced to Parliament which seeks to make various changes to the FW Act. Key aspects of this legislation include the following:

  • a ten-fold increased to existing civil penalties for ‘serious contraventions’ of prescribed workplace laws - i.e. from $10,800 to $108,000 (for individuals) and from $54,000 to $540,000 (for corporations);
  • making franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries if they:
    • have a significant degree of control over their business networks; and
    • knew, or ought reasonably to have known of the contraventions, or that the contraventions would occur; and
    • failed to take reasonable steps to prevent these contraventions;
  • expressly prohibiting employers from unreasonably requiring their employees to make payments to them from their wages (e.g. demanding a proportion of their wages be paid back in cash).

These obligations will not extend to franchisors or holding corporations operating completely outside of Australia.

Implications for you

Until now, the Fair Work Ombudsman (FWO) has primarily relied on adverse media publicity relating to action that it has taken against rogue franchisees and subsidiary companies as a way of holding franchisors and holding companies to account for the workplace breaches of those entities.

In some instances, the FWO has also entered into voluntary ‘compliance deeds’ with franchisors and holding companies to reflect their commitment to co-operating with the FWO to eradicate non-compliance with workplace laws by their franchisees or subsidiaries.

If the changes proposed by the Bill come into effect (which we expect will be likely, given the Federal Government’s pre-election commitment to implement these changes in 2016) we anticipate that the FWO’s primary course of action will be to prosecute affected franchisors and principal companies which fail to comply with their new obligations.

Aggrieved employees and their unions will also be able to pursue a franchisor or holding company directly for workplace breaches by their respective franchisee or subsidiary employer.

Claims of this nature, together with negative media publicity that is bound to follow, will have the potential to cause serious damage to those franchisors and holding companies which will be impacted by the new changes. It would therefore be in their interests to familiarise themselves with their obligations under this legislation as soon as it is passed and to ensure compliance with those obligations.  

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