New ‘vulnerable workers’ legislation significantly impacts franchise sector

On 5 September 2017, the Senate passed the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Bill). The Bill is currently awaiting Royal Assent.

Passage of the Bill was achieved by accepting the Opposition’s amendments to the Bill, which will enable the Fair Work Ombudsman (FWO) to exercise coercive, evidence-gathering powers (overseen by the Administrative Appeals Tribunal) when investigating breaches of the Fair Work Act 2009 (Cth) (Act).

The Bill introduces several other reforms, including significant changes for the franchise sector.

In a media release, Employment Minister, Senator Michaelia Cash, announced the Bill will strengthen employee protections in the Act, by:

  • introducing new obligations making franchisors and holding companies liable for breaches of the Act by franchisees in certain circumstances (Franchisor Obligations);
  • expressly prohibiting employers from unreasonably requiring employees to make payments (i.e. ‘cash-back’ arrangements, like those seen in the widely reported 7-Eleven case);
  • increasing penalties for breaches of the Act’s record-keeping and pay slip obligations; and
  • increasing penalties (up to 10 times the current amount) for a new offence amounting to a ‘serious contravention’ of the Act;

While the Franchisor Obligations will come into force six weeks after the Bill becomes law, each of the other amendments listed above will operate as soon as the Bill receives Royal Assent.

Liability of Franchisors or Holding Companies

As mentioned above, the Bill introduces new Franchisor Obligations designed to make franchisors and holding companies liable when a franchisee contravenes the Act, if the franchisor (or one of its officers):

  • either knew, or could reasonably be expected to have known, that the contraventions would occur, or that contraventions of a similar character were likely to occur; and
  • had a significant degree of influence or control over the franchisee’s affairs.

By referring to a significant degree of influence or control over the franchisee’s ‘affairs’, the Bill’s Explanatory Memorandum states that the Franchisor Obligations are intended to apply broadly to a franchisor’s involvement in the franchisee’s ‘financial, operational and corporate affairs’.

This recognises that there are a wide range of franchise models, and that the Franchisor Obligations in the Bill should only apply to franchisors who are closely involved in a franchisee’s affairs.

As a result, where a person suffers loss due to a franchisee’s contravention of the Act, they will be permitted to seek an order for compensation against the franchisor or holding company.  However, the Bill also provides franchisors and holding companies with the ability to recover an amount equivalent to such a compensation order from the franchisee.

Serious Contraventions

The new offence constituting a ‘serious contravention’ of the Act has also been introduced by the Bill.

A ‘serious contravention’ will occur where the breach (such as contravening the National Employment Standards, a modern award, enterprise agreement or minimum wage order) is deliberate and ‘part of a systematic pattern of conduct’.

Senator Cash has declared that the higher penalties for serious contraventions of the Act will significantly deter unlawful practices by employers and others.

The new maximum civil penalty for serious contraventions will be as high as $126,000 for individuals and $630,000 for companies per contravention.

If you have any questions concerning the implications of the Bill, or how the Franchisor Obligations may affect you, please contact George Haros or Prue Greenfield.

Written by George Haros, Principal – Workplace Relations and Robert Stephenson, Lawyer – Workplace Relations.