New franchisor liability deadline

Sarah Stowe

Franchisors will become liable for new, higher penalties for serious contraventions of workplace laws and record keeping breaches from 28 October, 2017 as the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 has come into effect after gaining royal assent.

Damian Paull, CEO of the Franchise Council of Australia, said “The Franchise Council of Australia is now focused on engaging constructively and cooperatively with the Fair Work Ombudsman (FWO) so that the franchise community understands their new obligations under the Act and can demonstrate a compliance culture that builds great confidence in this successful and economically important model of entrepreneurship.”

The FCA is working with the FWO to ensure members are provided with the resources to understand and meet their new responsibilities and obligations, he said.

FCA legal committee chair Derek Sutherland, Special Counsel at HWL Ebsworth Lawyers, has outlined the changes that franchisors need understand:

  1. Making a franchisor (who is able to exert a significant degree of influence or control over a franchisee) liable for a variety of different contraventions of the Act by franchisees within their network in circumstances where they knew or reasonably ought to have known about the contraventions but failed to take reasonable steps to prevent those contraventions occurring

  2. Making a holding company responsible for a variety of contraventions of the Act by its subsidiary where the holding company fails to take reasonable steps to prevent those contraventions occurring

  3. Making officers of a franchisor or holding company potentially liable as an accessory to a contravention of these new provisions by a franchisor or holding company

  4. Allowing a person who has suffered loss from a contravention by the franchisee to seek a compensation order against a franchisor or holding company (for example to enable an employee working in a franchised business to recover unpaid amounts that its employer failed to pay)

  5. Giving a franchisor or holding company a statutory right to recover from the franchisee or subsidiary an amount paid under such a compensation order

  6. New higher penalties for a category of serious contraventions of the Act where penalties 10 times higher than normal will apply. A contravention will be a serious contravention if a person knowingly contravened the provision and the persons conduct was part of a systemic pattern of conduct relating to one or more persons

  7. New penalties for providing Fair Work inspectors with false or misleading information or records and new prohibitions for hindering or obstructing them

  8. New prohibitions against an employer or prospective employer requiring an employee or prospective employee to unreasonably spend or pay an amount – (to prevent cashback arrangements)

  9. Doubling the maximum penalties for ‘strict liability’ contraventions relating to employee records and payslips

  10. Trebling the maximum penalties for giving false or misleading employee records or payslips

  11. Giving greater investigation and enforcement powers to the Fair Work Ombudsman including the power to seek from the AAT presidential member a FWO Notice requiring a person to give information, produce documents or to attend before the FWO and answer questions

  12. Prohibiting a person from intentionally hindering or obstructing the FWO or an inspector in the performance of their functions

  13. Imposing a presumption in respect of certain civil remedy provisions where records are not provided by an employer. The presumption places the burden on the employer to disprove an allegation made by an employee in relation to contraventions of specific civil remedy provisions where the employer was required to make and keep a record, make a record available for inspection or give a payslip but fails to do so. Importantly however, that presumption will not apply if the employer has a reasonable excuse why it failed to make or keep a record, make the record available for inspection or to give a pay slip

  14. Importantly the reach of these amendments is wider than what is traditionally considered to be a franchise under the Franchising Code of Conduct. The Fair Work Act uses the definition of ‘franchise’ set out in the Corporations Act. This means that the reforms may also apply to other types of agreements that grant a licence to use intellectual property for profit.  Unlike the Code, the recipient’s business only has to be substantially or materially associated with that intellectual property and there is no requirement for the recipient to be required to follow a system or marketing plan controlled or suggested by the licensor.