Arising out of a recent joint investigation by Four Corners and Fairfax Media into alleged underpayment of wages as well as alleged inaccurate payroll records by certain franchisees of the 7-Eleven franchise, an Inquiry was conducted by the Fair Work Ombudsman.

Following the release of the Ombudsman’s report in April this year there have been a number of changes mooted in relation to franchisor responsibilities.

The proposed changes combined with the introduction later this year of an extension of unfair contract terms protections to cover small business contracts means that more than ever before franchisors must be fully informed of their legal obligations to avoid inadvertently breaking the law.

Current franchisor obligations under the Fair Work Act

The provisions of the Fair Work Act 2009 (Cth) (FWA) already provide for “accessorial liability” if a person (which would include a franchisor) is “knowingly involved in” a contravention of the FWA. A franchisor will be involved in the contravention if it:

·    aided, abetted, counselled or procured the contravention; or

·    has induced the contravention, whether by threats or promises or otherwise; or

·    has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention; or

·    has conspired with others to effect the contravention.

Deliberately ignoring obvious facts or turning a blind eye may give rise to liability on the part of the franchisor as an accessory.

Increased franchisor liability for workplace law breaches

Following the release of the Ombudsmans report, the government proposed to strengthen the FWA to protect employees employed by franchisees.

The government’s Policy to Protect Vulnerable Workers proposes significant increases in penalties for non-compliance with the record-keeping obligations in the FWA from a current maximum of $27,000 per breach to a maximum of $270,000 per breach.

It is also proposes that franchisors will be liable for the breaches by the franchisee if it can be shown that:

·    the franchisor should have reasonably been aware of the breaches committed by the franchisee; and

·    the franchisor could have reasonably taken (and failed to take) action to prevent those breaches from taking place.

The importance of taking reasonable steps

The proposed amendments to the FWA contain an exemption for any franchisor who is found to have taken reasonable steps to educate its franchisees about workplace obligations and who have put in place clear processes to ensure this education is provided to franchisees.

Disclosure documents reminder!

All of our franchisor clients are reminded that you have until 31 October 2016 to update your disclosure document.