Attention all franchisors and corporate groups! You are now liable for breaches of the Fair Work Act

The Fair Work (Protecting Vulnerable Workers) Act 2017 (Cth)(the Amendment) introduced a slew of amendments to the Fair Work Act 2009 (Cth) (the FW Act), and the recent changes affect every employer.

We are doing a four-part series on these amendments due to their breadth and universal applicability. See our update on the increased penalties in relation to employee records.

The amendments target the following areas:

  • Employment Records (and what happens if you don’t keep accurate ones)
  • Liability for Franchisors for Franchisee breaches of the FWA
  • New investigatory powers for the Fair Work Ombudsman
  • Serious contraventions and Unreasonable Payments

This second eBrief analyses the recent extension of liability for franchisee or subsidiary breaches of the FW Act to franchisors and holding companies.

What are the changes?

Franchisor or parent companies will now be liable for breaches of certain employer obligations under the FW Act where they knew, or should reasonably have known, that the contravention would occur, or a breach of the same or similar character was likely to occur.

The breaches that attract this new vicarious liability include:

  • underpayments
  • breaches of the National Employment Standards, any applicable Awards and/or Enterprise Agreement
  • unreasonable requirements on employees to spend or pay amounts,
  • sham contracting
  • failing to keep accurate or sufficient employee records

Franchisors will only be liable if they have a significant degree of influence or control over their franchisee’s affairs. The influence or control test is not limited to industrial affairs and may encompass the control exercised over fit outs, marketing, financial reporting and uniforms. It is important to note that there is no influence or control test for parent companies, who will automatically attract liability where they knew or ought reasonably to have known that a subsidiary was breaching the FW Act.

Why should I care?

You could be liable for penalties:

  • Franchisors or holding companies could be liable for up to $63,000 per breach
  • Directors of responsible franchisor entities or holding companies could be personally liable for up to $12,600
  • In the event that the conduct is part of a systematic pattern of breaching the FW Act the company could be liable for up to $630,000 per breach, and individuals could be liable for up to $126,000 per breach.

You could also be liable to pay compensation to the affected employee.

A franchisor or holding company will not, however, be liable for their franchisee or subsidiary’s breaches where they took reasonable steps to prevent the contravention by the franchisee or subsidiary.

What are reasonable steps?

The Explanatory Memorandum to the Amendment indicates that the following would constitute a ‘reasonable step’:

  • ensuring that the franchise agreement or other business arrangements require franchisees to comply with workplace laws
  • providing franchisees or subsidiaries with a copy of the FWO’s free Fair Work Handbook
  • encouraging franchisees or subsidiaries to cooperate with any audits by the FWO
  • establishing a contact or phone number for employees to report any potential underpayment to the business
  • auditing of companies in the network

The above list is not exhaustive and what is considered “reasonable” will be informed by the particular franchise or corporate group.

I don’t want to be liable! What should I do?

The first and most important step is to obtain legal advice about whether your franchise system or corporate group is covered by the Amendment. This assessment will require an assessment of the degree of influence and control the franchisor or head company exercises.

The second step will be to implement the reasonable steps outlined above.

These amendments come into force on 27 October 2017. If you are concerned about your company’s new liability for your franchisees’ or subsidiaries’ employment practices, give our Employment & Industrial Relations Team now.

For more information contact the Employment & Industrial Relations Team:

William Ward | Special Counsel
(02) 6279 4444