In Brief: The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Act) has now come into force and increases the exposure and legal responsibilities of employers and franchisors within their franchise system.

What you need to know

  • Penalties are steep. The maximum penalty for a person who knowingly contravenes an Award or the FW Act as part of a systematic pattern of conduct is up to $540,000 for a corporation and $108,000 for an individual.
  • New penalties for providing Fair Work Inspectors with false or misleading information or records, and new prohibitions for hindering or obstructing investigations into underpayment and exploitation of vulnerable workers.
  • New reverse onus of proof for employers defending claims for unpaid wages where the employer has not maintained wage slips or employment records without reasonable excuse.

And from 27 October 2017

  • Franchisors and holding companies will be held responsible for contraventions of workplace laws if the franchisor or holding company had a significant degree of influence or control over the franchisee.
  • Franchisors and holding companies will be liable if they or an officer knew or could reasonably be expected to have known that:
    • contraventions would occur or were likely to occur; and
    • they had not taken reasonable steps to prevent the contravention.

Background

In 2016, a number of Australian-based franchises endured reputational and financial damage as they dealt with allegations of underpaying employees. In some of these cases, franchisors avoided legal liability as they claimed they were unaware of the actions of the franchisees within their franchise system.

As a result, the Act will provide adequate protection for franchise employees and will require franchisors to review their current systems and address non-compliance issues.

The Act explained

In determining whether a franchisor or holding company or its officer took reasonable steps to prevent a contravention by a franchisee, the Court will review:

  • the size and resources of the franchise (or holding company, as the case may be);
  • whether the franchisor had the ability to influence or control the franchisee’s conduct;
  • what the franchisor did to ensure that the franchisee had reasonable knowledge and understanding of the requirement under The Fair Work Act 2009 (Cth) (FW Act);
  • the franchisor’s arrangements (if any) in assessing the franchisor’s compliance with the FW Act;
  • the franchisor’s arrangements (if any) in receiving and addressing possible complaints about alleged underpayments or other breaches of the FW Act, by the franchisee; and
  • the extent to which the franchisor’s arrangements with the franchisee encourage or require the franchisee to comply with the FW Act or any other workplace law.

 The consequences

Where the franchisor or holding company is held not to have taken reasonable steps to prevent the contraventions, liability will be imposed for the unpaid wages of the aggrieved employees and civil penalties of $63,000 for a corporation and $12,600 for an individual per contravention.

Where the contravention is considered “serious” because it was deliberate and part of a systematic pattern of conduct relating to several employees, the civil penalty is increased to $540,000 for corporations and $108,000 for individuals per breach.

The franchisor or holding company may recover the unpaid wages paid by it to the aggrieved employees from the franchisee but not the penalties imposed.

What you need to do

We strongly recommend that all employers and franchisors take pre-emptive steps to identify and address non-compliance. As such, we recommend employers and franchisors to:

  • satisfy themselves that their time and wage records are fully compliant;
  • review and update current compliance programs;
  • introduce suitable training and audit processes;
  • update Franchise Agreements to ensure that necessary provisions are inserted into the Franchise Agreement, and
  • update operations manuals.

If you have any concerns relating to the compliance under these new obligations, or how the new Act may impact you or your franchise, do not hesitate to contact Tim Greenall or Chris Verebes.