New workplace laws to affect franchise arrangements

In March this year, the Australian Government introduced draft legislation into the Australian Parliament that intended to address recent widespread wage underpayment issues observed in several industries – including the fuel retail industry.

Essentially, the new Protecting Vulnerable Workers Bill (2017) sought to make franchisors liable for breaches of employment law by their franchisees – where the franchisor was aware of these breaches, or could reasonably have been expected to be aware of such breaches.

Since March, the Australian Government has invited comment on the draft laws and many stakeholders – including ACAPMA – provided comment on the proposed laws.

ACAPMA’s submission, while acknowledging the need to deal effectively with wage underpayment, expressed concern about the possible impacts of the proposed laws on the future viability of franchise arrangements in the fuel retail industry.

“While acknowledging that wage underpayment is an issue that must be addressed, our preference was for more resources to be provided to the Fair Work Ombudsman for the enforcement of existing employment laws,” ACAPMA CEO Mark McKenzie said.

“Our position was developed from concern that the new laws could result in a perverse situation where dishonest franchisees might be more inclined to disobey the law, believing that the cost of any future remedy would ultimately be borne by another business, ie the franchisor.”

Nonetheless, and following more than five months of consultation and parliamentary debate, the new Protecting Vulnerable Workers Bill (2017) was passed by the Australian Parliament last week.

In a communication issued on September 6, HWL Ebsworth explained that the new laws will result in the following key changes to the operation of franchise arrangements in Australia:

1. Making a franchisor (who can 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 penalties10 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. Adopting a different definition of ‘franchise’ which will capture and expose some businesses involved in the licensing of intellectual property under agreements that are not currently captured as a franchise agreement under the Franchising Code.

The laws, which will likely take effect by the end of the year, are likely to result in franchisors making changes to the operation of franchise arrangements in Australia to protect their interests (and the interests of people employed in their franchise businesses).

“Put simply, we expect that the implementation of these new laws – and the likely supporting changes to franchise arrangements that will be put in place by franchisors – will mean that any franchisee who is not paying the correct wages risks not just fines and repayment of wages but the loss of their entire franchise,” Mr McKenzie said.

“And to be honest, if that is what it takes to convince all fuel retail businesses to pay correct wages, then so be it.

“Wage underpayment is manifestly unfair to employees and it distorts market competition, by providing dishonest franchisees with an illegal competitive advantage over most franchisees who are doing the right thing.”

ACAPMA provides user pays employment audit service to fuel retail businesses under its Compliance Partner Program (CPP). The service is provided on a confidential basis and comprises spot audits of employment documentation and payment practices.

Where issues are identified, ACAPMA’s audit team works with the business owner to implement corrective action as quickly as possible.

The service is charged at $385 (per site per year) to ACAPMA members.

Further details on this service can be obtained by contacting ACAPMA on 1300 160 270 or emailing Marilyn Fraser at marilynf@acapma.com.au.

This is an edited version of an article originally circulated by ACAPMA on September 8, 2017.