How can Franchisors protect themselves?
Franchisors have historically taken an arms length approach to their franchisees’ Industrial Relations programs. This boundary has been subject to intense scrutiny in recent months across many franchised businesses. There is a growing expectation that Franchisors should take a more active role in compliance or risk a public relations backlash.
The subject of franchisor responsibility for franchisee misdemeanors has featured in the pre-election policy statements of the major parties ensuring that no matter who holds the balance of power there will be a “beefing up” of Franchisor responsibilities.
The Fair Work Ombudsman, Natalie James has expressed her views in a recent media release following the record penalty applied against a Brisbane 7-Eleven franchisee -
“The Courts are taking a dim view of employers who flout the law and give the Fair Work Ombudsman a two-finger salute when it tries to engage with the business. We have minimum pay rates in Australia, they apply to everyone, and they are not negotiable”.
The Coalition announced pre-election that it would, if re-elected, amend the Fair Work Act “Accessorial Liability” mechanisms to enable much greater scrutiny of a Franchisor’s actions in situations of franchisee staff underpayments. The test will revolve on whether the franchisor “should have” or “could have” done more to prevent breaches by the franchisee.
Labor’s plan released just before the election was is to allow workers to pursue franchisors for wage underpayments, unless the franchisor can prove they could not have reasonably known or were not reasonably aware of the breaches.
Ignoring Things Won’t Cut It
For businesses using a franchising model where labor is a significant cost under the franchisees control, there has always been a risk that franchisees could be underpaying their staff, either deliberately or through poor knowledge and understanding.
What is now clear is that a franchisor’s arm’s length approach will not be an acceptable defense going forward, whoever gets into power. Whether legislated or not, the expectation is now that franchisors will do more to actively prevent breaches within their networks. If they fail to do so they face the consequences of trial by media, and potential action by Fair Work Ombudsman against them under accessorial liability provisions should that legislation be passed through the House.
What Franchisors Need To Do
There are 4 key risk mitigation actions that every Franchisor should be building into their business plans:
- Ensure written materials detailing the franchisees’ responsibility in relation to industrial relations, and specifically the Fair Work Act, are up to date and accessible to all franchisees;
- Ensure that both new and existing Franchisees are educated on the Fair Work Act & the franchisor’s expectations;
- Establish independent compliance programs to identify franchisee non-compliance with the Fair Work Act;
- Establish confidential reporting processes for franchisee staff to be able to raise underpayment by their franchisee direct with the franchisor.
How We Can Help
We are about to release the results of some important research we have been doing on the impact of recent media attention on underpayments in the franchise area. You can subscribe to receive information - including our franchise survey results - about different employee relations topics here.
Contact us at ER Strategies on 1300 55 66 37 for assistance in the development of franchise systems manuals, franchisee education, audit & reporting systems and franchisee employee helplines.
