In March, following on from the 7-Eleven scandal, the Federal Government introduced legislation in the House of Representatives to amend the Fair Work Act to better protect vulnerable workers.
This has application to franchisors/OEMs/distributors who have a significant degree of influence or control over the franchisee’s affairs. Arguably, the Dealer Agreement gives the franchisor that power.
The new Bill introduces a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws, with increased penalties for record-keeping failures.
The amendments are designed to make franchisors and holding companies responsible for underpayments by their franchisees or subsidiaries where they knew or ought reasonably to have known of the contravention and failed to take reasonable steps to prevent them. The new responsibilities will only apply where franchisors and holding companies have a significant degree of influence or control over their business networks.
The changes also expressly prohibit employers from unreasonably requiring their employees to make payments (e.g. demanding a portion of their wages to be paid back in cash).
They strengthen the evidence-gathering powers of the Fair Work Ombudsman to ensure that the exploitation of vulnerable workers can be effectively investigated.
EXTRACT FROM EXPLANATORY MEMORANDUM
Part 2—Liability of responsible franchisor entities and holding companies
35. Part 2 of Schedule 1 amends the Fair Work Act to insert new provisions to hold ‘responsible franchisor entities’ (referred to as franchisors) and ‘holding companies’ responsible for certain contraventions of the Act by businesses in their networks. The new provisions supplement and do not override the existing accessorial liability provisions (section 550).
36. Some franchisors and holding companies have established franchise agreements and subsidiaries in their corporate structure that operate on a business model based on underpaying workers. Some have either been blind to the problem or not taken sufficient action to deal with it once it was brought to their attention.
37. Recent highly publicised cases of exploitation of vulnerable workers, including by 7-Eleven franchisees, demonstrate more needs to be done by franchisors and holding companies to protect vulnerable workers employed in their business networks. A number of case studies are provided in the Senate Education and Employment References Committee’s report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, March 2016 and reports of the Fair Work Ombudsman.
38. Under the existing laws a person may be held responsible for being ‘involved in’ a contravention, even if they are not the direct employer (section 550). This is known as accessorial liability. There is no accessorial liability if a person genuinely ‘did not know’.
39. The provisions only apply to responsible franchisor entities which have a significant degree of influence or control over the relevant franchisee’s affairs. By definition, holding companies have control over the affairs of their subsidiaries. Control relates to the affairs of the franchisee or subsidiary broadly, not only as to minor matters that would not have any impact on the management and operational decisions of the business.
40. For franchisors and holding companies with significant influence of control over their networks, turning a blind eye to contraventions is not an option under the new provisions. Franchisors and holding companies are held responsible for certain contraventions of the Act by businesses in their networks if they knew or could reasonably be expected to have known that the contraventions would occur, or that contraventions of the same or a similar character were likely to occur and they had significant influence or control over the companies in their network. There is no liability if the franchisor or holding company has taken reasonable steps to deal with the problem.
41. The Fair Work Act does not extend to impose franchisor obligations on corporations operating completely outside Australia. That is, companies that do not have any operations in Australia and have simply entered into a master franchisor relationship with an Australian company (even if the Australian company is a subsidiary of the foreign company).
42. The new provisions do not displace the obligations of employers to continue to comply with Australian workplace laws or introduce joint employment arrangements.