Friday, 15 September 2017

Vulnerable Workers or Vulnerable Employers? New Laws Increase Penalties and Exposure for Business

The Federal government has recently passed the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, with the objective of protecting vulnerable workers from underpayment and cashback schemes. This comes after recent well publicised cases of franchisees contravening workplace laws.

The legislation results in penalties being increased tenfold and specifically prohibits certain underpayment schemes. They have also expanded the powers of the Fair Work Ombudsman to investigate these type of matters.

The new laws apply to serious contraventions; those that are deliberate and part of a systemic pattern of conduct. In our view, these changes to address deliberate breaches are justified.

What is more concerning is that these amendments also extend responsibility for contraventions to franchisors and holding companies who knew, “or ought to have reasonably known” of the contraventions and failed to take “reasonable steps” to prevent them.

Effectively, the new regime has made franchisors, licensors and other holding companies responsible for the treatment of employees that are not their own. This expansion on obligations is supposedly narrowed by the qualification that this only applies to franchisors and holding companies with a significant degree of influence over the franchises.

While we understand the government’s noble intentions to protect vulnerable workers, we consider that imposing obligations on entities that are not employers goes too far.

What are these Reasonable Steps?

The explanatory memorandum gives some guidance on what “reasonable steps” a franchisor should take. It outlines the type of actions that “may” constitute reasonable steps to avoid a contravention include:

  • 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 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.

While some of these are easy to achieve and sensible, certainly the requirement to “audit” franchisee’s wage records may result in a significant cost impost to franchisors. Lots of questions remain unanswered, are they full audits, or random spot audits, audits after a complaint is made, or pro-active audits?

Other questions that remain unanswered include what constitutes a ‘significant degree of influence’?

Unfortunately, we predict the extent of these new obligations will only be determined by the Courts after Franchisors face litigation.

Our Recommended Approach

While the scope of the obligation is unclear, like most things “prevention is better than the cure”. We suggest Franchisors, Licensors and Holding Companies should take pro-active steps to help their franchisees and subsidiaries ensure compliance with workplace laws.

Some of the steps that can be taken as a minimum include:

  • As part of the training and induction provided to new franchisees provide training on compliance with workplace laws
  • Present franchisees with template employment contracts and policies they can use in their businesses
  • Provide annual updates to franchisees on minimum wages and conditions
  • Conduct random spot audits of wage compliance within the franchisee network
  • Provide helplines for both franchisees and their staff to obtain information about wages and to address concerns
  • If allegations of underpayments come to your attention, deal with them promptly.

These type of steps not only will ensure compliance with the new laws but also protect your brand.

How We Can Help

HR Legal works with many franchisors to establish systems for workplace law compliance amongst franchisees. We provide training at franchise conferences, regular updates, and can assist with the audit process. If we can assist or you need more information please contact us.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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