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by Asia-Pacific Centre for Franchising Excellence,
last updated 28/09/2017

New legislation in Australia makes franchisors responsible for franchisees’ employment breaches. The Asia-Pacific Centre for Franchising Excellence offers some advice for anyone operating across the Tasman

The following advice is provided by the Asia-Pacific Centre for Franchising Excellence, which was created by Griffith University to assist people wanting to gain a better understanding of franchising - whether to buy a franchise or to franchise their business.

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 has finally passed both houses of the Australian Parliament and will take effect from Friday, October 27 2017.

Six months after it was first proposed in response to a number of high-profile underpayment practices in some major franchise chains, the new legislation will hold franchisors responsible for underpayments by their franchisees where they knew, or reasonably should have known, about the contraventions and failed to take reasonable steps to prevent them.

The Bill also includes a range of other measures including an increase in the maximum penalties for employers who deliberately flaunt the minimum wage and other entitlements under the Fair Work Act. The new laws will apply from the day after the Bill receives royal assent, except for the joint franchisor liability which will start six weeks later.

Griffith University’s Asia-Pacific Centre for Franchising Excellence has been regularly examining issues surrounding this landmark legislative change, including our most recent article that argued much of the regulatory burden of the changes will fall on small franchises rather than the large franchise chains it is intended to target.

Good intentions

Dr Ashlea Kellner, a member of the Franchise Centre at Griffith University and a Research Fellow for the Centre for Work, Organisation and Wellbeing, believes now the Bill has passed Parliament some franchisors will do the minimum required, while others will see an opportunity to go further and add value to their franchise system.

‘This legislation has evolved out of good intentions. It means that business models which are only viable when franchisees underpay staff or avoid other employment responsibilities will struggle to continue operating or attracting new franchisees,’ she said.

Dr Kellner said reactive franchisors will meet the minimum requirements to demonstrate that they have educated franchisees in employment compliance and audited them to check they are adhering to legal requirements.

However, she expects proactive franchisors will go far beyond this by nurturing a compliance culture throughout their franchise network, refining their recruitment processes, and continuously training franchisees on how to manage employment processes properly.

‘They will audit and assess franchisee behaviour in a supportive way that encourages best practice and proactive compliance. They will crack down seriously on repeat offenders and intentional non-compliant behaviour. They may even go as far as setting up an anonymous hotline for employees and educating employees about pay and entitlements.’

Dr Kellner anticipates the legislative changes will result in more attention and resources being diverted to human resource management in franchise networks. But again, she expects this to occur on a spectrum.

‘Some franchisors will do the very minimum. Other franchisors will see an opportunity to really develop their human resource management and add value to the system,’ she said.

‘Proactive franchisors may develop sophisticated, in depth, ongoing training programs for franchisees and store managers that ensure not only employment compliance but development of associated people management skills.’

‘They could encourage franchisees to conduct self-audits of employment process, for which they provide a template or checklist. They could facilitate franchisees to talk and share and learn from each other about the best systems to ensure compliance and how to achieve best practice. Franchisors might revise policies and processes to keep them up to date and focussed on staff wellbeing and satisfaction.’

Dr Kellner said any business that wants to do well in Australia, needs to ensure their staff are treated well. At the most basic level, this means they need to be respected enough to be paid the minimum wage and penalties, provided payslips, and allowed their entitlements.

‘If franchisors can’t see value in ensuring staff are treated fairly, they won’t have a sustainable business. For franchisors that do respect their employees, this legislation might motivate them to improve their systems and make them more water tight against non-compliant behaviours.’ 

What should franchisors do?

So what should franchisors operating in Australia be doing now in response to the new legislation?

With the dust still settling on the passing of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017, there are contrasting views on what franchisors should do next.

Some advisors, such as Baybridge franchise lawyers, have issued checklists on the key actions that franchisors should be focussed on including: immediately conducting due diligence of franchisees, ensuring written materials detailing franchisees’ responsibilities are up to date, establishing independent compliance programmes and confidential reporting processes, and reviewing Disclosure Documents and Franchise Agreements.

However, others such as Stephen Giles, a lawyer with Norton Rose Fulbright lawyers, have encouraged a more cautious approach. ‘The best advice I can give is to stop, think and obtain genuinely expert advice before doing anything’.



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