We wrote in July last year on this blog that an Australian government inquiry report recommended a review of the Australian Franchising Code with a view to assessing whether there was scope for imposing a degree of responsibility on a franchisor in relation to workplace law.
The report was then followed up by the publication of the Australian Fair Work Ombudsman's (FWO) report of its inquiry into 7-Eleven. This inquiry was in response to various complaints of underpayment of wages by 7-Eleven franchisees. Although the FWO was critical of the 7-Eleven franchisor, including of its compliance monitoring and auditing and franchisee employee complaint handling procedures, there was insufficient evidence to find the franchisor liable for the contraventions by its franchisees.
Nevertheless, the Australian Government is pressing ahead with reform and has introduced The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the "Bill") which will effectively embed the principle of joint employer liability in the context of Australian franchise law. The Bill has since been amended on its way through the Senate Education and Employment Legislation Committee.
The issue of joint employer liability for franchisors has been the dominant issue in the US for the last few years and some commentators in Australia have questioned whether this apparent cross border contagion might lead to the end of franchising in Australia as we currently know it.
What's so controversial?
The Bill is designed to protect vulnerable workers and hold franchisors responsible for contraventions of the Act by their franchisees where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them.
The first key amendment to the Bill is that the definition of "franchisor" creates a very broad definition of franchisor to include somebody who has a "significant degree of influence or control over the franchisee entity's affairs". This could in theory have the scope to capture businesses that are not even franchising and appears to capture holding companies and their subsidiaries.
This is significant because such control is not limited to just the employment of those working at the franchisee, but goes as far as including those controlling its general affairs. Also, by making it anybody who has a "significant" degree of control, this creates ambiguity. It is unclear whether this may for instance put small franchisors on the hook that only provide template employment contracts to franchisees if that can be construed as significant control?
Perhaps the most radical amendment to the Bill centres around the phrase "could reasonably be expected to have known". It is argued by some commentators that this creates a liability that is too uncertain in the context of a typical franchise relationship where there is constant communication between franchisor and franchisee, but does not take into account the size of the parties or their resources. It certainly seems that these reforms could hit franchisors hard – fines of $54,000 could be payable for their franchisee's offences when "they knew or ought reasonably to have known of the contravention and failed to take reasonable steps to prevent them".
From an English law perspective, there has been no direct clarification in the English courts regarding the extent to which a franchisor can be vicariously liable for the acts or omission of its franchisees. In broad terms, only an employer can be held liable for the acts or omissions of its employees and such a liability will not exist in an equivalent independent contracting relationship.
At least for now, joint employer liability remains unlikely to spread to these shores, but its rise in fellow common law jurisdictions such as the US, Canada and now Australia is a cause for concern.
Sign up to our email digest