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Update from Australia - new bill to increase workplace liability for franchisors

The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 aims to address the concerns regarding the exploitation of workers in franchise systems and to make franchisors more accountable for breaches of workplace laws by their franchisees.

In response to the 7-Eleven scandal in Australia, which we wrote about last summer (click here to read more), and despite attempts by the Franchise Council of Australia to thwart it, the Australian government recently introduced to Parliament the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (the Bill), which proposes changes to workplace laws targeted specifically at franchisors.  The Bill aims to address the concerns regarding the exploitation of workers in franchise systems and to make franchisors more accountable for breaches of workplace laws by their franchisees.

The Bill increases the power of the Ombudsman to carry out investigations into alleged breaches of workplace laws, introduces high penalties for breaches and makes franchisors vicariously liable for breaches committed by their franchisees.

The issue of joint employer liability for franchisors has been the dominant issue in the US for the last few years. The majority of the industry bodies representing franchising around the world fear that if these concepts become recognized law, franchising as a business method faces an existential threat.

A number of 7-Eleven's franchisees breached the Australian Fair Work Act (the Act), by paying staff below the minimum wage and concealing this conduct by making false time and wages payment entries into employee management systems. 7-Eleven was not found to be liable under the Act for the breaches of its franchisees, as it was not "knowingly involved in" the contraventions.

The Bill seeks to draw franchisors closer to their franchisees, where the franchisor should reasonably have been aware of the breaches and could reasonably have taken action to prevent them from occurring. If a franchisor is found to be liable for the acts of its franchisees, a franchisor could be fined the same as the employer franchisee (i.e. up to $108,000 for an individual or $540,000 for a body corporate)

To avoid this new type of liability, franchisors will need to show that they took reasonable steps to prevent contraventions by its franchisees.  There is no set standard of what will constitute “reasonable steps”.  However, certain matters may be taken into consideration, such as the size and resources of the franchise, the extent to which the franchisor could influence or control employers’ conduct, action taken to ensure employers had reasonable knowledge and understanding of workplace law requirements, the franchisor’s arrangements for assessing employers’ compliance and addressing complaints within the franchise and whether the franchisor’s arrangements encouraged or required employers to comply with the Act.

Foreign franchisors who have no direct operation in Australia, i.e. who have entered the market through a master franchise structure, are not intended to be caught by the Bill, but this position may of course change as the Bill passes through Parliament.

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.

With thanks to our friends at Kelly Hazell Quill in Australia for contributing to this update.

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