In her second reading speech, Senator Cash explained that the Amendment Bill, if passed, will amend the Fair Work Act 2009 (Cth) (Fair Work Act) to implement the Government’s commitment to protect vulnerable workers by:
- introducing higher civil penalties for ‘serious contraventions’ of the Fair Work Act (the current maximum penalties will increase ten fold from $10,800.00 to $108,000.00 for individuals and from $54,000.00 to $540,000.00 for corporations);
- increasing penalties for record-keeping failures;
- making franchisors and holding companies responsible for contraventions of the Fair Work Act by their franchisees or their subsidiaries, if they knew or could reasonably have been expected to have known the contraventions would occur in their business networks and failed to take reasonable steps to manage the risk. This new responsibility will only apply where franchisors and holding companies have a significant degree of influence or control over their business networks;
- expressly prohibiting employers from unreasonably requiring their employees to make payments e.g. demanding a proportion of their wages be paid back in cash; and
- strengthening the evidence-gathering powers of the Fair Work Ombudsman including the power to compel witnesses to answer questions on oath or affirmation.
A civil penalty contravention will be a 'serious contravention' in circumstances where the conduct was deliberate and part of a systematic pattern of conduct. A contravention is more likely to be considered part of a systematic pattern of conduct if:
- there are multiple contraventions of the Fair Work Act occurring at the same time;
- the contraventions have occurred over a prolonged period of time or after complaints were first raised;
- multiple employees are affected; and
- the employer has not kept accurate employee records and payslips thereby making alleged underpayments difficult to establish.
A contravention by a body corporate is 'deliberate' if it expressly, tacitly or impliedly authorised the contravention. The authorisation may be given by an individual within the organisation or via a policy, rule, course of conduct or practice that exists within the organisation.
A franchisor (including a holding company in a franchise group) will be liable if it cannot prove that it had taken all reasonable steps to prevent the contravention or contraventions of that kind occurring. What constitutes reasonable steps is still unclear and will vary according to the relevant business model and industry. The reasonable steps required of a larger franchisor with greater financial resources and a larger network may be different to a small franchisor with only a few franchisees. Regardless, it is a significant shift in the law and all franchisors will be at risk.
In determining whether the person took reasonable steps to prevent a contravention by its franchisee or subsidiary, a court may have regard to all relevant matters including:
- the extent to which the franchisor had the ability to influence or control the franchisee's conduct;
- any action the franchisor took to ensure the franchisee had a reasonable knowledge and understanding of workplace law;
- the franchisor's system for monitoring and assessing the franchisee's compliance with workplace law;
- the franchisor's complaint handling system with respect to underpayment of wages and other complaints; and
- the extent to which the franchisor's arrangements with the franchisee encourage or require the franchisee to comply with workplace law.
These proposed amendments are wide reaching and will require franchisors to urgently and thoroughly review their business models, operations and interactions with their franchisees if passed. It is clear that the Government is seeking to make franchisors and holding companies more responsible for the employment practices of their franchisees. Franchisors will need to be proactive, rather than reactive. This is likely to require franchisors to implement comprehensive audits and compliance programs to try and prevent contraventions of the Fair Work Act by their franchisees or face the prospect of liability for any contraventions.
The amendments require a franchisor to take reasonable steps. Despite this, having too much involvement with the franchisees' business affairs also comes with the risk that a Court may make a determination that a franchisor did in fact exercise a significant degree of influence or control over the franchisee's affairs thereby exposing it to liability and risk for that franchisee's contraventions.
If you wish to read the Amendment Bill or the Explanatory Memorandum to the Amendment Bill, please see the below link:
This article was written by Heinz Lepahe, Partner, Sean O'Donnel, Partner, Derek Sutherland, Special Counsel and Bianca Mendelson, Solicitor.
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Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 3 March 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.