On Tuesday 5 September 2017 the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 (Bill) was passed by the House of Representatives after a long period of debate and following a number of amendments which were made by the Senate.
The Bill amends the Fair Work Act 2009 (Act) and introduces several new reforms that will significantly impact on the franchise sector. The legislation was introduced by the Government as part of their election commitment to do more to protect vulnerable workers after revelations of systemic exploitation of vulnerable workers by franchisees within a number of well known franchise networks.
Key changes for franchisors
The key changes to the Act you should be aware of include:
- Making a franchisor (who is able to exert a significant degree of influence or control over a franchisee) liable for a variety of different contraventions of the Act by franchisees within their network in circumstances where they knew or reasonably ought to have known about the contraventions but failed to take reasonable steps to prevent those contraventions occurring
- Making a holding company responsible for a variety of contraventions of the Act by its subsidiary where the holding company fails to take reasonable steps to prevent those contraventions occurring
- Making officers of a franchisor or holding company potentially liable as an accessory to a contravention of these new provisions by a franchisor or holding company
- Allowing a person who has suffered loss from a contravention by the franchisee to seek a compensation order against a franchisor or holding company (for example to enable an employee working in a franchised business to recover unpaid amounts that its employer failed to pay)
- Giving a franchisor or holding company a statutory right to recover from the franchisee or subsidiary an amount paid under such a compensation order
- New higher penalties for a category of serious contraventions of the Act where penalties 10 times higher than normal will apply. A contravention will be a serious contravention if a person knowingly contravened the provision and the persons conduct was part of a systemic pattern of conduct relating to one or more persons
- New penalties for providing Fair Work inspectors with false or misleading information or records and new prohibitions for hindering or obstructing them
- New prohibitions against an employer or prospective employer requiring an employee or prospective employee to unreasonably spend or pay an amount – (to prevent cashback arrangements
- Doubling the maximum penalties for ‘strict liability’ contraventions relating to employee records and payslips
- Trebling the maximum penalties for giving false or misleading employee records or payslips
- Giving greater investigation and enforcement powers to the Fair Work Ombudsman including the power to seek from the AAT presidential member a FWO Notice requiring a person to give information, produce documents or to attend before the FWO and answer questions
- Prohibiting a person from intentionally hindering or obstructing the FWO or an inspector in the performance of their functions
- Imposing a presumption in respect of certain civil remedy provisions where records are not provided by an employer. The presumption places the burden on the employer to disprove an allegation made by an employee in relation to contraventions of specific civil remedy provisions where the employer was required to make and keep a record, make a record available for inspection or give a payslip but fails to do so. Importantly however, that presumption will not apply if the employer has a reasonable excuse why it failed to make or keep a record, make the record available for inspection or to give a pay slip
- Adopting a different definition of ‘franchise’ which will capture and expose some businesses involved in the licensing of intellectual property under agreements that are not currently captured as a franchise agreement under the Franchising Code.
Despite some recent media releases, the Government did in fact successfully defeat a series of significant amendments put forward by Senator Cameron (ALP) and supported by the Greens Party which would have:
- Extended the reach of the legislation into supply chains (or a “supply framework” as it is described) by adding a similar liability for indirect responsible entities involved in a supply chain;
- Changed the test of a ‘responsible franchisor entity’ to make any degree of influence or control’ (and not the significant degree of ‘influence or control’ in the current Bill) over the franchisees affairs;
- Significantly change the threshold test for franchisor liability so that the FWO is not required to prove the franchisor or its officers had actual knowledge or could reasonably to have known about the contraventions of the workplace obligations of its franchisees; and
- Created a new defence and reversed the onus of proof to require a franchisor to prove that it and its officers ‘didn’t know or could not reasonably have known’ about the contraventions of workplace obligations by its franchisees.
The amended Bill has passed and now requires royal assent.
Whilst most of the provisions will commence when the amendments commence, a franchisor will not be held liable for a franchisees contravention that occurs within the first 6 weeks after commencement. In addition the changes to the Act are not retrospective in operation.
Whilst the new laws will have a direct impact on most franchisors, it is important that franchisors do not panic and that they now seek proper legal advice which best suits the needs of their individual system.
A number of options are open to franchisors to identify, assess and appropriately manage their risk to these reforms. Rushing into potentially expensive audit and compliance regimes may not necessarily be the best solution. Some franchise systems may be more susceptible to this type of workplace contravention risk than others.
We will have a more detailed review of the new legislation and conducting a series of client briefings on how these changes will impact the franchising sector and our clients.
If you need advice on these reforms or would like to attend one of these briefings please contact a member of our Franchising Team.
This article was written by Derek Sutherland, Special Counsel and Sean O’Donnell, Partner.