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Franchisors you have been warned: The risk has shifted

June 1, 2016


The Coalition Government has warned franchisors that if they are re-elected on 2 July 2016, they will change the law to effectively make franchisors directly liable for their franchisee’s exploitation of workers.

The risk has certainly shifted and the message is loud and clear – franchisors are liable for the breaches of their franchisees ‘where they should reasonably have been aware of the breaches and could reasonably have taken action to prevent them from occurring’.

Regardless of which party forms government, the actions of all franchise groups will be a hot topic moving forward, with both political parties announcing an increase to the Fair Work Ombudsman’s budget to address these particular issues.

Brand damage is no longer the primary concern when franchisee’s exploit their workers or act in violation of legislation. The amendments will remove the ability of franchisor’s to hide behind the veil of separation in relation to underpayments and exploitation of workers.

While the Australian Labor Party (ALP) is yet to announce their policies in response to franchisor liability, the political mood is definitely showing signs that the ALP will be equally as harsh on franchisors as the Coalition, both specifying a zero tolerance in relation to underpayments.

As well as the amendment to the Act, the Coalition has announced that it will introduce higher penalties for serious contraventions that will apply to ‘any employer that has intentionally ripped off workers regardless of the employer’s size’. This increase will result in the current maximum penalties for corporate entities to rise from $54,000.00 to $510,000.00.

The Coalition says they will also increase the Fair Work Ombudsman’s funding by $20million to crack down on wage fraud throughout the country, and give FWO evidence-gathering powers likened to those currently enjoyed by the ACCC, the Australian Securities and Investments Commission and the ATO.

So what does this mean for you?

Regardless of which party is elected in July, we know that the change is coming. Both parties are going to be coming down hard on franchisors. With the election set for just over a month’s time, you only have a small window of opportunity to get on the front foot with your franchisee’s workplace compliance.

Given the nature of the recent announcement we anticipate that the actions of franchisors in educating, identifying and partnering with franchise partners to correct any underlying compliance issues will be closely scrutinised moving forward.

What can we do for your franchise network?

FCB Group has a deep understanding of the franchise sector and has partnered with many national franchisors to deliver innovative solutions in identifying areas of non-compliance.

We recently partnered with a national retail franchisor to undertake an online risk survey of its entire network. Despite extensive resources, training and development offered to the franchise network the survey has identified that over 23% of the franchise network were underpaying staff, and a further significant proportion were not paying penalties, allowances and other entitlements as required.

In this particular example, where a very high level of compliance was assumed, the initial survey has identified widespread compliance issues which has in turn facilitated further initiatives and measures with the individual franchisees in an effort to move to full compliance so as to protect the franchisor and brand.

We are working with some of Australia’s leading franchise groups in ensuring their workplace compliance. All our solutions are tailored to individual circumstances and utilise our extensive experience of working with franchise groups. To find out how we can help you identify risks in your business call us today on 02 9083 0083 for a free initial consultation.