Franchisors have historically taken an arms length approach to their franchisees’Industrial Relations programs. This boundary has been subject to intensescrutiny in recent months across many franchised businesses. There is a growingexpectation that Franchisors should take a more active role in compliance or riska public relations backlash.

The subject of franchisor responsibility for franchisee misdemeanors hasfeatured in the pre-election policy statements of the major parties ensuring thatno matter who holds the balance of power there will be a “beefing up” ofFranchisor responsibilities.

The Fair Work Ombudsman, Natalie James has expressed her views in a recentmedia release following the record penalty applied against a Brisbane 7-Elevenfranchisee -

“The Courts are taking a dim view of employers who flout the law and give theFair Work Ombudsman a two-finger salute when it tries to engage with thebusiness. We have minimum pay rates in Australia, they apply to everyone, andthey are not negotiable”.

The Coalition announced pre-election that it would, if re-elected, amend the FairWork Act “Accessorial Liability” mechanisms to enable much greater scrutiny ofa Franchisor’s actions in situations of franchisee staff underpayments. The testwill revolve on whether the franchisor “should have” or “could have” done moreto prevent breaches by the franchisee.

Labor’s plan released just before the election was is to allow workers to pursuefranchisors for wage underpayments, unless the franchisor can prove they couldnot have reasonably known or were not reasonably aware of the breaches.

Ignoring Things Won’t Cut It

For businesses using a franchising model where labor is a significant cost underthe franchisees control, there has always been a risk that franchisees could beunderpaying their staff, either deliberately or through poor knowledge andunderstanding.

What is now clear is that a franchisor’s arm’s length approach will not be anacceptable defense going forward, whoever gets into power. Whether legislatedor not, the expectation is now that franchisors will do more to actively preventbreaches within their networks. If they fail to do so they face the consequences oftrial by media, and potential action by Fair Work Ombudsman against themunder accessorial liability provisions should that legislation be passed throughthe House.

What Franchisors Need To Do

There are 4 key risk mitigation actions that every Franchisor should be buildinginto their business plans:

How We Can Help

We are about to release the results of some important research we have beendoing on the impact of recent media attention on underpayments in thefranchise area. You can subscribe to receive information - including our franchisesurvey results -about different employee relations topics here.

Contact us atER Strategieson 1300 55 66 37 for assistance in the developmentof franchise systems manuals, franchisee education, audit & reporting systemsand franchisee employee helplines.