Extended liability for franchisors and holding companies
Recently, the Fair Work Act has undergone a number of amendments as a result of the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017.
Importantly, the amendment introduced new accessorial liability provisions that will apply from the 27 October 2017. The new provisions are designed to make it easier for the courts to hold franchisors and holding companies responsible for certain workplace contraventions made by franchisee or subsidiary employers. This is in response to the highly publicised cases of worker exploitation, such as those made by 7-Eleven franchisees.
Interestingly, the provisions will not just apply to large scale franchisors like 7-Eleven. Franchisors and even holding companies of small to medium businesses are also at risk.
Here at Pointon Partners, we have provided a general outline of the new provisions to help small to medium businesses understand their legal position, and the best course of action to lessen their risk of accessorial liability.
Accessorial Liability Provisions
Franchisors or holding companies may be deemed to be accessorily liable for contraventions made by the franchisee/subsidiary employer of:
- The National Employment Standards
- (incl. contraventions relating to maximum work hours, parental and holiday leave, termination and redundancy pay);
- Modern Awards
- (incl. failure to pay the minimum wage, overtime and penalty rates, and other employee entitlements under their industry specific award).
- Enterprise Agreements
- (incl. all employee entitlements agreed to and approved by the Fair Work Commission).
- Record-keeping obligations
- Misrepresenting employment as an independent contracting arrangement
- Unlawful wage payment methods, including ‘cash back’ schemes
- The National Employment Standards
The main condition is that a franchisor, holding company or an officer knew or could reasonably be expected to have known that the contravention by the subsidiary would occur, or a contravention of the same character was likely to occur. For instance, holding companies that have shared directors and/or staff are at greater risk of having actual or expected knowledge. It is unclear whether holding companies that are more ‘hands off’ in relation to their subsidiaries would also be reasonably expected to have known that a contravention would occur. It will be interesting to see how these new provisions are applied by the courts, and what amount of evidence is needed.
However, there is more guidance on the factors that may prevent a finding of accessorial liability. When examining an accessorial liability claim, the courts may not hold franchisors liable if they took reasonable steps to prevent a contravention by a franchisee employer. The court will take into account a range of factors, including examining:
- Whether the franchisor or holding company adequately directed the franchisee employer to be knowledgeable of their obligations under the Fair Work Act and the modern awards/enterprise agreements of their employees. This may include providing a copy of the FWO’s free Fair Work Handbook.
- If the franchisor or holding company had any arrangements in place for monitoring and assessing the franchisee employer’s compliance with the Fair Work Act.
- If the franchisor or holding company had any adequate complaint process in place for franchisee employees to make use of.
- The size and resources of the franchisor or holding company, and their ability to influence or control the franchisee employer’s conduct in relation to the contravening act(s). Higher expectations will be placed on larger franchisors.
Although the reasonable steps provision provides some clarity, there is still some uncertainty on what is the best practice for franchisors and holding companies. There is a conflict between franchisors employing an appropriate level of risk management and oversight of franchisees in order to have a reasonable defence, and not being too controlling of the franchisees’ affairs to risk direct legal liability.
There is also the practical constraint on small to medium businesses not having the resources to monitor the actions of their franchisee/subsidiary employers. This is partially recognised as a defence, but it will be interesting to see how lenient the courts are willing to be.
Despite these uncertainties, businesses can minimize their risk of accessorial liability by implementing at least some of the reasonable steps outlined above. It is also important to ensure that any complaint process or similar arrangements will need to be bona fide and handled carefully to be complaint with the Fair Work Act.
At Pointon Partners Lawyers, we can assist assessing your business’s risk of secondary liability and the adequacy of your monitoring and complaint systems. For more information, please contact Michael Bishop (director) on (03) 9614 7707.
 Fair Work Act (Cth) 2009, Schedule 1 (Application, saving and transitional provisions relating to amendments to this Act), Part 4, Clause 19. (ie. six weeks from the commencement date of the amendments, being 15 September 2017).
 Fair Work Act (Cth) 2009, s 558B.