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Franchisors in Australia will shortly be subject to an expanded assessorial liability regime under the Fair Work Act 2009 (Cth) as a result of new legislation focussed on the underpayment of workers.

Importantly, the new legislation does not use the existing definition of franchisor from the Franchising Code of Conduct, and the legislation may apply to businesses which have not traditionally considered themselves as operating a franchise model. 

Franchisors and other businesses with franchising style arrangements should take steps to assess the impact this new legislation may have on their existing business structures including by:

  1. considering the oversight and control they have over franchisees, brand licensees and distributors;  
  2. reviewing their existing procedures for dealing with allegations of franchisee underpayment of workers; and
  3. if the legislation applies, consider the reasonable steps that could be put in place to ensure franchisees comply with their obligations under the Fair Work Act.

On 4 September 2017 the Senate passed a number of important amendments to Australia’s workplace laws, including to impose liability on franchisors for the underpayment by franchisees of the franchisee’s employees. These amendments were approved by the lower house on 5 September 2017. The new legislation will commence the day the Bill receives royal assent. The date is yet to be determined.

The Fair Work Amendment (Vulnerable Workers) Bill 2017 was introduced in the wake of a number of high-profile cases of underpayment of workers by franchisees including 7-Eleven.

The changes supplement the existing accessorial liability provisions in the Fair Work Act 2009 (Cth) to make ‘responsible’ franchisors and holding companies liable for certain contraventions of the Fair Work Act by their franchisees and subsidiaries, in circumstances where the franchisor or holding company knew or ought to have known about a contravention and failed to take reasonable steps to prevent it.

Franchisors will be ‘responsible’ franchisors for the purpose of the Bill if they have a significant degree of influence or control over their franchisee’s affairs. The recently proposed amendments to narrow the franchisor’s control test to control over a franchisee’s ‘workplace affairs’ were not successful and will not be included in the final version of the bill.

The Bill also increases maximum penalties for employers breaching workplace laws, and expands the evidence gathering powers of the Fair Work Ombudsman to facilitate investigation and enforcement.

The opposition was successful in obtaining a number of amendments to the Bill, including to ensure the FWO’s new coercive powers are limited (e.g. to circumstances of underpayment) and reversing the onus of proof to establish breaches of the Fair Work Act associated with underpayments if employers do not keep appropriate records.

The transitional provisions provide that franchisors and holding companies will only be liable for contraventions by franchisees and subsidiaries which occur after 6 weeks from the date royal assent is received. However, when assessing whether the franchisor or holding company knew or ought to have known of such contraventions (or similar contraventions), the Bill provides that a court may have regard to conduct or circumstances which occurred prior to that 6 week transitional period.  

Please contact us if you would like more information or to discuss how the proposed new legislation may impact your business. 

Key contacts

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Kristin Stammer

Executive Partner, East, Sydney

Kristin Stammer
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Michael Gonski

Partner, Sydney

Michael Gonski
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Tess Mierendorff

Senior Associate, Sydney

Tess Mierendorff