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Franchisor responsibilities in the spotlight

by | Jul 23, 2023 | C1: Commitment, C2: Capability, Fair Work, Human Resources, Wage Obligations

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The Fair Work Ombudsman has two cases before the courts for prosecution of a “responsible franchisor” for Fair Work breaches by their franchisees – these are the first prosecutions of their kind.

Back in 2017, legislation was passed to increase penalties for serious contraventions of workplace laws. Among other matters included in the legislation were new legal obligations for franchisors and holding companies that effectively meant that they could be held legally responsible if their franchisees or subsidiaries did not comply with workplace laws.

In order for franchisors to be held accountable, they would have to be found to be a “responsible franchisor” –  one which has a significant amount of influence or control over the business affairs of the franchisee. This could be the case if the franchisor can provide direction on (or exercise control over) financial, operational or corporate affairs  which could involve such matters as trading hours, sales targets or quotas, business expenses and costs, staffing levels, etc.

Consideration is also given to the degree to which the franchisor is involved in management or operational decisions of the franchisee’s business in practice. 

Case #1 – 85 Degrees Coffee Australia Pty Ltd

The Fair Work Ombudsman alleges that 85 Degrees was liable as a “responsive franchisor entity” for alleged non-compliance by eight 85°C Daily Café outlets in Sydney in 2019. This includes underpayments of wages totalling $32,321 and breaches of record keeping and payslip requirements.

85 Degrees, which is based in Taiwan, entered into an Enforceable Undertaking with the Fair Work Ombudsman in 2015 following the identification of significant underpayments of wages back then.

85 Degrees was also fined $475,000 in court proceedings last year for exploiting young Taiwanese students in Sydney through sham internship arrangements. in 2016 and 2017.

The FWO now alleges that 85 Degrees’ knowledge of compliance issues as a result of the Enforceable Undertaking and subsequent audits, its knowledge of its franchisees’ financial circumstances, and its knowledge that the franchisees had limited English and limited awareness of workplace laws, is also relevant to its liability. 

This recurrent non-compliant behaviour is a good example of the conduct that has given rise to laws making wage theft a criminal offence.

Case #2 – Bakers Delight Holdings Pty Ltd 

It is alleged that 142 mostly young staff at Bakers Delight outlets in Kingston, Lindisfarne and Eastlands in Hobart Tasmania were underpaid $1.25 million between July 2017 and October 2020. In one case of a young apprentice baker, it is alleged that he was underpaid $106,281.

Fair Work Inspectors allegedly discovered that staff were underpaid entitlements including minimum wages, weekend and public holiday penalty rates, overtimes rates, leave entitlements and minimum shift pay, and had money unlawfully deducted from their termination pay.

It is alleged Bakers Delight Holdings is liable for $642,162 in underpayments at the three stores that occurred after February 2019 because it became aware the franchisee operating the stores had been underpaying staff but failed to take preventative action – and therefore it either knew or should reasonably have known further underpayments would occur.

Bakers Delight Holdings commissioned an audit of the franchisee (Make Dough Enterprises) and provided the findings of the audit which identified a number of contraventions to the franchisee in February 2019. The Fair Work Ombudsman alleges that, as a result, from that point on the franchisor knew about the underpayments and breaches but did not take action to ensure that they were remedied. 

So it appears that while in this case, the franchisor made some attempt to educate the franchisee about their obligations but has been found by the Fair Work Ombudsman not to have done enough to exercise its “responsible franchisor”obligations.

How we can help

When the legislation came in in 2017, we developed a suite of services to assist franchisors to meet these new “responsible franchisor” responsibilities under the Fair Work Act.

These services included:

  • Franchisee compliance kits tailored for the particular industry and franchise group covering National Employment Standards, relevant award provisions, record keeping and payslip requirements, superannuation
  • Online compliance questionnaires with reports generated for individual franchisees on their compliance status
  • Payroll audits of franchisees and calculation of underpayments where applicable
  • Representation and support in dealings with the Fair Work Ombudsman on any alleged underpayments

Need help?

Give us a call on 1300 108 488 to arrange your free first consultation to see how we can help with advice and support on this or any other HR matter. 

 

CONTACT US

Ridgeline Human Resources Pty Ltd
ABN : 24 091 644 094

enquiries@ridgelinehr.com.au

6 Ellesmere Ave, Croydon Victoria 3136

1300 108 488

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