Franchisors could face penalties in new wage-theft laws

Franchisors will need to tighten controls and ensure they have clear employment guidelines and processes in place to guard against the underpayment of staff. 

The exploitation of students on working visas and Australians, usually employed as casuals, has prompted the federal government to draft legislation that could make franchisors liable for heavy fines and imprisonment if franchisees don’t comply with workplace laws.

Corporate retailers could also be prosecuted for serious breaches of workplace laws involving the exploitation of employees, but franchisors are at greater risk under the proposed new legislation because staff in franchises are generally recruited and managed by franchisees.

While franchisees are likely and rightly to remain the prime target of any prosecution for wage theft, it is expected that franchisors could also be found responsible for serious and deliberate breaches of workplace laws.

Christian Porter, the federal Industrial Relations Minister, expects to introduce wage-theft legislation into the Parliament before the end of this year in response to Senate inquiries into the franchising sector and visa fraud, and the scandals involving the underpayment of wages and entitlements.

The legislation also draws on recommendations made by Professor Allan Fels’ Migrant Worker Taskforce earlier this year

While underpayment of wages has occurred more frequently in the broader retail and hospitality sectors than in other industries, the legislation responds to systemic problems in several retail franchise systems.

The breaches of workplace laws by franchisees in some of the leading franchise systems such as 7-Eleven, Domino’s Pizza, Caltex, Pizza Hut and Retail Food Group brands have forced the government’s hand.

The fact that there have been continuing instances of the underpayment of wages and entitlements by franchisees in Subway, Jamaica Blue, Muffin Break, The Ironing Shop, Sushi 79, Hero Sushi and Tokyo City have further underscored the political imperative for tougher legislation.

Porter has indicated the proposed legislation will create a criminal offence for “serious exploitation” that would include repeat and substantial instances of underpayment of wages.

Apart from franchise systems, retailers such as Michael Hill, Lush, Super Retail Group, MJ Bale, Uncle Toys and Super Amart have all been found to have underpaid employees in the past.

Making sense of a complicated system

Natalie James, the former Fair Work Ombudsman, noted many businesses were struggling to understand overly complicated employment awards. James said that around one-third of the calls to the Ombudsman’s office were from employers, usually asking for help to understand wage rates under the awards.

The new legislation is aimed at deliberate exploitation, which has included false record keeping, cash payments, fraud and breaches of visa conditions. However, the Fair Work Ombudsman has warned that companies owning up to significant breaches of workplace laws cannot be assured of escaping prosecution and penalties.

James, who is now a partner at Deloitte, warns that businesses would be wise to ensure their “houses are in order” ahead of the new legislation.

The Senate inquiries concluded that some franchisors knew, or should have known, about the underpayment of employees and breaches of student visas, given their ability to compare store sales and profit metrics.

Legal firms warn that franchisors need to ensure they are not caught out if the legislation does extend a responsibility to them when it comes into effect by having tighter controls and better guidelines and processes.

The key protections for franchisors would be likely to include clear requirements in franchise agreements, manuals and administrative guides for franchisees.

Franchisors should be able to provide advice on appropriate award wage rates and entitlements for each category of employee that would be employed in a franchise outlet.

They should also ensure that responsibilities under workplace laws are incorporated in education and training for franchisees and compliance monitoring by retail field staff and/or head and state office management teams.

Franchisors could implement random exit surveys of staff and check that rosters and other staff records are being maintained by franchisees with exception checks where the employee wages or entitlements are out of kilter with the overall system’s experience.

Edit: The original article contained information attributed to the Franchise Council of Australia. This has been removed.