Posted by Elizabeth Gore-Jones
on 26 February 2023
In 2017, the Fair Work Act was amended to make franchisors liable to the employees of franchisees in certain circumstances (“Vulnerable Workers Act”).
A recent case by the Fair Work Ombudsman brought against a franchisor pursuant to the Vulnerable Workers Act is a reminder of the potential liability of franchisors.
The Fair Work Ombudsman (“FWO”) has alleged that 85 Degrees Coffee Australia Pty Ltd as franchisor was liable for an underpayment to employees of its franchisees. The grounds alleged by the FWO are that the franchisor should have reasonably known that its franchisees would underpay the workers or commit similar contraventions.
The allegation is also that the franchisor was legally liable for record-keeping and pay slip contraventions that occurred across the franchisee network.
The FWO alleges, amongst other things, that the franchisor was aware or should have been aware of the contraventions because:
(a) It had knowledge of its franchisees’ financial circumstances;
(b) The franchisees had limited English and awareness of the workplace laws; and
(c) Previous audits and enforceable undertakings had been given.
Franchisors could be held accountable if they did not take action to prevent breaches in their networks.
The FWO have alleged that 85 Degrees should have reasonably known that some of their franchisees would underpay their workers and beach record-keeping and pay slip requirements.
FWO has not taken any action against the franchisees, the action has only been brought against the franchisor.
The franchisor faces penalties of up to $63,000 per contravention.
When the law changed to make a franchisor potentially liable for the breaches of franchisees, franchisors scrambled to change their franchise documents to ensure that the franchisees indemnified them for any loss, cost, or damage, including penalties they suffered as a result of franchisees failing to comply with the law.
It is quite clear that in addition to this, the franchisor needs to be proactive to ensure that its franchisees are in fact following the law.
We can assist you with guidance about the steps a franchisor should take to help protect against liability or litigation.
