Whilst franchisors are indeed required to have a certain level of oversight with regard to the professional conduct of their franchisees, many franchisors may feel that it is unlikely that they will be held liable for actions taken by their franchisees.  

Contrary to this belief, Section 558B of the Fair Work Act (‘The Act’) states that a franchisor can be held liable for any breach of The Act made by a franchisee, unless they are able to prove, among other things, that they had previously taken reasonable steps to prevent the breach.

Examples of a breach of The Act may include: 

• Failure to provide entitlements under the National Employment Standards, or applicable modern awards or enterprise agreements;
• Failure to comply with the rules regarding the method and frequency of payments to the franchisees’ employees (including unlawful deductions from wages);
• Failure to comply with pay slip and record keeping obligations; or
• Engaging in sham contracting.

What are considered reasonable steps? 

What is actually considered reasonable within this context depends on the following factors:

• The overall size of the franchise and its access to resources.  The larger the franchise, and the more resources available within its network, the more it is expected to do; 
• The ability of the franchisor to influence or control what the franchisee got wrong.  This is not just with regard to operational control, it also relates to any financial and/or managemental influence the franchisor might have over its network;
• Whether the franchise had procedures in place to allow for the effective handling of complaints relating to issues such as underpayments or other workplace law breaches; 
• What steps the franchise took to encourage, support and train franchisees with regard to their compliance with workplace laws; and
• What arrangements the franchisee had in place to monitor and access the franchisee’s compliance with wage, payment and record keeping obligations

Helpfully, the Fair Work Ombudsman has recently released its ‘Guide to promoting workplace compliance in your franchise network’, which I would urge any franchisors to read through carefully.  The guide is a useful tool, and sets out practical strategies that franchisors can implement in promoting compliance within their franchise network  

If a circumstance does arise wherein a franchisee is found to have been in breach of workplace laws, following this guide correctly will help franchisors satisfy the FWO that they have in fact taken reasonable steps to prevent the breach from occurring.

If you have a query regarding any of the information in this article, or for more information on workplace law compliance strategies, whether as part of a franchise set up or not, please feel free to get in contact with Coleman Greig’s Employment Law team.