One year on: the impact of the Vulnerable Workers Act on franchisor-franchisee relations

One year on: the impact of the Vulnerable Workers Act on franchisor-franchisee relations

One year on: the impact of the Vulnerable Workers Act on franchisor-franchisee relations

Just over one year ago, the much-touted Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (VW Act) came into effect with much anticipation and trepidation.

Since this Act provided the Fair Work Ombudsman (FWO) with the ability to seek significantly higher penalties for breaches of the Fair Work Act 2009 (FW Act) and to make franchisors liable for employment entitlements owed by franchisees, it was thought in some circles that this relatively small Act would destroy the franchising sector as we know it.

One year on, and the effect of the VW Act is being felt, but not in the courtroom or in the actions of the FWO, but in the relationship between franchisor and franchisee.

A muted regulatory response

The government’s reasoning behind making franchisors liable for the contraventions of their franchisees was two-fold:

to encourage franchisors to take positive steps to ensure that their franchisees were operating in compliance with the law; and

to allow the FWO to target the franchisor (which typically has deeper pockets) so that employees are more likely to be paid their outstanding entitlements by a commercial entity rather than under the Fair Entitlements Guarantee (FEG).

In the 13 months since the franchisor liability provisions came into effect, the FWO has not commenced any legal proceedings against a franchisor in reliance on those provisions.

To an extent, this is likely due to the extended process the FWO undertakes before it gets to the point of litigation – legal proceedings are expensive even for the government, and are therefore a last resort rather than a first response.

The FWO’s enforcement policy also emphasises that the office take the course of action most likely to achieve the policy outcomes of the FW Act. As we will see below, the activity of franchisors is making litigation somewhat unnecessary in this respect.

Since franchisors can only be held liable for contraventions by their franchisees occurring after 27 October 2017, it is more than likely that we won’t see any litigation under this clause, if any, until 2019 if not later.

A proactive response from the sector

Whilst the FWO’s response to the VW Act may not be immediately identifiable, the franchise sector’s response has been increasingly proactive as franchisors take ‘reasonable steps’ to protect themselves from liability, particularly since the FWO released its guidelines on this point.

The most extreme case of this was of course Caltex, which decided that the risk created by the VW Act was simply too great and bought back all of its independent franchise outlets. A dramatic response, to be sure, but one which that business felt was the best means to protect itself.

Lower down the chain of reactions, we have increasingly seen franchisors undertake closer supervision of their franchisees, and including provisions in their franchise agreements to allow this to occur more readily and impose penalties where contraventions are uncovered.

Some franchisors are going one step further and actively auditing their franchisees. Whilst some are doing this on a ‘random sample’, others are undertaking a systematic, whole-of-network approach to ensure that no stone is left unturned. In some cases, this amounts to a significant investment on the part of the franchisor to ensure that everything is ship-shape. Both of these steps form part of the guidelines issued by the FWO on this point.

However, this sometimes causes tensions between franchisor and franchisee – after all, the franchisee went into business to be their own boss, not to be beholden to someone higher up the pecking order. Whilst some franchisees welcome the intervention of the franchisor, others are rankling under the increased supervision.

It's not personal

The important thing for franchisees to remember in this process is that the intervention of the franchisor is not personal. It is part of a wider process to protect the business and the business model, nothing more.

By the same token, franchisors need to remember that their franchisees are in business as independent operators. Entering their business to check compliance with the FW Act and the franchise agreement is not a blanket authority to start treating the business like your personal plaything.

Mutual respect and understanding between both parties is essential for the franchise model to work in this new paradigm, so care should be taken to respect the mutual sense of propriety both sides will have – over the individual business, and over the brand.

Franchisors come bearing gifts

Forcing franchisors to make compliance with the FW Act one of the cornerstones of their brand was one of the intended outcomes of the VW Act, and so far as we can tell it appears to be working.

One of the increasingly more common methods by which franchisors are mitigating their risks under the VW Act is to provide additional training on industrial relations laws to their franchisees in addition to the usual brand awareness training used to make franchises consistent across the network.

Franchisors are providing this in a variety of different methods – some are relying on internal trainers to visit individual franchisees, whilst others conduct group training sessions for new and existing franchisees with external trainers, and increasingly this external trainer is the relevant industrial organisation.

Some franchisors are simply pushing their franchisees towards the resources available on the Fair Work Ombudsman’s website, and whilst this is a good place to start we doubt that it will be enough to ensure compliance or mitigate the risk to the franchisor – indeed, former Fair Work Ombudsman Natalie James said as much. The more tailored the solution, the more effective it is likely to be.

As a franchisee, full advantage should be taken of these resources as they are made available. Certainly it best behoves the franchisee to proactively ensure their own compliance than wait for the franchisor to compel it.

Symbiotes, not parasites

Most importantly, both franchisor and franchisee need to remember that the relationship between them is symbiotic – you need each other to succeed.

In real terms, the franchisor needs the franchisee to run the revenue-generating operations of the brand. The franchisee needs the franchisor to provide the resources to ensure that this revenue does not go down the drain thanks to some simple error in payroll.

Importantly, franchisees should remember that where there is non-compliance with the FW Act, they are the ones liable first and foremost.

The franchisor may never be liable – in fact, most (if not all) of the steps that they are taking are designed to ensure that they are not liable, even if the franchisee is. However, part and parcel of this is providing the franchisee with the resources they need to make sure that they are operating within the confines of the law.

When the resources – the training, the guides, the checklists – are offered, don’t look a gift horse in the mouth. Bite the bullet and accept them – it can only help in the long run.

 

Lindsay Carroll Bio:

Lindsay Carroll is the Legal Practice Director at the National Retail Association and is a leading workplace relations specialist.

She regularly advises members on issues including termination of employment, redundancy and workforce restructure, managing threats of industrial action, disputes and disciplinary matters. She has experience assisting members in complex enterprise level negotiations and in the design and implementation of industrial strategies.

Alex Millman Bio:

Alex is a Senior Workplace Relation Advisor at the National Retail Association.

He provides advice and representation to over 19,000 retail, fast food and quick service outlets nationwide. Whilst focusing on employment law, Alex also advises and represents members in general commercial litigation in various State courts, and also advise generally on compliance with applicable registered organisations legislation.

Contact the NRA for more information on 1800 RETAIL (738 245) or visit https://www.nra.net.au