Award Interpretation - It's your responsibility
Franchisees should not solely rely on their franchisors for advice on job classification levels in awards.
This is the key message from the widely reported decision of Fair Work Ombudsman (FWO) v Chamdale Pty Ltd. The case highlights the complexity of award interpretation and the risks associated with franchisees attempting to delegate that responsibility to others.
Wage rates are determined by the employee’s job classification level in awards (e.g. Fast Food Employee Level 1, 2 and 3). Classification levels may be distinguished by training, time, education, competency, responsibility, supervision or a combination of factors.
Identifying the correct classification can be a complex exercise. As a fast food franchisee recently discovered, the incorrect classification can have serious consequences in terms of award overpayments, underpayments and civil penalties.
The franchisee had always relied on wage information provided by the franchisor’s head office to calculate their employees’ pay rates. Unfortunately, some of the wage updates were not accurate because of a variation to the Award job classification levels.
As a result, the franchisee was unaware that the retail employee Grade 1 level was now based on competency and time in employment. This meant that many employees after six months of employment, irrespective of their training, should have progressed to the next level and a higher wage rate.
This mistake was responsible for most of the underpayments (total $104,946.87). In fact, some trainee employees were overpaid (approximately $72,000), but the franchisee did not seek reimbursement for these overpayments.
There were seven breaches of the award, each carrying a maximum penalty of $33,000. The Federal Magistrates Court reduced the penalty to $46,200 (or 20 per cent of the maximum penalty) on account of the franchisee: not deliberately underpaying employees; taking corrective action to repay employees; not having a prior record of similar conduct; cooperating with the FWO; and engaging an employment lawyer and payroll advisor.
The main lessons for franchisees relating to job classification:
• Check your franchise agreement. A standard franchise agreement will provide that the franchisor is not responsible for the employment conditions of the franchisee’s employees. This means that a franchisee cannot take action against the franchisor under contract if the franchisor provides incorrect advice or information.
• Check your responsibility to communicate the employee’s job classification level. Most awards require employees to be advised in writing.
• Relying on your franchisor, or even the FWO, for advice on award interpretation may reduce the penalty imposed, but it is no defence to an action for breach of the award.
• Franchisees can recover overpayments in particular legal circumstances. Nevertheless, franchisees should consider the time, legal and business costs (e.g. potential media exposure) of pursuing employees for overpayments.
The most important lesson is to seek advice from a specialist employment lawyer. The franchisee in this case only sought legal advice after breaching the award. Employment lawyers have a range of legal tools which assist them in providing the most accurate advice on award interpretation matters.
Craig Cameron is a Lecturer in Corporations Law at Griffith University, member of Griffith University’s Asia-Pacific Centre for Franchising Excellence and Special Counsel at HR Law, a boutique law practice in Brisbane.
HR Law is a law firm specialising in workplace relations and provides strategic, practical and commercially realistic advice to employers.