The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 – The Impact on Franchising

Raynia Theodore | Principal, Corporate Advisory & Franchising Team | MST Lawyers
The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 – The Impact on Franchising

On 14 September 2017, the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 received royal assent and became new law called the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) (“the Act”). The Act amends the Fair Work Act 2009 (Cth) (‘FW Act’).

 
This article summarises key features of the Act.
 

Amendment #1: Increasing maximum penalties for contraventions of certain civil remedy provisions

 
The Act introduces new civil penalties for ‘serious contraventions’ which are ten times higher than those currently set out in the Act. Under the Act, a ‘serious contravention’ will be found if a person knowingly contravened a provision and the conduct was part of a systematic pattern of conduct relating to one or more others persons.
 
In determining whether the person’s conduct was part of a systematic pattern, a Court may have regard to:
 
(a) the number of contraventions committed by the person;
(b) the period over which the contraventions occurred;
(c) the number of persons affected by the contravention;
(ca) the person’s response, or failure to respond, to any complaints made about the relevant contraventions;
(d) whether the person failed to keep employment records in accordance with the FW Act; and
(e) whether the person failed to provide a payslip in accordance with the FW Act.
 

Amendment #2: Liability of responsible franchisor entities and holding companies

 
The Act introduces a new civil penalty liability for responsible franchisors.
 
A ‘responsible franchisor’ will contravene the Act if one of its franchisees contravenes a civil remedy provision in the FW Act (see below) and either:
 
(a) the franchisor or an officer of the franchisor knew or could reasonably be expected to have known that the contravention by the franchisee would occur; or
(b) at the time of the contravention by the franchisee, the franchisor or an officer of the franchisor knew or could reasonably be expected to have known that a contravention by the franchisee of the same or a similar character was likely to occur.
 
The Act defines ‘responsible franchisor’ as a franchisor that has a significant degree of influence or control over the franchisees’ affairs.
 
The various civil remedy provisions under the FW Act which can be contravened by a franchisee and which can expose a franchisor to the new statutory liability include:
 
  • contraventions of the National Employment Standards - subsection 44(1);
  • contraventions of modern awards -section 45;
  • contraventions of enterprise agreements - section 50;
  • contraventions of workplace determinations - section 280;
  • contraventions of national minimum wage orders - section 293;
  • contraventions of equal remuneration orders - section 305;
  • methods and frequency of payment - subsection 323(1);
  • methods of payment specified in awards or enterprise agreements -subsection 323(3);
  • unreasonable requirements for the employee to spend or pay an amount - subsection 325(1);
  • unreasonable requirement for a prospective employee to spend or pay an amount - subsection 325(1A);
  • employer obligations in relation to guarantees of earnings - subsection 328(1), (2) or (3);
  • misrepresenting employment as independent contracting - subsection 357(1);
  • dismissing an employee to engage as an independent contractor - section 358;
  • misrepresentations to engage an individual as an independent contractor -section 359;
  • employer obligations in relation to employee records - subsection 535(1), (2) or (4); and
  • employer obligations in relation to pay slips - subsection 536(1), (2) or (3).
 
The Act appropriately limits the franchisor’s exposure to liability if, at the time of, or prior to, the franchisee’s contravention, the franchisor had taken reasonable steps to prevent the contravention.
 
In determining whether a franchisor took reasonable steps to prevent a contravention, a Court may have regard to all relevant matters, including:
 
(a) the size and resources of the franchise;
(b) the extent to which the franchisor had the ability to influence or control the contravening franchisee’s conduct in relation to the contravention;
(c) any action the franchisor took to ensure the franchisee had reasonable knowledge and understanding of the requirements under the applicable provisions of the FW Act;
(d) the franchisor’s arrangements for assessing the franchisee’s compliance with the applicable provisions of the FW Act;
(e) the franchisor’s arrangements for receiving and addressing complaints about alleged contraventions within the franchise; and
(f) the extent to which the franchisor’s arrangements with the franchisee encourage or require the franchisee to comply with the FW Act or other workplace law.
 
Restitution from the franchisee
 
The Act provides that where a franchisor has paid to, or on behalf of, an employee, an amount pursuant to an order relating to a contravention by a franchisee and the franchisor has not been able to recover that amount from the franchisee, the franchisor may commence roceedings against the franchisee.
 
Holding Companies
 
The Act creates similar provisions in relation to holding companies and their subsidiaries.

 

Amendment #3: Unreasonable deductions or requirements to spend or pay an amount 

 
The Act states that a term of a modern award or an enterprise agreement has no effect if that term permits or has the effect of permitting an employer to deduct from an amount that is payable to an employee if the deduction is:
 
(a) directly or indirectly for the benefit of the employer, or a party related to the employer; and
(b) unreasonable in the circumstances.
 
A similar section is included in the Act in relation to unreasonable requirements to spend money, or pay an amount, in relation to the performance of the employee’s work. This variation may have the effect of nullifying certain deduction clauses currently included in previously approved enterprise agreements.
 

Amendment #4: Powers of the Fair Work Ombudsman

 
The Act proposes to extend the Fair Work Ombudsman’s (‘FWO’) ability to require a person to provide information, where the FWO reasonably believes that the person:
 
(a) has information or documents relevant to an investigation into a suspected contravention of the FW Act; or
(b) is capable of giving evidence that is relevant to such an investigation.
 
This expands the FWO’s previous power to serve a ‘Notice to Produce’ on employers demanding the production of certain employment records or documents.
 

Amendment #5: Hindering and obstructing the FWO and inspectors

 
The Act provides that a person must not intentionally hinder or obstruct the FWO in the performance of their functions. A new civil penalty provision will be included that provides for a penalty of 60 penalty units (equating to $12,600 for the 2017/18 financial year) where a person obstructs a Fair Work  inspector.

 

Amendment #6: False or misleading information or documents

 
The Act also provides that an employer must not make or keep a record that the employer knows is false or misleading and must not give a payslip that the employer knows to be false or misleading.
 
A new civil penalty provision will be inserted for employers who produce a document or provide information to the FWO that the employer knows, or is reckless as to whether the information or the document is:
 
(a) false or misleading; or
(b) for information - omits any matter or thing without which the information is misleading.

 

Amendment #7: Records

 
If in a proceeding in relation to a contravention by an employer of a civil remedy provision, an applicant makes an allegation in relation to a matter and the employer was required to:
 
(a) to make and keep a record; or
(b) make available for inspection a record; or
(c) give a payslip,
 
in relation to a matter and the employer fails to comply with the requirement, the employer has the burden of disproving the allegation. This is not the case where the employer provides a reasonable excuse as to why there has not been compliance with the above requirements.
 
Conclusion
 
The Act received royal assent on 14 September 2017. The franchisor and holding company liability provisions in the Act will commence on 27 October 2017.
 
All other provisions in the Act (including the serious contravention provisions) commenced on 15 September 2017.
 
In light of the new laws extending liability for contraventions by franchisees to responsible franchisor entities and holding companies, it is expected that franchisors will be taking proactive steps to ensure their franchise network is complying with workplace laws, including ndertaking regular audits of franchisees to assess compliance with workplace laws and taking immediate action against franchisees where a complaint is made by an employee or where non-compliance is identified following an audit. This may include requiring franchisees to undertake additional training, issuing breach notices and where permitted terminating the franchisee’s franchise agreement.
 
It is important that franchisees remember that the new laws impose an additional liability on franchisors - they do not relieve them from their obligation to comply with workplace laws and from liability to their own employees for any non-compliance. As an employer a ranchisee remains primarily liable to its employees and must educate itself on all its workplace obligations whether or not the franchisor offers any guidance or support in this area.
 
Even if a franchisor is found liable for a contravention of the FW Act by a franchisee, the franchisor can seek recovery of any amounts paid to employees of the franchisee from the franchisee.
 
A franchisee who has not complied with its obligations under workplace laws may also find itself losing its franchise business and livelihood if the franchisor exercises its rights under the franchise agreement to issue a breach notice on the franchisee and terminate the franchise agreement if the franchisee fails to take action to remedy its breaches. In some cases where the franchisee has been fraudulent a franchisor may be able to immediately terminate a franchisee’s franchise agreement.
 
MST Lawyers has over 25 years’ experience in franchising, representing clients throughout Australia and internationally in a variety of industries. Written by Raynia Theodore, Principal, in the Corporate Advisory and Franchising Team at MST Lawyers, please contact the Corporate Advisory and Franchising Team for assistance or further information.
 
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