Securing Clear Relationships with Employees – A Key Ingredient for Success!

This article appeared in Issue 1#6 (Sept/Oct 2007) of Business Franchise Australia & New Zealand

Nearly every franchisee employs, or needs to consider employing, employees. Franchisees cannot always rely on Franchisors to tell them how to hire and fire their staff, although some of the more sophisticated systems do provide guidance in this regard.

The bottom line is that it is the franchisee with whom the employee will have the relationship, hence the importance of franchisees to understand the legal nature of the relationship and the implications if the relationship turns sour.

Every employer/employee relationship involves a contract of employment, even when nothing is in writing. There are many implied terms in an employment relationship and there is an ever increasing volume of awards and legislation governing the relationship. 

Understanding and complying with these laws is a lot less painful, and a lot less expensive, than attempting to unravel the applicable implied terms, awards and statutes in a court after the relationship has soured.

The franchise sector relies upon branding associated with proven systems to give confidence to the public as to the quality and consistency of the products and services offered. Effective workplace policies and agreements, whether by common law agreements or registered WorkChoices agreements, should form part of an efficient franchised business.

The Employment Agreement

A written employment agreement is preferable to an oral agreement, because a written agreement will clearly set out the rights and duties of both parties. 

It is outside the parameters of this article to specify all of the matters which should be addressed in the employment agreement. Some of the important matters which should be contained in writing include: 

• a probation period of up to 6 months;
• basis of employment – full time/part time or casual;
• remuneration and leave and other entitlements – the federal government has fixed five minimum terms and conditions of employment known as the Australian Fair Pay and Conditions Standard which are set out below;
• the provision of an appropriate period for notice of termination – without a specified notice period a terminated employee could claim a payment in lieu of notice, depending on the seniority of the employee, up to an amount equivalent to twelve months salary;
• a clause to protect confidential information – this may be a requirement of the franchise agreement;
• a clause incorporating the policies into the contract – such policies can prevent discrimination, harassment and breaches of occupational health and safety in the work place;
• restraint of trade and non-solicitation clauses – protection is often required to prevent key employees from taking goodwill when they leave; and
• a description of the duties of the employee – this can assist in the objective assessment of the effectiveness of the employee.

Australian Fair Pay and Conditions Standard

The federal government has fixed five minimum terms and conditions of employment known as the Australian Fair Pay and Conditions Standard. They are:

• Basic rates of pay and casual loadings as fixed by the Australian Fair Pay Commission for various industries;
• Hours of work – Maximum ordinary hours of work limited to 38 hours per week (which can be averaged over up to twelve months) and reasonable additional hours;
• Annual leave – Four weeks paid annual leave per year (five weeks for some continuous shift employees);
• Personal leave – Ten days paid personal leave (sick leave or carer’s leave) per year and two days paid compassionate leave per occasion. If paid personal leave has been used, two days unpaid carer’s leave per occasion; and
• Unpaid parental leave – For all employees other than certain casual employees, up to 52 weeks unpaid parental leave (maternity, paternity and adoption).

Workplace Agreements & WorkChoices

The general rule is that non-registered individual contracts are not effective in overriding minimum terms and conditions set by legislation or awards. You cannot rely upon over-award wages and salaries to avoid the payment of award derived conditions such as penalty rates for overtime and weekend work. 

In order to ensure more flexibility in wages and salary structures, franchisees should consider introducing Australian Workplace Agreements and/or Collective Agreements.

WorkChoices was introduced on 27 March 2006 and heralded a fundamental change to industrial relations in Australia.

Contrary to popular belief, awards have been retained under WorkChoices and awards continue to underpin our industrial relations system. 

Regrettably, some employers continue to disregard award conditions. They run the very real risk of back payment claims being made with respect to the non payment of award conditions. Such claims are typically made collectively by a number of staff and ex-staff and, in many cases, involve substantial payouts that cripple or fatally damage an employer. Backpayment risks have grown and will continue to grow under WorkChoices as employees become more aware of their award and legislative rights. Such awareness has been heightened in recent times by massive media campaigns undertaken by the federal government and the union movement. Further, a recent legislative reform now requires all Australian employers to provide all existing and new staff a fact sheet advising staff of their award and legislative rights under WorkChoices. This fact sheet can be found at www.workplaceauthority.gov.au. 

WorkChoices does present, however, a solution. Employers can opt out of award coverage by the use of Australian Workplace Agreements or Collective Agreements.

Australian Workplace Agreements

Australian Workplace Agreements, otherwise known as AWAs, are simply individual employment agreements that are registered with the Workplace Authority. The process of registration insulates the employer from having to comply, in the future, with award conditions and simply requires the employer to meet the five basic minima established under the Australian Fair Pay and Conditions Standard (above).

Australian Workplace Agreements typically suit smaller employers that experience little staff turnover. Australian Workplace Agreements can be difficult to implement into an existing workforce due to the fact that existing staff cannot be forced to sign such an agreement. However, there is no harm in asking existing staff to do so and, certainly in the case of new staff, an employer can require them to sign an Australian Workplace Agreement.

It is worth noting that Australian Workplace Agreements have attracted some bad press in recent times driven primarily by the union movement. Further, the future of Australian Workplace Agreements is uncertain given that the Australian Labor Party has vowed to outlaw the use of Australian Workplace Agreements should it win government in the upcoming federal election.

Collective Agreements

A Collective Agreement is an employment agreement that is designed to cover all relevant staff; typically award staff, employed at a workplace and is voted on by staff as a collective. It is not an individual employment agreement that an employer must sign with each of its employees separately. 

A key benefit in adopting a Collective Agreement is that a majority vote, by those who actually vote, is all that is required to bind all staff to the Collective Agreement who could be covered by it.

As is the case with Australian Workplace Agreements, a properly drafted Collective Agreement is registered with the Workplace Authority and, once registered, will displace all relevant award conditions that would otherwise apply to staff covered by the Collective Agreement.

A further key benefit in the use of a Collective Agreement is that, once registered, it will apply to not only existing staff but also to all new staff employed after its registration. Employers can employ new staff without having to enter into written individual employment agreements or to undertake any process of registration. Administration costs moving forward are negated.

Due to the above benefits, Collective Agreements are particularly useful for businesses that experience typically high turnover of staff and that are covered by onerous award conditions. Employers in retail, fast food and service industries particularly benefit by the use of Collective Agreements.

Unlike Australian Workplace Agreements, Collective Agreements are heartily endorsed by both major political parties and, because of this fact, their future is assured post the upcoming federal election.

Conclusion

A good relationship with your staff is one of the important keys to a successful franchised business. 

The avoidance of uncertainty as to the terms of that relationship means that there will be little scope for misunderstanding and disagreements.

If fundamental terms and conditions of employment are left unaddressed due to the non-existence of a comprehensive written employment agreement between employer and employee, problems, possibly serious problems, are bound to occur.

Therefore, it is critical, as a franchisee that employs staff, to ensure that all terms and conditions of employment imported by legislation and awards are known and understood by the franchisee and all of its employees. Franchisees who will be employing staff should consider the benefits that exist under WorkChoices by the use of either Australian Workplace Agreements or Collective Agreements, to give more flexibility to the way employees’ terms and conditions of employment are structured to suit the individual business. 

Whilst ignorance may be bliss, recovery actions for award back payments will often spell financial disaster for an employer. In addition, nearly all franchise agreements, provide that franchisees must comply with all applicable laws (including the laws of employment) and a failure to do so would constitute a breach of the franchise agreement, thereby putting at risk the future of the franchise if the breach is not remedied within a reasonable time.

Acknowledgement

The author acknowledges and thanks the input into this article by Herbert Fischbacher and Charles Cody, the Workplace Relations Law Principals at Mason Sier Turnbull. Herbert may be contacted at herb@mst.com.au (tel: 03 8540 0290) and Charles may be contacted at charles.cody@mst.com.au (tel: 03 8540 0292)

Philip Colman, Principal, Mason Sier Turnball Lawyers

Phone: 03 8540 0240 or visit www.mst.com.au