Wage Non-Compliance, a Cost Your Business can’t Afford
2019 to this point has proven to be a challenging period for Australian retail. Slow sales throughout the first half of the year, coupled with the usual uncertainty that comes with a federal election, have seen several outlets struggle.
Food and beverage franchises have particularly struggled. When consumer confidence drops and shoppers decide to tighten the purse strings, indulging less on these types of outlets is an obvious option.
But the ups and down of the economy is not the biggest ongoing challenge facing the franchising sector. Consumer spending will pick up again; indeed it may have already by the time this article is published following the giant personal tax cuts passed by federal parliament and the RBA’s decision to lower interest rates to record lows.
The biggest task for both franchising and retail more broadly in the foreseeable future can be summed up in one word – compliance.
With pressure growing on the Federal Government to criminalise wage non-compliance, following numerous high-profile cases, failing to meet your legal obligations could result in far more than simply a fine and some bad publicity. The most recent case being that of celebrity chef George Calombaris which, although not under a franchise model, should signal to all food and beverage retailers that they are in for increased scrutiny from both the authorities and the media.
Australia has one of the most complex, confusing and complicated industrial relations systems in the world. Navigating it can be difficult for an expert, never mind a hard-working retailer who isn’t qualified in employment law.
It should, therefore, be noted that, due to the convoluted nature of the Fair Work Act, that the overwhelming number of instances where non-compliance does occur, it is unintentional. Moreover, when detected the business in question almost always goes above and beyond to rectify the error and cooperate with authorities. However, as the old saying goes ignorance of the law is no excuse, and franchisees’ now face large and extensive penalties for non-compliance.
Gone are the days when it was acceptable to merely leave business matters in the hands of accountants and assume everything was above board or to assume that the previous owner of a business you’ve purchased was complying with existing legislation.
From the NRA’s experience wage non-compliance typically arises due to one or all of the following:
- Misinterpreting modern awards and enterprise agreements;
- Misunderstanding entitlements and allowances;
- Misclassifying employees; and
- Misapprehending which modern award applies to your business.
In the case of the franchise sector, the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (VW Act) significantly changed both the nature and extent of penalties for non-compliance. This VW Act now means that the Fair Work Ombudsman (FWO) is now able to target a franchisor for indiscretions that are committed by a franchisee.
So what needs to occur to prevent a franchise from becoming the latest big-name scalp for failing to pay its staff correctly?
For a franchise business to work, it has always required a strong and productive relationship between the franchisor and franchisee. It’s when this does not occur that the wheels well and truly come off.
An obvious knock-on effect since the new laws were passed has been that franchisors tend to be taking a far greater interest in the affairs of franchisees operating underneath them. Indeed, this was one of the intentions of the VW Act. However, this can lead to increased tension in the relationship between the two entities, with the franchisee feeling that they are over-supervised.
Both franchisees and franchisors need to understand that they need each other to avoid wage non-compliance. Although franchisors now face stiff penalties, franchisees should also keep in mind that they are most certainly still in the firing line should a breach occur. The franchisor may never be liable, and the VW Act incentivises them to take measures that protect them from penalties if a breach occurs.
If they aren’t already, franchisors should consider conducting thorough audits of all businesses’ operating under their brand name to ensure that compliance is taking place. Franchisees should welcome rather than resist this move. While this may seem a little overbearing, the intent is to make sure that things are done right and ultimately a franchisor should be there to assist a franchisee in running its business successfully.
Having said that, franchisors do need to understand that franchisees are independent operators who desire a certain level of freedom to run the business how they wish. Implementing increased safeguards to ensure compliance should not be coupled with a franchisor poking around a franchisee business like an over-zealous parent nagging their child to clean their room.
Indeed, a successful way to integrate increased compliance measures productively is for the franchisor to incorporate it as a form of additional training. Whether this is on top of regular training sessions that occur as part of the franchisor/franchisee relationship or bringing in external specialists to educate, this can be an effective way to lift compliance standards while not damaging relationships.
Providing resources such as training, guidelines and checklists can be the difference between a compliant franchisee and a public scandal over ‘wage theft’. However, this also comes with an onus on the franchisee to take new compliance measures from the franchisor as an act of good faith, aimed at ensuring that they meet their legal obligations to employees’.
Across the retail spectrum at the moment many businesses, including franchises, are doing their best to manoeuvre through a trying period of sluggish sales and low consumer confidence. However, retailers cannot allow this to distract their focus from ensuring that they are meeting all their employee obligations.
Wage non-compliance can come with high costs in more ways than one; the financial cost of back paying staff, the emotional cost of undergoing an FWO investigation, and the reputational cost that accompanies damaging media headlines. To circumvent these unwanted costs, the franchise sector needs franchisors and their respective franchisees to be working hand in hand to ensure that everything is above board.
Dominique Lamb is the CEO of the National Retail Association, who has extensive experience providing industrial relations and employment law advice to a range of small, medium and large businesses across a range of industries.
The National Retail Association
The National Retail Association is Australia’s largest and most diverse industry association. As a not-for-profit organisation. Its members range from small, family-owned and operated businesses to leading national brands and span nearly every retail category including fashion, groceries, department stores, household goods, hardware, fast food, cafes and services. The NRA is the only retail industry association to deliver practical legal advice through its wholly-owned and incorporated legal practice, NRA Legal. Its mission is to support, inform, protect and represent the interests of retailers and fast food businesses, providing advice on issues such as employment law, industrial relations, training information, workplace health and safety issues, event details, advocacy and policy updates, HR advice and migration and visa issues.