11/04/2017Franchising, Employee Issues, Legislation

We review how franchisors can avoid prosecution under both current and proposed laws.

The Fair Work Ombudsman, Natalie James, has been very 'vocal' in recent months, making speeches and issuing press releases about the FWO's approach to prosecuting "accessories" to breaches of employment laws.

The obvious approach the FWO is taking is to maximise its limited prosecutions budget, by hitting the "tall poppies", the franchisor. The FWO says it is prosecuting accessories to breaches of employment laws in 92% of cases.

She has also shed some light on what franchisors can do to avoid being prosecuted, including her top 3 tips for complying with the proposed new "Vulnerable Worker" laws. Here are her tips from her speech at the 2016 FCA Annual Convention in Canberra - 

  1. Make it clear you expect your system to comply with workplace laws and what the consequences are if they persistently breach the law.  Ensure you have the levers in place to take appropriate action.
  2. Support them to comply by getting them the right advice about pay and conditions, such as encouraging them to sign up to our Online MyAccount service.
  3. Encourage employees with concerns to come to you about it – this is vital intelligence about what’s going on in your network.

We consider each of these tips in more detail, to help franchisors understand their options for protecting their brands whilst also avoiding prosecution -

1. Make your expectations clear

This is partly referring to ensuring your franchise agreement provides you as the franchisor with sufficient power to take action against franchisees who do the wrong thing. However, this shouldn't be limited to requiring compliance with laws generally or the standard 'public disrepute' clause under most franchise agreements. It should include ensuring you have the right to enforce the production and auditing of payroll and other employment records when required by a written request from the franchisor.

It is one thing to have the power to check and another to exercise it. The new Vulnerable Worker laws make it clear that franchisors will need to have compliance programs of some sort, in order to prove they have taken "reasonable steps" to avoid becoming liable for franchisee underpayments. Having a program of store audits will help show franchisors are meeting their obligations.

2. Support compliance by providing advice about pay and conditions

I was a little taken aback recently when a franchisor recently told me that the advice they had received was not to recommend or implement a single source of advice for franchisees on employment issues, because they might be liable as franchisor for that bad advice.

My surprise was generated more by the fact that any franchisor could ignore the media firestorm surrounding major franchise brands who failed to take sufficient steps to protect their brands. Our experience is that where franchisees are left to their own devices or sources of advice, they will often get incorrect advice - or worse still - take the risk of not seeking any advice.

Whilst the FWO operates a free telephone service available to both employers and employees, a dedicated advisory service with specific knowledge of each franchise brand's employment arrangements and which can report on the nature of calls received, will ensure a higher level of accuracy and uniformity of advice that franchisees receive. This can be set-up remarkably cost-efficiently when spread across all operators in a franchise network.

Franchisors also need to consider providing training for both new and existing franchisees on their employment obligations.

3. Encourage employees to raise concerns 

At the FCA Convention, Natalie James also made glowing references to McDonalds having an employee hotline, where employees can confidentially raise concerns they might have about underpayments or other illegal practices in franchised outlets. Other brands operating employee helplines include KFC, Hungry Jacks, 7-Eleven and Red Rooster.

She also pointed to self-regulation such as FRANdata's Workplace Transparency Standards, which again includes employee helplines as part of a systematic approach to ensuring employment compliance for both franchised and equity outlets.

Having a confidential employee helpline should be considered a vital part of any franchisor's compliance program.

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