09/03/2018Franchising, Employee Issues, Awards

FWO Frustrated

Recent press commentary from the FWO regarding the results of a compliance activity program  it carried out on a number of Caltex fuel outlets, has shown the FWO's frustration in getting assistance from franchisor Caltex to redress the problem.

Fair Work Ombudsman Natalie James said they discovered a large range of breaches at 25 outlets in Sydney, Brisbane, Melbourne and Adelaide it had audited, after receiving a tip-off about an increase in compliance issues at Caltex outlets.

"From underpayments to not giving pay slips, deductions for till imbalances and, most seriously, pretty deficient record keeping," she said.

"When records are not reliable it becomes very hard to work out the real extent of the underpayment, and so the amounts that we've uncovered I would suggest are the tip of the iceberg."

In its response to the report, Caltex said it was committed to stamping out wage underpayment anywhere in its network, and had implemented an independent whistleblower hotline, as well as establishing an assistance fund of $20 million for franchisee employees.

Caltex Exits Franchising

In a recent announcement to the ASX, Caltex surprised the market when it announced it was exiting franchising as a model, and intended transitioning all retail franchise outlets to company operations by mid-2020, at a cost of $100 to $120 million over 3 years.

New Laws Could Have Made Caltex Liable

Fair Work Ombudsman Natalie James said they discovered a large range of breaches at the outlets during the compliance program. "From underpayments to not giving pay slips, deductions for till imbalances and, most seriously, pretty deficient record keeping," she said.

"When records are not reliable it becomes very hard to work out the real extent of the underpayment, and so the amounts that we've uncovered I would suggest are the tip of the iceberg."

Since the FWO report was released, there has been speculation that Caltex franchisees and Caltex itself may have been in a far more serious position if the alleged breaches of employment laws had occurred after the Vulnerable Worker laws had been introduced late last year, (2017).

Under the laws, as we previously reported, if an employer has not meet its record-keeping and payslip obligations (and cannot provide a reasonable excuse for such conduct), the employer will need to disprove any allegations of underpaid wage claims by its employees. This reversed onus of proof places significantly more responsibility on all employers and companies to ensure they comply with their record-keeping obligations under the Fair Work Act.

Caltex would also be required to show it had taken "reasonable steps" to ensure its franchisees were complying with Australian employment laws. The new provisions hold franchisors and holding companies responsible for contraventions of the Fair Work Act, if they knew or could reasonably have been expected to have known the contraventions would occur in their business networks and failed to take reasonable steps to manage the risk.

What are 'Reasonable Steps'?

The question of "what is reasonable?" has many franchisors concerned as to whether they are doing too much, or not enough, to meet their obligations under the Act.

The Explanatory Memorandum to the new provisions provides some guidance on this, including the following (at par.67) -

"For those that do need to take additional steps, the following activities may constitute reasonable steps to avoid a contravention of the Act, depending on the size and influence or control of the relevant companies:

  • ensuring that the franchise agreement or other business arrangements require franchisees to comply with workplace laws;
  • providing franchisees or subsidiaries with a copy of the FWO’s free Fair Work Handbook;
  • encouraging franchisees or subsidiaries to cooperate with any audits by the FWO;
  • establishing a contact or phone number for employees to report any potential underpayment to the business;
  • auditing of companies in the network."

Whether Caltex would have been found to have taken sufficient action to avoid a ruling that they had not taken sufficient steps regarding ensuring franchisee compliance, will probably never be known, because any breach of their obligations would have been before the new laws were introduced.

However, it is clear that no franchised business will want to be the test case for the FWO to establish what is acceptable.

It might also have saved Caltex the $100 million plus costs it will need to expend in order to convert its franchise outlets to company operations.

Advertorial - How Small Business Can Comply with the New Laws

ER Strategies recently released its new WorkShield service package, aimed squarely at helping franchise businesses of any size meet their existing and future employment compliance needs. 

Service aspects include a number of features we believe will enable a franchisor to meet its legislative requirements - all for a set fee - as well as avoid all the bad media and brand stigma associated with underpayment allegations.

Click here for more information about how WorkShield can help your franchise, non-franchise or any other type of business, meet your employment compliance needs, or call us on 1300 55 66 37.

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