Make sure you are meeting your 'reasonable steps'

Legal action against franchisor: how to protect your franchise business

For the first time, the Fair Work Ombudsman is taking legal action against a franchisor (in the hospitality and restaurant industry) for failing to ensure compliance by its franchisees. The franchisor is accused of being responsible for the non-compliance of eight franchise-operated outlets and the underpayment of 9 workers, amounting to a total of $32,321.

The FWO also alleges that the franchisees committed a number of violations, including failing to maintain proper records and provide proper payslips.

Why is the franchisor in trouble?

Until the introduction of the Vulnerable Worker laws in the Fair Work Act 2009, the franchisor had limited liability for franchisee actions in relation to employment compliance. However, they now have a legal responsibility to ensure assist their franchisees are meeting their obligations by taking ‘reasonable steps’ to do so. If a franchisor fails to do that, they then run the risk of being targeted by the FWO if one or more of its franchisees is found to be breaching the relevant legislation, as we have seen in this case.

What could the franchisor have done to protect itself?

Under the Vulnerable Worker legislation, franchisors need to take ‘reasonable steps’ to prevent their franchisees from breaching the Fair Work Act. There are a number of different things franchisors can do to reduce their liability and give their franchisees every chance to comply with employment law –

Set expectations

Ensuring franchisees have a clear understanding of what is expected from them is important, as it sets a tone on how they should be operating. These expectations can be established in the franchise agreement, which can make them legally binding, or through other means. For example, we have seen franchises use a buddy system in which high-performing franchisees are paired with new or prospective franchisees to give them a clear understanding and demonstration of how a franchisee is expected to operate their business.

Education and training

Providing training and education for franchisees is useful in demonstrating the correct way to manage employment compliance. Comprehensive education and training, at the time when a franchisee is being inducted, is useful in making sure the franchisee isn’t making mistakes from the beginning and developing bad habits.

However, education and training shouldn’t just be a ‘once-off’. The effectiveness of the message being delivered to the franchisees will become more engrained within their business, with repetition. Also, with changes to laws and developments in technology, particularly in payroll and time and attendance systems, there will often be the need to provide updates and new training to ensure franchisees are maintaining compliance.  

Monitoring activity

Despite training and educating their franchisees, it can be difficult sometimes to make them behave in a certain expected way, and on occasions, franchisees might even intentionally break laws to increase their profits. That is why monitoring what franchisees are doing is crucial, especially relating to payroll compliance. Having a system that monitors payroll compliance and requiring franchisees to use it is a great way to keep tabs on them.

Take further action

Despite these previous measures, breaches can still occur, so it is important to have a plan when they occur. This can range from making franchisees with complaints of underpayments have their payroll audited, or requiring those franchisees with minor breaches to undergo specific training. For more serious breaches such as deliberate underpayments, you might consider legal action too. 

How can we help you?

Whilst the Vulnerable Worker legislation has been in force since 2017, there had yet to be any legal action commenced under it to specifically prosecute a franchisor, until now. It is crucial that all franchisors take this development as a wake-up call and ensure they remain alert to their responsibilities and also take ‘reasonable steps’ in relation to franchisee compliance.

ER Strategies specialises in assisting franchisors manage their ‘reasonable steps’, with our specialised WorkShield Franchise package designed to protect your business and help your franchisees stay compliant with employment law. Our packages include access to our online training academy and OnlineHR document library, as well as access to telephone advice from our expert consultants.

Give us a call on 1300 55 66 37, or click the button below to find out more.

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