The Fair Work Ombudsmen has alleged a franchisor (Bakers Delight) has legal liability over its franchisee’s underpayments under the Franchisor liability provisions in the Fair Work Act. This is only the second time that this has occurred and is a significant case that all franchisors should be looking at carefully.
What happened in the case?
In this case, a franchisee who owned 3 stores allegedly underpaid employees by an estimated $1.25 million across a number of years. This is a significant jump from the maximum exposure in the previous case, in which the alleged underpayments were roughly $30,000. An added factor in this case is that most of the staff that were allegedly underpaid were young and therefore considered to be ‘vulnerable workers’. This significantly increases the potential consequences that the accused franchisee and franchisor could face, if they’re found guilty.
The franchisor discovered these underpayments in a payroll audit, after which the franchisor told the franchisee to put measures in place to avoid continuing to make underpayments. It is alleged this clearly didn’t happen, as the franchisee continued to underpay their employees. These further underpayments are what the FWO are alleging the franchisor is liable for.
Why is this case so important?
In this case, the franchisor had clearly taken steps to identify underpayments and provide the franchisee with enough resources and information to both rectify and prevent further underpayments. However, the FWO is alleging that the franchisor failed to take the necessary steps to ensure the initial underpayments were repaid.
However, the franchisor disagrees, stating that they believe they have taken the necessary “reasonable” steps. The ruling in this case will create somewhat of a precedent as to where the line is to be drawn for how much franchisors need to do, especially if they know that the franchisee is underpaying their employees.
What should franchisors do now?
Whilst there is no result from the case as yet, it is a good idea for franchisors to be vigilant and take more proactive steps in the meantime, to avoid being prosecuted by the FWO. This is especially true for franchisors who identify underpayments in a franchisee’s payroll. Ensuring that underpayments are rectified and continuing to monitor the franchisee’s payroll, will be crucial if the FWO is successful in this case.
Our Employment Compliance Services
ER Strategies provides a number of services designed to assist franchisors with their responsibilities in managing their franchisees. Whether it be payroll audits to identify possible underpayments, or rectification calculations to find the extent of an underpayment, ER Strategies can assist you. Get in contact with us on 1300 55 66 37, or click here.