The Fair Work Act of 2009 (the Act) is Australia’s principal legislation that dictates a legal framework that all Australian employers must comply with in employing staff. The Act prescribes comprehensive minimum legal requirements (including remuneration, hours of work, leave entitlements, and record keeping obligations), and sets out a penalty system for employers that breach their obligations.
In September 2017, Australia legislated to amend the Act to, amongst other things, establish liability on the part of franchisors and holding companies for workplace law breaches committed by their franchisees and subsidiaries respectively.
Detailed below is a summary of some of the salient aspects of these legislative changes.
Increasing Maximum Penalties for Contraventions of Certain Civil Remedy Provisions
The Act introduces new civil penalties for “serious contraventions” which are ten times higher than those currently set out in the Act, i.e., up to A$630,000 (USD 494,843 : GBP 356,402 : EUR 400,449) per breach.
Liability of Franchisors and Holding Companies
The Act introduces a new civil penalty liability for franchisors and holding companies.
A franchisor (or holding company) will contravene the Act if a franchisee (or subsidiary) contravenes a civil remedy provision in the Act (see below) in circumstances where it “knew or could reasonably be expected to have known” that the contravention (of the same or similar character) by the franchisee (or subsidiary) would occur.
The civil remedy provisions under the Act which can be contravened by a franchisee (or subsidiary) and which expose a franchisor (or holding company) to liability, include contraventions of the National Employment Standards (the 10 legal minima that apply to all employers) and modern awards (industry/occupation based instruments that regulate remunerative and working conditions).
Defense of “Reasonable Steps”
Importantly, the Act limits franchisor (or holding company) exposure to liability if it took reasonable steps to prevent the contravention.
In determining whether reasonable steps had been taken to prevent a contravention, a court may review all relevant matters, including actions the franchisor (or holding company) took to ensure the franchisee (or subsidiary) had reasonable knowledge and understanding of the requirements under the applicable provisions of the Act, and arrangements for assessing franchisee (or subsidiary) compliance with the Act.
Powers of the Fair Work Ombudsman (FWO)
The Act provides significantly increased powers to the Act’s watchdog, the FWO, to require a person to provide information where it reasonably believes that that person either has information or documents relevant to an investigation into a suspected contravention of the Act.
Further, an employer who makes a record or gives a pay slip that it knows is false or misleading, can be subjected to significant pecuniary penalties.
Franchisors need to seriously consider introducing systems to their network to educate their franchisees to show they have taken ‘reasonable steps’ to ensure awareness and compliance. Doing so will go some way to both reducing risk to franchisees (and their workforce), and avoid liability for the franchisor itself. Where liability falls on franchisors, severe reputational and financial implications may result.