Joint Liability and Increased Penalties – Now in Play for Franchising!

Public Relations & Media Services

The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (“FWAA”) has now come into effect, materially impacting the Franchising Industry (and possibly extending to those in the licensing industry), with the main impact being that:

• there are now higher penalties for serious contraventions of workplace laws and record keeping breaches; and
• from 27 October 2016, new obligations that extend liability for underpayment and other breaches in franchise and subsidiary networks to the franchisor and holding entities, will apply.

Briefly, some of the key changes include:

• Franchisors may now be liable for various breaches of the FWAA by their franchisees in circumstances where they knew or reasonably ought to have known about the breaches but failed to take reasonable steps to prevent those breaches from occurring;
• Holding companies may now be liable for various breaches of the FWAA by their subsidiaries in circumstances where they failed to take reasonable steps to prevent those breaches from occurring;
• Franchisors and/or holding companies’ officer/s may now be potentially liable as an accessory to a breach;
• New and/or increased penalties – higher penalties for “serious contraventions” (maximum penalties increasing to $630,000 (corporations) and $126,000 (individuals)); doubling maximum penalties for “strict liability” breaches relating to employee records and pay slips; increasing maximum penalties for giving false and/or misleading employee records or pay slips; new penalties and prohibitions around dealings with Fair Work inspectors;
• New prohibitions have been put in place to prevent “cash back” arrangements;
• Where a franchisee or subsidiary has breached the FWAA the person who suffered loss, may be able to seek a compensation order against the relevant franchisor or holding company. (The franchisor or holding company may be able to subsequently seek to recover the amount paid against the relevant franchisee or subsidiary);
• Fair Work Ombudsman gains greater investigation and enforcement powers; and
• Employers now face the burden of proof to rebut certain presumptions of being in breach of certain FWAA provisions.

Also, as the FWA relies upon the definition of franchise per the Corporations Act (Cth), which is much wider than the Franchising Code of Conduct’s definition, you could find the FWAA extends beyond franchising to apply to certain license arrangements.

Therefore, given the impact of breaching the FWAA, franchisors, licensors and their holding companies, should be ensuring not only are they aware of their obligations, but working with their advisors have created or updated agreements, systems and processes to address their liability risks and overall foster a positive compliance culture that supports themselves and their network.

Please note this brief update, does not purport to be comprehensive advice relevant to your circumstances. Consequently specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.