Stephen Giles & Stuart Kollmorgen, Partners, Norton Rose Fulbright

Many businesses have networks of dealers, distributors, franchisees or other independent business owners.  Indeed such arrangements are at the heart of the distribution of goods and services in Australia, and are often the only way for small businesses to compete against major corporate networks.  The synergistic relationship which has two independent businesses working collaboratively, but separately undertaking different responsibilities in the supply chain, works well.

Those with a keen eye will have already observed a few early warning signs that this relationship faces a new and unexpected threat.  A couple of lightning strikes – notably the media interest in the 7-Eleven business network and Senate and union concerns with the alleged exploitation of the temporary work visa system – have ignited undergrowth which looked green, but was surprisingly dry.  Not only did the media jump on the issue and give it almost unprecedented coverage, but politicians scrambled to be seen as the champions of the exploited workers with little regard for the broader issues that seem to have created the exploitation opportunity.

Prompt action by industry bodies and others has established control lines, but the embers remain and if the wind changes we could have a major bushfire on our hands.  The recent media focus on workplace compliance breaches by 7-Eleven franchisees were not the first lightning strike, as other major brands had already been the subject of isolated media attention.  But the fanning of the blaze by the media and others was unexpected.  Quick action explained that the problems were essentially a function of the 24 hour model and unique business circumstances, rather than as a consequence of having a flawed franchise or business model.  However in 7-Eleven’s case the fire damage has extended well beyond the particular franchisees involved, and engulfed the brand and burnt the careers of senior executives.  Interestingly the explanation that the breaches were by franchisees not the brand itself did not cut it, and the uproar clearly demonstrated that the public and the media have little understanding of, or interest in, the distinction between independent businesses when they operate under a common brand.

It would be easy to dismiss the 7-Eleven situation as a unique event, but that would ignore international trends.  In the US there is a raging bushfire on essentially the same issues – that third parties such as manufacturers, licensors, managers of large business networks and franchisors should have greater responsibility for workplace compliance by employers such as franchisees.   Academics are actively fuelling the bushfire, adopting new terminology of a “fissured workplace” to describe a situation where they say workplace policies are being subverted by having intermediated structures.  Although labour hire companies were initially the primary target, the labour bodies have now targeted wholesalers, the construction industry, hospitality, warehousing and franchise systems such as McDonalds and Subway in a clear indicator of intent.

The US National Labor Relations Board has issued a new and expanded joint-employer test that could clearly catch some business networks, and the Department of Labor has less publicly just issued a new Administrator’s interpretation on joint-employer status under its legislation.   The Administrator’s interpretation, issued January 20, adopts an expansive definition of joint employment – an employer may be jointly liable where the employee is economically dependent on the joint employer.  This is the case even when the party exercises little or no control or supervision over the employees.

This interpretation goes beyond that advocated by the NLRB, which still requires control by the joint employer in relation to the setting of workplace terms and conditions.  This interpretation, and indeed the NLRB test, are well beyond the current state of the law in Australia, where our Courts have to date dismissed joint employment at least at common law.  However, it is currently possible for a company to be an accessory to the another employer’s contraventions under the Fair Work Act in Australia.

Companies with any network of independent businesses should start immediately reviewing their workplace arrangements, with a particular focus on the following:-

  • The extent to which they get involved in setting workplace terms and conditions that are used by employers within their network, noting that some companies have actively encouraged other independent businesses in their network to adopt their template workplace arrangements;
  • The extent to which they engage in settling or fighting employment disputes regarding employees of others in their network, such as dealers, licensees, suppliers, agents or franchisees;
  • How “close to the line” are the current workplace terms and conditions, noting that employers are now being attacked in the media for pay arrangements and conditions that are lawful, but are considered unfair and the subject of intense social media campaigns;
  • The nature and extent of workplace relations training, advice and assistance they provide to members of their network;
  • Their ability to take action under the dealer, licence or franchise agreement in the event of serious breaches by the dealer, licensee or franchisee.

Action also needs to be taken at a political level to ensure that politicians preserve the important principle that underpins small business networks and enables them to operate separately but collaboratively.  A company should not be held jointly liable for workplace compliance by another independent business unless that company is actively involved in setting day to day workplace conditions or otherwise genuinely aiding and abetting a breach of the law by the other business.  The company can and should provide a training and support role, and accept responsibility to take action in the event of serious breach by the other business.  However they are not the employer, and the business remains solely responsible for their workplace compliance obligations.

This article was written by Stephen Giles and Stuart Kollmorgen, Partners at Norton Rose Fulbright. Stephen practises extensively in franchising, competition and consumer law, and Stuart is a leading workplace relations lawyer. and