There has been much commentary and discussion about the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 which received Royal Assent on 14 September 2017 and commenced as law on 15 September 2017 (New Law).

Importantly, from today, 27 October 2017, “responsible franchisor entities” can be held liable for their franchisees’ contraventions of specified civil remedy provisions of the Fair Work Act.

This article sets out some practical considerations regarding the New Law for franchisors and other licensors of intellectual property, such as fuel suppliers operating under the Oil Code of Conduct.

1. Determine if the New Law potentially applies

There are several threshold tests to determine if the New Law applies.

Fuel suppliers and other licensors of intellectual property should not assume that they are not caught by the New Law on the basis that they are not regulated by the Franchising Code of Conduct.

The definition of “franchise” in the New Law does not mirror the definition in the Franchising Code of Conduct, but rather refers to the definition at section 9 of the Corporations Act, which, subject to a qualification in relation to managed investment schemes, is “an arrangement under which a person earns profits or income by exploiting a right, conferred by the owner of the right, to use a trade mark or design or other intellectual property or the goodwill attached to it in connection with the supply of goods or services”.

Unlike the definition of “franchise agreement” in the Franchising Code of Conduct, there is no requirement for a marketing plan, system or certain payments to be made to the franchisor for the arrangement to constitute a franchise. Therefore, intellectual property licensors and other suppliers are encouraged to carefully consider whether they may be caught by the New Law.

On the other hand, franchisors should not automatically assume or concede that they are caught by the New Law, but rather, consider whether they are a “responsible franchisor entity”. A franchisor is a “responsible franchisor entity” if it has a significant degree of influence or control over the affairs (including financial, corporate and operational) of a franchisee entity.

2. If the New Law potentially applies, assess the risk before acting

From 27 October 2017, a responsible franchisor entity is potentially liable under the New Law if:

(a) a franchisee of the responsible franchisor entity has contravened one of the 16 relevant civil remedy provisions concerning minimum entitlements, the National Employment Standards, awards, sham contracting, record-keeping or pay slips;
(b) the contravention occurs in the franchisee’s entity’s capacity as a franchisee entity;
(c) at the time of the contravention, the responsible franchisor entity or its officers knew or could have reasonably be expected to have known that a contravention would occur or that a contravention by the franchisee entity of the same or a similar character was likely to occur; and
(d) at the time of the contravention, the responsible franchisor entity has not taken reasonable steps to prevent a contravention by the franchisee of the same or of similar character.

It is recommended that a risk assessment is carried out to determine the likelihood of franchisee’s contravening the 16 relevant civil remedy provisions. For example, the likelihood of contravention will differ depending on the industry which the network operates in and the demographic of franchisees and their employees. The risk assessment carried out will help to inform the responsible franchisor entity as to the reasonable steps it should carry out to prevent such contraventions.

Further, responsible franchisor entities are recommended to review their contractual and operational arrangements with franchisees in consideration of the New Law. Among other things, this includes taking a stocktake of the franchisor’s existing rights under agreements, such as the right to carry out employment related audits or to introduce new compliance programs.

3. If the New Law potentially applies, determine, plan and implement reasonable steps to prevent contraventions by franchisees

There is no “one size fits all” approach as to the reasonable steps a responsible franchisor entity should take to prevent a contravention by its franchisee. The New Law sets out a list of considerations a court may have regard to when determining whether reasonable steps have been taken, including but not limited to:

(a) the size and resources of the franchisor;
(b) any action taken by the franchisor towards ensuring that the contravening employer had a reasonable knowledge and understanding of the Fair Work Act;
(c) the franchisor’s arrangements for assessing the franchisee’s compliance with workplace laws;
(d) the franchisor’s arrangements for receiving and addressing possible complaints about alleged underpayments; and
(e) the extent to which the franchisor’s arrangements with the contravening employer ‘encourage or require’ the employer to comply with workplace laws.

Relatively low cost steps include establishing an email address or telephone number for employees to report contraventions, providing franchisees with resources such as the Fair Work Handbook, encouraging franchisees to set up an account on the Fair Work website, communicating to franchisees that they are expected to comply with workplace laws and carrying out desktop audits. On the other end of the spectrum, some franchisors have taken significant steps such as taking over franchisee’s payroll responsibilities and implementing biometric systems to monitor when employees are working.

Reasonable steps taken with one franchisee may differ from the reasonable steps to be taken with another. For example, where the franchisor is actually aware of non-compliance or that a franchisee is experiencing financial difficulties, there is likely to be a higher threshold to be met in order to establish that the franchisor took reasonable steps to prevent a contravention.

This article was written by Peter van Rompaey, Consultant and Marian Ngo, Associate from HWL Ebsworth Lawyers.

HWL Ebsworth’s team of industry specialists offer commercial and legal advice on all disciplines relevant to downstream petroleum, retailing and franchising.

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