Risk Rises Down Under: Australian franchisors face uncertainty with joint employer regulations.

Author:Giles, Stephen
 
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Australian and foreign franchise systems continue to struggle with uncertain compliance obligations under the Fair Work Amendment (Protection of Vulnerable Workers) Act of 2017, which went into effect Oct. 27, 2017.

The act extends the potential liability of franchisors for workplace law breaches of their franchisees in certain circumstances. Although stopping short of creating joint-employer liability, the legislation does create direct franchisor exposure to regulatory penalties and civil claims by employees. The liability arises in circumstances where the franchisor, or an officer of the franchisor, "knew or could reasonably be expected to have known that the contravention by the franchisee entity would occur, or a contravention of the same or similar character was likely to occur," subject to a defense that the responsible franchisor entity used reasonable steps to prevent the breach.

A "responsible franchisor entity" is a franchisor that has "a significant degree of influence or control over the franchisee entity's affairs," with a "franchise" very broadly defined as "an arrangement under which a person earns profits or income by exploiting a right, conferred by the owner of the right, to use a trademark or design or other intellectual property or the goodwill attached to it in connection with the supply of goods or services." The legislation also contains increased penalties for breach, stronger enforcement powers for the Fair Work Ombudsman and a new offence of a "serious contravention" with even higher penalties.

THREE POINTS OF EXPOSURE

In practical terms, franchisor exposure is on three fronts:

  1. Risk of regulatory prosecution under the legislation;

  2. Risk of civil claim by employees of franchisees based on new legislative obligations; and,

  3. Risk of adverse media publicity.

Most franchise systems have taken additional measures to demonstrate they have taken "reasonable steps" to prevent a breach. The typical action includes some, or all, of the following:

* Design of a comprehensive compliance program designed either from the franchisor's perspective, or as a joint franchisor/franchisee initiative. Given the risk, most franchise systems have taken the view that they have no option but to get involved in compliance, notwithstanding that this is still seen fundamentally as a franchisee obligation;

* Explicit efforts to continuously communicate to all members of the franchise network that there is an overall compliance policy, so...

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