By Renae Harg, Senior Associate and Gemma Little, Associate
Exploitation of vulnerable workers by your franchisee or subsidiary could see you liable
As any entrepreneur knows, there are legal requirements and responsibilities that are part of running your own business. But did you know that as a franchisor or holding company you have additional responsibilities for ensuring compliance with the Fair Work Act 2009 (Cth) (FW Act), and that you could be liable for your subsidiaries’ or franchisees’ breaches of the FW Act?
Highly publicised cases of exploitation of vulnerable workers, including by 7-Eleven and Caltex franchisees, have prompted the introduction of legislation which requires franchisors and holding companies to do more to protect vulnerable workers employed in their business networks.
What you need to know
Up until October 2017, the FW Act provided for persons who were ‘involved’ in other persons’ workplace law breaches to be liable as if they had committed the breach themselves. Being ‘involved’ means inducing, conspiring or aiding the breach or being directly or indirectly knowingly concerned in the breach (section 550, FW Act). These provisions didn’t apply to persons who genuinely ‘didn’t know’.
However, since the enactment of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Vulnerable Workers Legislation), there are additional provisions specifically aimed at making holding companies and franchisors responsible for certain contraventions of the FW Act by businesses in their networks. It is no longer adequate for franchisors or holding companies to ignore FW Act contraventions or not to take adequate action when contraventions are brought to their attention.
This means that as a franchisor with a significant degree of influence or control over a franchisee’s affairs you can be liable for the franchisee’s FW Act contraventions, which you knew about (or could have reasonably been expected to have known they were likely to occur). This accessorial liability also extends to a franchisor’s individual officers.
Similarly, a holding company and individual officers of the holding company can be liable for a subsidiary’s FW Act contraventions which it knew or could reasonably be expected to have known were likely to occur.
So what can you do? Reasonable steps to prevent a contravention
A franchisor or holding company will not be held accessorily liable if they had taken reasonable steps to prevent a contravention by the franchisee or subsidiary of the same or a similar character.
In determining whether ‘reasonable’ preventative steps were taken, a court will consider a range of factors including the franchisor’s or holding company’s:
- size and resources;
- extent of influence and control over the franchisee or subsidiary;
- action to ensure that the franchisee or subsidiary knew and understood the requirements of the FW Act;
- arrangements for assessing the franchisee’s or subsidiary’s compliance with the FW Act,
- arrangements for receiving and addressing complaints about the franchisee’s or subsidiary’s contraventions of the FW Act; and
- arrangements that encourage or require the franchisee or subsidiary to comply with the FW Act.
Contraventions by you or your franchisees could lead to large fines, so introducing and maintaining preventative steps to ensure your subsidiaries’ and franchisees’ observance of legislative requirements is a priority.
The introduction of this Vulnerable Workers Legislation has promoted major franchisors to take proactive steps to ensure workplace law compliance amongst franchisees.
Is your business taking adequate preventative steps to ensure that it cannot be held liable for franchisees’ or subsidiaries’ rogue breaches of the FW Act? If you would like any advice or assistance in relation to this, other any other employment law matters, contact MDC Legal on (08) 9288 4000.