From 1 January 2025, wage underpayment in Australia will carry serious consequences. Employers who intentionally underpay their workers may face criminal charges under the Fair Work Act 2009 (FWA). The penalties are steep, and for those in the franchise sector, the stakes are even higher. A wage underpayment scandal is bad enough. Add potential jail time, and it could be a disaster for a franchise brand.
Why This Matters to Franchisors and Franchisees
The Australian franchise industry has a history of wage underpayment scandals. These issues seem to pop up most often in hospitality and retail—industries where franchises are common. The 7-Eleven scandal highlighted this problem on a massive scale. It led to the introduction of the Vulnerable Workers Laws, which gave franchisors more responsibilities to prevent wage theft within their networks (discussed in our prior article, here).
Now, with criminal penalties for wage theft, the focus on compliance is sharper than ever. Both franchisors and franchisees need to understand these new laws and act accordingly.
Understanding the New Wage Theft Laws
From 2025, deliberate underpayment will be a criminal offence. Employers commit this offence if they intentionally:
- Pay employees less than their legal entitlements; or
- Fail to pay on time
Payments covered include wages, superannuation, leave, overtime, redundancy pay, penalty rates, allowances, and leave loading. Payments that are purely contractual, like bonuses, are excluded.
Accidental underpayments or genuine mistakes won’t lead to criminal charges. But ongoing patterns of underpayment, even if they began before 2025, can be prosecuted.
Penalties for Non-Compliance
The penalties for wage theft are harsh:
For Employers:
- If the underpayment amount is known: three times the underpayment or up to $7.8 million.
- If the underpayment can’t be determined: $7.8 million.
For Individuals:
- Up to 10 years in prison.
- Fines of up to $1.56 million or three times the underpayment amount, whichever is greater.
These penalties highlight the seriousness of compliance.
What Franchisors Can Do
Franchisors have a unique role in preventing wage theft within their networks. While franchisees are often the direct employers, franchisors can’t afford to turn a blind eye. A wage theft scandal in one franchise unit can damage the entire brand.
Here are some practical steps franchisors can take:
1. Educate Franchisees
Ensure franchisees understand their obligations under the Fair Work Act. This can include:
- Providing training on wage compliance.
- Including clear information in franchise manuals.
- Requiring franchisees to join employer bodies or industry associations for ongoing support and advice.
2. Include Compliance in Franchise Agreements
Franchisors can add clauses in franchise agreements requiring franchisees to comply with all employment laws, audit rights, and even requirements to join relevant associated/ hold relevant software. This creates a clear contractual obligation. A franchise lawyer can help draft appropriate clauses that protect the brand and promote compliance.
3. Conduct Regular Audits
Monitor payroll and compliance within your network. Regular audits can help identify issues before they become major problems.
4. Support a Culture of Compliance
Foster an environment where compliance is a priority. Encourage franchisees to ask questions, seek advice, and address any potential underpayment issues early. Employees of franchisees should also be encouraged to notify the Franchisor in the event of any actual or suspected breach of employment laws. Transparency is key.
5. Seek Legal Advice
A franchisor lawyer can ensure your franchise agreement includes appropriate contractual rights. They can also review manuals and other materials to ensure they contain valid and practical information that promotes compliance across the network.
What Franchisees Can Do
Franchisees are responsible for meeting their employees’ entitlements. They must:
- Ensure payroll systems are accurate and up-to-date.
- Regularly review employee classifications and entitlements.
- Quickly address and rectify any underpayments.
- Stay informed about changes to employment laws.
Joining industry associations or employer bodies can provide valuable resources and support.
The Bigger Picture
The introduction of criminal penalties for wage theft is a major shift for the franchise sector. With proactive measures like clear training, robust compliance systems, and legal guidance, franchisors and franchisees can protect their brands and foster trust. The key is to act now. Wage theft scandals are preventable, and the benefits of compliance far outweigh the risks of getting it wrong.