What are franchisors obligations concerning the Vulnerable Workers laws? 

Franchisors must actively uphold their legal duty to ensure compliance with workplace laws throughout their franchise networks. Enforced under the Fair Work Act 2009, the introduction of vulnerable workers laws mandates this responsibility. Beyond mere legality, prioritising adherence to workplace regulations is integral for sustainable business practices. The repercussions of a franchisee embroiled in wage underpayment scandal, for example, are dire. They can pose a severe threat to the brand’s reputation and unsettle the entire franchise network. So what are the vulnerable workers laws that apply to franchisors? What are the obligations of franchisors concerning the vulnerable workers laws? What are some ‘reasonable steps’ franchisors should take to comply with them? This article delves into these important questions. 

What are the vulnerable workers laws that apply to franchisors? 

On 15 September 2017, the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (the Protecting Vulnerable Workers Act) came into force. It shook things up by holding certain franchisors and holding companies accountable if their franchisees flout workplace laws. These changes kicked in on 27 October 2017.

If a franchisor’s franchisees breach workplace laws, the franchisor can be held legally responsible when the following conditions are met:

  • There exists a franchise agreement, where the franchisor permits an individual to generate income by utilizing the brand or trademark, or the brand’s reputation, to operate a business;
  • The franchisee’s business substantially relies on the franchise’s intellectual property (e.g., trademark); and
  • The franchisor exercises a significant level of influence or control over the franchise’s operations. This may include situations where the franchisor’s influence or control doesn’t extend to the franchisee’s employment practices.

When these conditions are met, the franchisor is termed a ‘responsible franchisor entity’. In reality, given how franchises operate, most franchisors will meet this criteria and be deemed a responsible franchisor entity. 

Importantly, responsible franchisor entities are not automatically liable for such breaches. Instead, franchisors are required to take ‘reasonable steps’ to promote compliance. If they fail to take reasonable steps, they can be liable. 

Why were the vulnerable workers laws introduced? 

The Government made changes to the Fair Work Act 2009 to shield workers from unscrupulous employers and boost compliance with Australia’s workplace laws. The introduction of this law followed some high profile wage underpayment scandals in the franchise sector, most notably the 7-Eleven underpayment scandal. 

What reasonable steps can franchisors undertake to comply with vulnerable workers laws?

Determining the reasonableness of steps taken by a responsible franchisor hinges on several factors. These include:

  • The size and resources available to the responsible franchisor.
  • The extent to which the responsible franchisor can influence or control the franchisee’s actions regarding the unmet obligation.
  • The protocols for addressing complaints about potential underpayments or violations of workplace laws within the franchise.
  • Efforts made by the responsible franchisor to educate, aid, or train franchisees in adhering to workplace laws.
  • Whether the responsible franchisor implemented any systems to monitor or evaluate the franchisee’s compliance with employee wage, payment, and record-keeping obligations.

Accordingly, there is not a ‘one size fits all’ approach franchisors should take. At Magnolia Legal we recommend all franchisors at least provide up to date information to franchisees about their obligations pursuant to workplace laws, provide initial training on the topic, and provide contact information as to where franchisees can obtain further information. Franchisors should also nominate an internal team member to be the point of contact if any franchisee has questions or concerns regarding this issue. Importantly, franchisors should include a clause in their franchise agreement compelling franchisees to comply with workplace laws and keep themselves informed on the topic. 

Other steps we recommend, dependent on the size of the network and the industry, include: 

  • Undertaking compliance audits completed on franchisees, including random audits; 
  • Implementing a franchisee-self-audit system; 
  • Requiring franchisees to be part of an association that provides information about employer obligations; 
  • Providing ongoing training on the issue to the entire network; and
  • Informing employees of franchisees to contact the franchisor if any issues arise relevant to their rights as an employee. 

Helpfully, the Fair Work Ombudsman has published a Guide for franchisors on this issue which includes a more in-depth checklist. It is available here. They also offer a course for franchisors, available here

What are the consequences for failing to adhere to these laws? 

If a franchisor is found to have violated these laws, they face various consequences, such as:

  • Compensating the franchisee’s employees; and
  • Paying penalties for each violation. 

Although the law permits franchisors to reclaim from  the franchisee the sum ordered by the court for compensating the franchisee’s employees due to their infringement, they cannot recover any penalties mandated by the court.

Key takeaways 

  • Most franchisors will be subject to the vulnerable workers laws
  • Franchisors should ensure they take reasonable steps to promote compliance with workplace laws throughout their networks
  • Franchisors who fail to comply with these laws could face severe penalties, be liable to employees, and have their reputation tarnished

Magnolia Legal can advise on franchisors obligations pursuant to the vulnerable workers laws, and help them undertake the required ‘reasonable steps’. Contact us for an obligation-free chat today to see how we may help you. 

Disclaimer: This article contains general information only and does not constitute legal advice. Magnolia Legal disclaims any liability arising from reliance on this article. Our terms of use apply