After a spate of revelations of franchise businesses underpaying their employees, new laws have come in that have huge consequences for both franchise operators and their franchise parent company – the franchisor.
Changes brought in under the recently passed Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 will hit franchisors particularly hard.
Under this Act, franchisors will face a much greater burden of ensuring that their franchisees comply with employment laws and don't underpay or rip off their employees.
Franchise businesses found underpaying employees and keeping false records
The Act only came into operation recently and franchisors may not yet be aware they can be hit with severe penalties for breaches of the new legislation.
This has all come about after shocking revelations of employees being consistently underpaid by franchise operators who try to conceal their actions with false record keeping. It includes a ban on so-called "cash back schemes" where employers demand money back from workers to pay for the right to work, including payments for uniforms or facilities.
Franchisors can be held liable for workplace breaches by franchisees
The legislation is aimed at the stopping franchisors from turning a blind eye to franchisee misbehaviour. Until now the franchisors have escaped prosecution as they claimed they didn't know what their franchisees were doing. It's like when you pay the man who is painting your house in cash – you know he is dodging tax, but you can say you didn't know what he was doing with his accounts.
Under the new Act, franchisors can now be held liable for workplace breaches of their franchisees or subsidiaries where the parent company knew, or ought reasonably to have known, about such breaches.
Franchisors and parent companies that are responsible for franchisees or subsidiaries which employ staff will now have to show they have taken "reasonable steps" such as declarations, training, audit programs and risk assessments to ensure they comply with relevant workplace laws.
Increased fines provide stronger disincentive to exploit workers
Pleading ignorance of the law won't wash in court. Companies can be fined up to $630,000 per breach, and the penalty for individuals has increased tenfold, from $12,600 to $126,000.
In February an Albury café owner was hit with record fines of $532,000 over a cash-back scheme involving Indian cooks. It wasn't a franchise operation, but demonstrates the crackdown on abuse of employees.
A Queensland labour hire company was fined more than $84,000 for repeated breaches, even after receiving cautions from the Fair Work Ombudsman. A Gold Coast restaurant operator was fined $280,000 for covering up underpayments to employees.
Increased fines for failing to keep compliant business records
Penalties for breaching business record-keeping laws have also been doubled. Several employers have been taken to court in recent months for failure to keep proper employment records, and it has cost them dearly.
Geoff BaldwinFranchising and licensing
Stacks Champion
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