Proposed bill could reform franchise industry

The Greens have put forward a bill that could overhaul the franchise industry and prevent the exploitation of workers. The Fair Work Amendment (Recovery of Unpaid Amounts for Franchisee Employees) Bill 2015 would make head office franchisors legally liable for franchisees who underpay their employees.

The effect of the bill

Industrial relations spokesperson for the Greens, Adam Bandt MP, said, “This law will make things fairer for the workers and fairer for the small business franchise operator.”

Regarding underpayments, he said, “When it comes to stopping underpayments, prevention is better than cure. By allowing workers to claim any underpayments directly from head office, this law will help bring about a culture shift. Instead of leaving it to vulnerable workers to uphold the law through expensive legal action, head offices would take more responsibility for what goes on in the stores that carry their name.”

He added, “This change to the law would also help stamp out the practice of unfair contracts, where franchisors effectively force franchisees to underpay workers if the business is to make a profit.”

Why it matters – the 7-Eleven case study

The bill comes after news that 7-Eleven was ordered to pay heavy fines for exploitation of workers in its franchises. Some 7-Eleven franchises had been paying their workers less than minimum wage, and not paid casual loading or penalty rates. Some workers had to work more than is legal for their visas, at half pay, receiving as little as $10 an hour. In August, 7-Eleven reviewed its payroll and found that 69% of its franchises had ongoing payroll issues.

As a result, in September, 7-Eleven has announced that it will be repaying workers who were held to be underpaid by the court. 7-Eleven Chairman Russell Withers says the repayment offer will also be available to former employees who are no longer in Australia, with no time limit to make a claim. The company has also said it will help sell the franchise of any franchisee who feels their franchise is not financially viable, or is unhappy with their business.

Possible reform for the franchise model

The Fair Work Ombudsman, the federal agency responsible for enforcing workplace relations laws, has been focussing for some time on the problem of franchises exploiting their workers.

Under the current situation of commercial agreements between head franchisor and franchisee, head office simply sets the price for purchasing goods from suppliers, the price at which to sell goods to the customer, and the store’s opening hours. After taking into account the cost of labour, and royalty fees and interest repayments to the head franchisor, there are very few legal methods available for franchisees to boost their profits.

A large part of the solution lies in making the head company of the brand responsible for all of its franchises, instead of allowing them to have a “hands-off” approach once a franchisee has set up shop.

In the USA, legal proceedings against McDonald’s have set an interesting precedent for head office being made legally liable for the actions of its franchisees. The National Labor Relations Board held that head office is a “joint employer” of McDonald’s workers along with the franchise that directly employs a worker.

The Board then greatly expanded the standard of conduct expected of such joint employers. They held employers cannot “insulate” themselves from their legal responsibility to a worker by saying that they do have direct control over the franchisee’s workplace.

If the concept of “joint employment” were embraced by Australian courts, it could radically change how we deal with non-compliance by franchises here. Currently in Australia, the Fair Work Act 2009 means that a head franchisor can only be held liable for its franchisee’s non-compliance when the head office is actively “involved in” the non-compliance activity.

Owners or managers of small businesses can clarify their workplace obligations on the government’s Fair Work website or contact the Fair Work Infoline on 13 13 94.