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Fair Work Act: Why there's still more work to be done

Written on the 3 March 2017 by Stephen Giles

The Australian Government this morning introduced legislation (The Fair Work Amendment - Protecting Vulnerable Workers Bill 2017) to amend the Fair Work Act to make parent companies and franchisors liable for the workplace relations breaches of subsidiaries and franchisees in certain circumstances.

Focusing on franchising, a "responsible franchisor" is a franchisor that has significant control or influence over a franchisee. A responsible franchisor will be responsible for certain breaches of workplace laws where it knew or ought to have known of the breach, unless it can establish it took reasonable steps to prevent the contravention.

The devil is in the detail of the legislation, which is likely to add substantial compliance cost and cause some businesses to question whether they ought to continue to operate using a franchise model. The peak industry body, the Franchise Council of Australia, has been working with Government on two fronts - to attempt to persuade the Government not to legislate, and to moderate the drafting of the legislation so it is workable and compliance cost minimised if introduced.   Although significant progress has been made, the FCA still is unable to support the legislation, as the FCA believes it falls short of these objectives. 

The major concerns with the legislation are:

1.  It singles out franchising, when the issues concerning underpayment of workers apply across all business models. Labour outsourcing arrangements, highly controlled supply chains, non-franchised product distribution and other areas where workplace abuses have been identified are not covered.

2. It applies a one-size-fits-all approach to franchising, which is a business method not an industry, and covers 1,100 different business models, from convenience to post offices to fast food to lawn mowing to caravan parks to cooperatives to car dealerships to gutter cleaning to real estate to mortgage broking. In some franchises the franchisor exercises substantial control over workplace matters, in others the franchisor has no knowledge. Although most franchisees are small businesses, some franchisees are very large companies and even publicly listed. The attempt to introduce some form of control test to narrow the application of the legislation and bring it closer to its stated policy intent is clumsy, and needs refinement. The test for a "responsible franchisor" should be control or substantial influence over workplace relations matters, not the current very general control test. This issue is of particular concern to foreign franchise systems, who may have some technical control through master franchise or franchise agreements, but have realistic capacity to direct Australian workplace law compliance.

3.  The current test of significant control or influence is too broad almost every franchisor would through the franchise agreement have some capacity to "influence". The intent of the legislation purports to be to address franchisor involvement in non-compliance, not the theoretical capacity to "influence" this is a bridge too far.

4.  The legislation goes far beyond the stated objective of impacting the underpayment of vulnerable workers, and contains a shopping list of general workplace compliance obligations (EG: record keeping) for which a responsible franchisor can be held liable. This will impose unnecessary duplication and compliance costs, particularly as current industry solutions are achieving substantially improved compliance, and the FCA and the Fair Work Ombudsman and others are working on additional industry programs to further enhance compliance.

5.  The "reasonable steps" defence is opaque, and should be clarified so that franchisors, as third parties who are not directly involved as the employer, can know exactly what they need to do to avoid liability. The FCA has suggested that there should be a clear defence if a franchisor has in place an approved compliance program.
It is hard to predict what will happen from here, as the Government does not control the Upper House, and Labor and the Greens have themselves made policy commitments in relation to alleged worker exploitation.  Referral of the Bill for more detailed consideration by a Parliamentary Committee seems sensible. 

Workplace law compliance is a global challenge. Australia should not rush to be the  first country to try and find a legislative solution, as this ignores the fact that there are complex new issues in the workplace that are a function of broader social issues.  The real driver behind the problematic behaviour is not franchising - they are issues such as immigration, lack of genuine cultural diversity in the workplace and challenges to our legal framework posed by new entrants who bring with them different cultural and social norms and values.

Author: Stephen Giles

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