At the best of times an employer failing to meet workplace obligations can face some serious consequences. If that employer is part of a franchise system, the effects of that failure radiates to the whole brand and franchise network. In the news, Pizza Hut, McDonald's, 7- Eleven and more recently Dominos have all been caught in scandals involving the underpayment and manipulation of employee wages and entitlements by franchisees within their networks. Whilst at the moment, the legal ramifications is on the franchisee and not the franchisor, the proposed amendments to the Fair Work Act changes that.
As a franchisor however, whatever the size of your franchise system, it is important that you minimise the risk to your brand by taking practical steps to help your franchisees understand and meet their obligations. The prudent franchisor should be doing this, irrespective of whether or not the proposed legislation comes into effect.
How can you help your franchise system?
At the most basic level, every franchisor should have a provision in their franchise agreement requiring its franchisees to comply with workplace laws. However, it is no longer sufficient to have this and do nothing else. Protecting the brand and the franchise network should be the first priority for every franchisor and to do so would mean that there needs to be crosses and checks in place that ensure compliance. Just as it is important to include a provision in the franchise agreement regarding compliance with workplace laws, it is imperative that franchisors also maintain a system and have policies in place which enable and support compliance by franchisees. Franchisors can incorporate fair work provisions into their operating systems and manuals, helping create clarity and consistency about conditions of employment across the franchised network.
A franchisor can ensure compliance by its franchisees by not only providing training on workplace laws during the initial training period for a franchisee but by also having the right tools and processes in place. This would include:
- Having systems in place which provide franchisees with access to human resources and or industrial relations information;
- Making available to franchisees or giving them guidance on where they can access information relating to pay rates and entitlements, and providing templates for employment contracts and the like; and,
- Having policies and procedures in place for the handling of disputes which may arise between an employee and the franchisee.
However, as we have seen recently, having a system in place does nothing to ensure compliance so it's important for a franchisor to monitor compliance by regularly checking that their franchisees are complying with workplace laws. Again, at the most basic level, a franchise agreement should include provisions which allows the franchisor the ability to audit and check compliance by the franchisee in relation to workplace laws. More importantly for a franchisor, is how they monitor that compliance and the things that they can do to address issues before they become a problem. Monitoring compliance would include a franchisor undertaking some of the following:
- Carrying out random audits on the franchisee requesting information relating to their employees including, employment contracts, employee payslips and records;-
- Requiring franchisees to report into the system information relating to their employees and the steps they are taking to ensure workplace compliance; and,
- Requiring franchisees to report any discrepancies or issues that are likely to arise or have arisen as a result of an employee or workplace compliance.
Whilst there is no guarantee that the proposed legislation will be enacted, franchisors shouldn't wait to prepare for the new requirements - they should be looking at their systems and start thinking about their compliance strategy now.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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