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Australia Introduces Protection against Wage Fraud Aimed at Franchise Systems

7-ElevenAustralia's federal executive government has introduced new legislation that some feel will end grievous acts of exploitation by employers, which has been ignored by franchisors. Specifically named is the 7-Eleven franchise system. 

The Sydney Morning Herald reported last Tuesday that the proposed legislative amendments of The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 "have thrown the $146 billion industry into chaos as franchisors and franchisees ponder if the franchise industry is being read its last rites." A news report earlier this month stated there have been "shocking cases of wage fraud in the big brands of 7-Eleven, Domino's, Caltex and United Petroleum. . . prompting all sides of politics to promise new legislation to rein in systemic wage fraud." 

The bill was referred to the Senate Education and Employment Legislation Committee for review last week.

The Franchise Council of Australia and many franchisors submitted their comments to the committee. The four key amendments they submitted that will affect the franchising sector negatively are presented by opponents in the news report. 

According to the author of the opinion piece, Bruce McFarlane, managing partner of Australian law firm BlueRock Partners, the bill will create a "broader, and arguably unfair, definition of "franchisor." "This has the scope to inadvertently capture businesses that are not franchises," McFarlane states. The second amendment establishing the connection between a franchisee and franchisor and their "significant degree of control" casts a wider net than is necessary. The report states, "Control should reflect the issue of employment and not the general affairs of a franchisee." And it clarifies that "the introduction of the proposed law could drive a wedge between franchisor and franchisee relationships as fingers are pointed over increased costs associated with the compliance of a franchise system."

The third amendment states that the word "significant" referred to above is ambiguous. This could mean a small franchisor that provides template employment contracts and template procedures is liable for deliberate and malicious acts of a franchisee. Lastly, the phrase "could reasonably be expected to have known" in changes to s328 creates a liability that is too uncertain in the context of a typical franchisee arrangement where there is constant communication between the franchisor and franchisee. 

McFarlane further states, "A franchisor is supposedly liable for breaches . . . and can face fines of $54,000 for their franchisee's underpayment offences when 'they knew or ought reasonably to have known of the contravention and failed to take reasonable steps to prevent them.' 

Pressure from Franchise Council

Former Liberal minister Bruce Billson spearheaded a movement by the Franchise Council of Australia in pressuring Employment Minister Michaelia Cash to change the course of the proposed bill. Its members, including 7-Eleven, Pizza Hut, Caltex and other franchise systems accused of underpaying store workers, have been directed to bombard the government with phone calls and letters as part of its campaign against the bill. In a separate article The Sydney Morning Herald reported that giant United Petroleum, not a member of the Franchise Council, also became embroiled in an exploitation scandal.

Workplace regulators blasted the company for its rampant underpayment of workers throughout its franchise network.  

At that time, the government's proposed law disappeared from its agenda and the Council felt the its opposition to the bill was successful in pushing its opinion that the real issue surrounding worker underpayment exists across the economy and the franchise sector should not be singled out as the problem. However, the government kept its stance saying it was firmly committed to its policy. Members of Parliament expressed that workers in Australia deserve to have strong protections from exploitation and that Labor should commit to supporting the proposed legislation.

Franchise Council wants legislation blocked; says 7-Eleven-type abuses are minority

The Franchise Council of Australia, which says it represents 1,100 brands and supports 79,000 separate small businesses that between them employ 472,000 people, has asked for clarification on the bills changes. The Sydney Morning Herald reported that includes what constitutes "reasonable steps," the inclusion of a requirement to consider the size and resources of a franchise system, the provision of an approved compliance guide, greater emphasis to "Right Size" the law to consider appropriately the mixed scale and diversity of franchises operating within the industry, and increased focus on the underpayment of employees.

The Franchise Council says, "The 7-Eleven problems are in the minority in the franchising sector. The fact is the law does work in its current form."   

McFarlane asserts, "Left unchanged, these laws will significantly impact this diverse and evolving industry by increasing exposure to liability for franchisors, holding companies in uncertainty with compliance requirements, and weakening both domestic and foreign investment as the focus of investors shift to less regulated pastures."

In closing the attorney adds, "All of these changes add up to a catastrophic event for the franchising sector, affected industries and Australia's economy."


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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.