Amid the furore over the Fair Work Commission decision to reduce penalty rates, the Federal Government introduced a bill into Parliament that will force franchisors to ensure their franchisees are meeting their obligations under workplace laws. Arguably the legislation, if supported by a majority of members of the Senate, will also ensure franchisors achieve a better understanding of the pressures on their franchisees and the viability of businesses within their networks. The legislation follows
a series of revelations about breaches of workplace laws in large well-known and industry-feted franchise, systems such as 7-Eleven, Caltex, Pizza Hut and Domino’s Pizza.
The Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 delivers on a Government commitment to ensure workers are protected from exploitative and unfair practices in the workplace, following a Senate inquiry triggered by systemic underpayment and visa rorts in the 7-Eleven franchise system.
In a parallel decision impacting on fast food retailers last week, the Federal Government has also terminated the Fast Food Industry Labour Agreement approved by the former Gillard Labor Government.
The agreement allowed retailers such as McDonalds, KFC and Hungry Jacks to employ foreign workers on 457 visas that are supposed to cover skills shortages.
Despite high unemployment and under-employment levels around the country, the fast food industry struck a deal with the current Leader of the Opposition, Bill Shorten, to bring in foreign workers on 457 visas.
More than 318 fast food outlets nationally apparently decided that only foreign workers could operate the highly systemised food equipment, cash registers and light and air conditioning switches.
McDonalds recruited 285 overseas workers, KFC 88 and Hungry Jacks 74 out of a total of more than 500 applications and two chains had a further 68 requests for 457 visas pending when Immigration Minister, Peter Dutton, announced the agreement would be scrapped.
It is astonishing that the Franchise Council of Australia (FCA) was so aggrieved about the new legislation to protect vulnerable workers when household name franchise systems have acted with such disregard for their employees and young Australians looking for jobs.
The franchise sector apparently expected the furore over the 7-Eleven scandal would blow over and it would be business as usual. That might have been the case, had further cases of widespread breaches of workplace laws in other major retail franchise companies not surfaced.
As Inside Retail warned in our coverage of the 7 Eleven scandal in 2015, tougher legislation for the franchise sector was inevitable, despite assurances from management in the companies of crackdowns on franchisees who did not comply with workplace laws and award entitlements.
Hardly working from a position of strength, the FCA made no public comment on the termination of the 457 visa agreement for fast food retailers and politely noted the introduction of the Government’s legislation to protect vulnerable workers.
The FCA said it had “valued the opportunity to be consulted on the Government’s Bill and had repeatedly emphasised the diversity of the franchise sector across 1,100 brands supporting 79,000 separate small businesses that between them employ 472,000 people”.
In a media statement, the FCA claimed it shared “the Government’s ambitions to improve protection for vulnerable workers but has seen no justification as to why franchising should be targeted”.
“The fact is the risk of worker underpayment exists across the economy and commercial relationships create a degree of control from one business over another that may impact on Fair Work Act compliance, yet the Government’s Bill targets only franchising.
“No-one in the franchise community wants to see an employee underpaid or knowingly taken advantage of, in a franchise setting or any other kind of workplace,” the statement said.
Are they kidding? Does the FCA have to ask why franchising should “be targeted” by the legislation after the parade of franchise systems underpaying workers and the franchisors’ first line of defence being “nothing to see here” and “we know nothing”?
Critically at issue for the FCA is a provision in the legislation which would make franchisors responsible in certain instances where franchisees failed in their obligations as employers.
The FCA has welcomed the Government’s boost to the resources available to the Fair Work Ombudsman, increased penalties for Fair Work Act breaches and enhancing the powers of the FWO to collect evidence, all of which were FCA recommendations to the Senate Inquiry that investigated the 7-Eleven scandal.
But the FCA argues the joint employer provisions in the legislation will cause significant uncertainty and harm and could result in lower investment and job creation in the franchise sector.
Noting the joint employer provisions in the legislation now before Parliament are not found anywhere else in the world, the FCA indicated it had been optimistic that “the reality that the vast majority of franchise systems see an SME franchisor supporting a small business franchisee would inform the Government’s policy implementation in the post election period”.
Despite the unlikelihood of convincing Labor, the Greens or Nick Xenophon to reject the bill given their pronouncements at the last Federal election, the FCA indicated it would continue to lobby against the joint employer provisions.
“The FCA will continue to engage constructively with the legislative process with the aim of improving protections for vulnerable workers while not undermining the franchise sector and model of enterprise through which 8-10 per cent of Australia’s GDP,” the media statement said.
“Our focus will be on advocating improvements to the legislation, that reflect reassurances about ‘right sizing’ the law for the diverse and small business nature of franchising, use a trigger for liability being substantial control over workplace relations and require Courts and regulators to take account of a system’s size and resources.”
Detached from reality
The FCA said it also wants the focus to be on underpayment, not paperwork, and technical judgements and to provide for an approved compliance program as a clear defence against prosecution.
However, it is all a little bit detached from reality, given the extent of breaches in the franchise sector and that franchisors have denied responsibility for the conduct of their franchisees and claimed to have no knowledge of the underpayments.
In the 7-Eleven scandal, management did know about the systemic exploitation of employees, many of whom were foreign workers on student visas.
Franchisees at 7-Eleven, Pizza Hut, Domino’s Pizza and Caltex all claim they can’t make money from their businesses because of the costs and the operating requirements of the franchisors.
The franchisors argue that the complaining franchisees and the ones who have breached workplace laws are simply bad operators and because of the strength of their brands have often been able to churn investors, collecting a nice little transfer fee on the deal.
The reason the franchising sector is being ‘targeted’ in the new legislation is that other business models have a clear and direct responsibility for compliance with workplace laws, whereas franchisors argue compliance at store level has nothing to do with them.
It is crazy to think that franchisors don’t have a better appreciation of the store level operation of their systems and risk the reputational damage to their brands that impacts on recruitment of new investors, let alone customer and community trust.
Back to the drawing board
The Fair Work Ombudsman has been pursuing compliance agreements with companies found to have breached workplace laws but, given the loophole in the franchise sector on responsibility for compliance, the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 is an appropriate response.
Minister Michaela Cash said all decent Australians were appalled at the revelations of the 7-Eleven exploitation of employees and the “systematic underpayment of employees by some franchisees of well-known pizza chains”.
“While this does not represent the vast majority of Australian business owners who work hard, follow the rules, create jobs and provide the backbone of our economy, such cases have shown existing laws lack teeth and need to be strengthened,” Cash said.
The bill outlaws a practice exposed at 7-Eleven where franchisees were requesting unreasonable payments from their staff and increases penalties ten-fold for serious contraventions involving deliberate and systematic underpayment of workers and for falsifying pay records.
At the heart of the FCA’s concerns, the new legislation will hold head office responsible for underpayments where three conditions are met:
The head office has significant influence or control over their franchisee or subsidiary
The head office knew or should reasonably be expected to have known of the underpayment or related breach, and
The head office failed to take reasonable steps to prevent the breach from occurring.
Cash said this means that those who are complicit or wilfully blind to underpayments in their network will be responsible for rectifying those underpayments.
The legislation also strengthens the Fair Work Ombudsman’s powers, so the agency can more effectively investigate breaches of workplace laws and overcome the culture of fear that often prevents vulnerable workers from coming forward and giving evidence.
This follows a $20 million increase in funding to the Fair Work Ombudsman so it can more effectively enforce the law.
Cash said it is now a criminal offence for employers to solicit or receive a payment in exchange for a visa sponsorship. A valid payslip is now required as proof of lawfully paid work before a second working holiday visa can be granted to a temporary migrant worker.
“A strong employment system requires all parties to abide by fair rules. Importantly, this legislation is targeted at those who deliberately set out to do the wrong thing,” Cash said.
“The new increased penalties and liability provisions will not impact the vast majority of employers who do the right thing, or who simply make honest mistakes.