Franchisor Oversight Penalised

Jun 19th, 2024

The Fair Work Ombudsman (FWO) has, for the first time, secured penalties against a franchisor for violations of the ‘responsible franchisor entity’ provisions of the Fair Work Act 2009. These provisions allow for franchisors to have an ‘extended liability’ surrounding potential misconduct by their franchisees, especially where they could reasonably have known that such misconduct may have taken place. The penalties in this instance, totalling $1.44 million, are the third highest ever imposed by the courts.

The company first came to the attention of the FWO in 2015 when four employees sought assistance after being paid as little as $12 an hour. The investigation identified underpayments of more than $43,000 due to prolonged non-compliance with applicable awards and penalty rates. Furthermore, a company director informed the FWO that the low hourly wages had been decided by the overseas head office after consulting with local friends and business associates.

These breaches, combined with a failure to maintain records, led to the company entering into an Enforceable Undertaking (EU), outlining the steps they would take to prevent future misconduct. Despite the EU, the company breached its obligations again in 2022 when eight students were underpaid $429,393 over a year. This resulted from unlawfully low wages and non-payment of entitlements such as penalty rates and superannuation. Consequently, the company was fined $475,000 in addition to repaying the impacted workers.

The case leading to the $1.44 million fine arose from an FWO audit, which found that employees at eight franchisee-operated outlets had been underpaid over $30,000. Although the franchisor entity was not directly involved in this underpayment, the Federal Court determined that the company’s repeated breaches meant it should have been aware of the likelihood of similar non-compliance by its franchisees.

The entity’s “systemic failure to ensure compliance within its franchise network” was ultimately highlighted as the reason for the severe penalty. This decision underscores the importance of franchisors being aware of franchisees’ conduct and taking steps to correct it, as ignorance is unlikely to be accepted as a valid defence in court.

19/06/2024 Back to News