As an employment relations professional working closely with the franchise community, I've recently witnessed a seismic shift in Australia’s industrial relations landscape. The introduction of protections for vulnerable workers, criminalisation of wage theft, and the ease of initiating class actions have dramatically increased the stakes for franchisors.
Here’s what the changes mean for the franchise community:
Moving the Goalposts and Shifting Expectations
Legislative changes over the past decade reflect ever increasing societal expectations imposed upon franchisors. The Vulnerable Workers legislation marked a significant turning point insofar as it held franchisors accountable for breaches by their franchisees if, they were aware or should have been aware of the issues. As a result, franchisors could no longer rely on the compliance efforts of their franchisees or the protections of the Franchise Agreement. Instead, for the first time, franchisors were pushed to embrace proactive compliance systems involving training and audit.
Despite these changes, systemic underpayment continued, prompting various governments to impose ‘wage theft’ laws, which introduced severe fines and criminal penalties for deliberate breaches. Combined with easier class action procedures, these developments create a challenging reality for franchisors. Passive oversight would no longer be tolerated – and it was accepted that franchisors would be required to adopt proactive compliance strategies becoming more or less fully responsible for the education, audit and oversight of corrective action.
Inaction will no longer be tolerated
From my vantage point, it’s clear that employment compliance, is now a major focus, and it no longer appropriate for franchisors to sit on their hands and turn a blind eye to situations that may give rise to non-compliance.
In my day-to-day work, I see a surge in class actions and litigation involving Unions and the Fair Work Ombudsman (FWO), and this trend is mirrored in the media's daily headlines. Given the heightened levels of scrutiny, adopting robust compliance measures not only serves to aid employers to mitigate risk but also presents an unrivalled opportunity to lead with integrity and stay ahead of the pack in a rapidly changing landscape.
It also helps prevent nasty surprises. Far too often, I have encountered situations where franchisors have been taken aback when confronted with serious litigation, having believed they had acted correctly, having provided education and audits to its’ franchise network.
One such case involved a franchisor who found themselves embroiled in litigation, not because they had committed an actual breach or had failed to provide education or undertake auditing but rather that they had allegedly failed to follow up on franchisees who had promised to undertake corrective action on the back of an audit. It was also alleged that they were responsible for breaches across the network, because when their franchisees had failed an audit, they did not share the findings across the network.
I use this example as it highlights the stark reality of the present operational environment. While lawyers have traditionally positioned that less knowledge equates to less risk, legislative changes and use of the relevant provisions by regulators, has flipped this notion on its head. Franchisors need to own compliance and ensure, when issues arise, that their franchisees fully correct issues. I appreciate this is not always easy and that extremely difficult conversation are required, particularly when backpayment goes outside of the audit period or breaches are of critical importance, however, in the present climate such action is necessary. These situations highlight the critical need for franchisors to actively engage in and oversee compliance within their networks, as inaction or delayed responses can result in significant legal and reputational consequences, even when they believe they’ve done nothing wrong.
Moving from Reactive to Proactive Compliance
Although this sounds simple, it is not easy to embrace.
From the outset, it is necessary to understand, proactive compliance is not just about risk mitigation but about fostering a culture of responsibility and transparency.
Here are key strategies for establishing and maintaining a proactive compliance environment:
- Take Responsibility: Franchisors must embrace their role in compliance, setting clear expectations and leading by example throughout the franchise network.
- Dedicate Resources: Appointing a dedicated compliance officer or team can enhance oversight and manage compliance risks effectively.
- Conduct Audits: Routine compliance audits are essential for identifying risks before they become serious breaches. Audits should cover payroll practices, workplace conditions, and legislative adherence.
- Share Knowledge Through Training: Ongoing training is vital for franchisees to stay updated on legal requirements and best practices, ensuring they meet their obligations.
- Communicate: Open communication between franchisors, franchisees, and employees is critical for addressing compliance concerns. Establish accessible reporting channels and consider sharing findings across the network to strengthen the group.
- Embrace Continuous Improvement: Risk is dynamic, and continuous improvement is necessary to address emerging risks and regulatory changes. Regularly evaluate and enhance risk strategies to remain agile and resilient.
Remain Vigilant
Navigating the evolving regulatory landscape demands vigilance and a proactive approach. The risks of non-compliance—litigation, class actions, and regulatory intervention—can severely impact a business’s operations, financial stability, and reputation. These challenges can strain franchise networks, leading to mistrust and exposing employers to additional industrial relations threats.
My experiences have underscored the importance of a proactive compliance culture. By embracing these changes and integrating effective strategies, franchisors can protect their businesses, support their franchisees, and ensure long-term success. The challenges are significant, but with the right approach, franchisors can meet legal requirements and lead in ethical business practices.