Franchisor liability for franchisee conduct

For some time, the Fair Work Ombudsman (FWO) has pursued the agenda of making directors and business advisers liable for the actions of companies and clients who breach employment and workplace relations laws. (Our previous updates on this topic can be accessed here and here.) Recent events demonstrate the FWO’s continued commitment to casting its net as wide as possible.

Franchisors

Since the 7-Eleven underpayment saga, the Government has been vocal in its commitment to amending the Fair Work Act 2009 (Cth) (Act) to make franchisors liable for contraventions of the Act committed by their franchisees. However, the FWO, Natalie James, made it clear in a speech given in July  to the Australian Human Resources Institute that she considers franchisors to already be targets for prosecutions under accessory provisions in the Act.¹

Whilst 7-Eleven avoided prosecution, the FWO’s recent successful prosecution of the Yogurberry Group, which resulted in $146,000 of penalties, should put franchisors on notice that they already can and will be held to account.²

The Yogurberry outlet in Sydney’s World Square Shopping Centre was found to have underpaid four Korean workers a total of $17,827 between July 2014 and May 2015.

The franchisor was fined $25,000 for its direct involvement in establishing pay rates for employees and deliberately refusing to disclose information about its financial status to the FWO.

The payroll company used by Yogurberry was fined $35,000 and Ms Soon Ok Oh, a director and part owner of all the corporate respondents, was personally fined $11,000.

In light of this case, the proposed legislative amendments, and the intense scrutiny of 7-Eleven, franchisors can no longer consider themselves protected by the franchise model. Franchisors are not immune from prosecution and should take active steps to ensure a culture of compliance with workplace laws within their franchise network.

Advisers

Business advisers and accountants have become targets for FWO prosecutions and it seems likely that lawyers could be next on the radar. While no lawyer has yet been convicted for being “involved in” a contravention of the Act, it is certainly not unheard of for a lawyer to be liable as an accessory.³

In addition, in 2013 the Federal Circuit Court made comments which suggested that it considered a legal adviser (who had drafted an independent contractor agreement) held some responsibility for the sham contracting arrangement before it.⁴

However, no action was brought by the FWO against the legal adviser.

Three years on, the FWO’s Natalie James has reviewed this case, noting that the ability to prosecute advisers already exists under the Act. Given this statement and the FWO’s renewed vigour in pursuing accessories, lawyers may soon be targeted.

¹An advisor’s responsibility: the Fair Work Ombudsman’s approach to accessorial liability – Address to the Australian Human Resources Institute (AHRI Employee Relations / Industrial Relations Network NSW by Natalie James, Fair Work Ombudsman, 27 July 2016.
²Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290
³e.g ASIC v Somerville (2009) 77 NSWLR 110
⁴Fair Work Ombudsman v Jooine (Investment) Pty Ltd [2013] FCCA 2144