The Fair Work Ombudsman (FWO) has commenced legal action for just the second time this year against a franchisor for underpayments of workers at stores operated by franchisees. The FWO is alleging that Bakers Delight Holdings Pty Ltd is legally liable for underpayments to 142 staff across three of their stores in Hobart. This action follows the FWO’s announcement in February of this year, that for the first time they would undertake legal action against a franchisor for franchisees underpaying workers. The Fair Work Act 2009 (Cth) holds franchisors legally liable for contraventions by its franchisees, including for underpayment of staff.
What is Franchisor Responsibility under the Fair Work Act?
Firstly, there must a responsible franchise “entity”. Which:
- is a franchise;
- The franchisee’s business must be substantially or materially associated with intellectual property (for example, the trademark) relating to the franchise; and
- The franchisor has a significant degree of influence or control over the franchisee’s affairs.
Responsible franchisors can be held legally responsible for franchisees’ conduct if they (including an officer of the franchisor):
- knew, or could reasonably be expected to have known, that a relevant contravention would happen, or
- at the time the contravention happened, knew, or could reasonably be expected to have known, that a contravention of the same or similar kind was likely to happen, and
- haven’t taken reasonable steps to prevent the contravention or a contravention of the same or similar character.
Fair Work Ombudsman’s Allegations
It is alleged that Baker’s Delight completed an audit in February 2019 and provided findings to the franchisees, John and Lisa Puglisi through their company Make Dough Enterprises, who allegedly refused to take action. The FWO alleges that Bakers Delight failure to take preventative action from this point, renders them legally liable, as they, either knew or should reasonably have known that underpayments would continue to occur.
The FWO is alleging that Bakers Delight is liable for $642,162 of the $1.25 million that staff were allegedly underpaid in the period between July 2017 and October 2020 across three stores in Kingston, Lindisfarne and Eastland. The underpayments that have been alleged by the FWO include, minimum wages, overtime rates, weekend and public holiday rates, minimum shift pay, and unlawfully deducted termination pay. The FWO is only alleging that Bakers Delight is liable for minimum wage, penalty rate, and overtime underpayments between the date of the completed audit in early 2019 and October 2020.
If found liable, Bakers Delight Holdings faces penalties of up to $66,660 per contravention; Make Dough Enterprises faces penalties up to $66,660 per contravention or $660,000 per serious contravention; and Mr and Ms Puglisi face penalties of up to $13,320 per contravention or $133,200 per serious contravention.
Bakers Delight’s Response to the Allegations
Bakers Delight have responded to the accusations levelled by the FWO, “We strongly disagree with the FWO interpretation of the legislation and believe we have done everything reasonable as the franchisor to prevent the contraventions they are alleging”.
Notably, the FWO have rejected Bakers Delight’s offer to repay the franchisee’s employees the back pay owed to them according to Bakers Delight, which may demonstrates that the FWO is also focused on seeking the penalties which could be awarded should the FWO be successful.
More Franchisors Could Soon Follow
The acting Fair Work Ombudsman Kristen Hannah further expressed directly the FWO’s intent to hold franchisors accountable, “We will use all laws and powers at our disposal to ensure franchisors are held to account when they fail to address non-compliance in their networks” the acting Ombudsman said.
The FWO’s intent to hold franchisors accountable to their franchisee’s actions if preventative action is not undertaken, serves as a staunch reminder to franchisors that the FWO is actively ensuring that both franchisors and franchisees adhere to their responsibilities under the Fair Work Act.
The Federal Court has yet to give a final ruling on this issue, but it underscores the importance for franchisors to recognize their potential liability for violations of the Act by their affiliated entities.
Therefore, it’s crucial for franchisors to actively mitigate these risks. A franchisor ought to undertake a review of its practices, such as whether the franchisor is:
- Clearly communicating compliance expectations to franchisees.
- Offering guidance to franchisees on their responsibilities under the Act and relevant regulatory frameworks.
- Ensuring that franchisees implement compliant employment contracts and guidelines.
- Conducting yearly refreshers and training for franchisees regarding wage standards and working conditions.
- Offering support to both franchisees and their teams to address any arising issues.
- Mandating routine reports from franchisees.
- Implementing regular compliance checks and audits, and ensuring timely and proper rectification of any discrepancies by franchisees.
At Long Saad Woodbridge Lawyers, our team have been advising franchisors on their responsibilities for over 20 years. We are committed to helping franchisors take reasonable steps to prevent contraventions and ensure that their franchise networks are compliant with workplace laws.
Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.