FWA takes a slice at franchisees

In brief: Following the finding of significant underpayments and sham contracts by one of Australia's most high profile franchisees, other popular franchisees have also been investigated by the Fair Work Ombudsman (FWO). 

Most recently, two fast food pizza suppliers, Domino's and Pizza Hut, are facing allegations of contraventions of the Fair Work Act 2009.

Non-compliance of the Fair Work Act 2009 in the Pizza industry 

We understand that as of 30 May 2017, the FWO has 26 active investigations into alleged underpayments by Domino's franchisee's. The focus of the investigation is on whether workers are being paid correctly, and may be extended to consider the reasons for non-compliance.

The FWO released an activity report which identified 'widespread non-compliance' within Pizza Hut outlets across Australia earlier this year. Employees were found to be underpaid as a result of being classified as independent contractors (when they were employees), having the improper award applied or because of a failure from the franchisee to increase pay rates in line with the Fair Work Commissions' minimum wage decisions. In a related case, another Pizza Hut franchisee is currently facing Court for alleged underpayment to a delivery driver.

The protecting vulnerable workers bills impact on franchisors 

In the second reading of the Fair Work Amendment Bill 2017 (FWA Bill), which is currently before senate, Mr Peter Dutton MP emphasised that the purpose of the bill is to address the widespread underpayment and coercion of workers. Along with increasing penalties for serious contraventions by a ten-fold, the FWA Bills clarification of accessorial liability provisions will have a significant impact on franchisors (for more information about the changes with the FWA Bill, see our recent article here).

If the bill is passed (and it is likely it will), if a franchisor is found to have a significant degree of influence or control over a franchisee entity, the franchisor may be held responsible for underpayments and sham contracting in contravention of the Fair Work Act 2009. This could mean that with the FWO investigations into Pizza Hut and Domino's franchisees, if any franchisor is found to have a 'significant degree of influence or control' over franchisee operations, then the franchisors may face serious financial penalties and liability for back pay.  

Faced with this amendment to the Fair Work Act 2009, and in view of recent investigations into the underpayment of employees of franchisees by the FWO, franchisors should take action to ensure they have appropriate levels of oversight into the operations of their franchisees.