Franchisors will be directly liable and responsible for Franchisee’s contraventions according to New Proposed Laws from 27 October 2017

Recent highly publicised cases of exploitation of vulnerable workers, including by 7-Eleven franchisees, demonstrate more needs to be done by franchisors and holding companies to protect vulnerable workers employed in their business networks.

Under Section 550 of the existing laws of the Fair Work Act, a person may be held responsible for being “involved” in a contravention, even if they are not a direct employer which is defined as Accessorial Liability. Under the Act, Accessorial Liability will not apply if a person genuinely “did not know” or holding company has taken reasonable steps to deal with the problem.

The new provisions will apply to responsible franchisor entities including Pharmacy Franchise Groups which have a significant degree of influence or control over their franchisee’s business.

The pharmacy franchisors with significant influence of control over their networks will need to be “interested” and not neglect /disregard any contraventions of their franchisees and will have to ensure that they have taken reasonable steps to deal with any problem which may arise from time to time. The obligations of the franchisee as employers will continue to be in force as the new provisions do not displace the current obligations to comply with Australian workplace laws.

For those franchisors who traditionally placed themselves at ‘arm’s length’ from their franchisees’ business and employment arrangements, the proposed legislation will prompt the need for a fundamental change in approach. Franchisors will no longer be able to rely on a lack of knowledge or involvement in the local business and employment practices of its franchisees, as a way of avoiding legal liability. Instead, it will be incumbent on franchisors to take an active interest in their franchisee’s business and implement and maintain a proactive compliance system that satisfies the ‘reasonable steps’ defence.

An as yet uncanvassed extension of the proposed legislation is whether a franchisor may be subject to Accessorial Liability in circumstances where the franchisor is aware that its franchisee has been experiencing difficulties in maintain the profitability of its business
which results in the franchisee not being able to comply with it legal obligations under relevant industrial relations laws and the franchisor fails to adequately assist the franchisee in dealing with such matters to the detriment of the franchisee’s employees.

Tips for Franchisors:

  • Franchise Agreements- Be aware of the potential for franchisees to breach workplace and industrial relations laws as a result of the franchise relationship;
  • Examination of the level of control exercised by the franchisor and whether this creates the opportunity for potential breaches;
  • Review governance structures and reduce possible contraventions of industrial relations laws;
  • Consider termination of franchise agreements for breach of industrial relations laws;
  • Review current franchise agreements to rectify any potential issues;
  • Be aware of the role and powers of regulators including the Fair Work Ombudsman;
  • Find ways to work closely with your franchisee to comply with legal and policy framework which enable compliance, and
  • Develop internal processes to support compliance.

Tips for Franchisees:

  • Review Franchise Agreements before you sign them;
  • Understand your current obligations under the Fair Work Act and your reporting duties to your Franchisor when the new laws come in;
  • Find ways to have franchisors help you in problem areas such as contraventions in your business;
  • Request for further training in the area of compliance from your Franchisor, and
  • Tap into the resources of Franchisors to provide reliable workplace relations advice.

Maurice Hannan (Director) and Lesley Leong (Lawyer) have extensive experience in the area of pharmacy and franchising matters together with a supported employment law team. If you are concerned with your current franchising agreement and structure surrounding the changes of the new proposed laws, please contact us at Bennett & Philp Lawyers.


Maurice Hannan is a Director at Bennett & Philp Lawyers
Lesley Leong is a Lawyer at Bennett & Philp Lawyers