Reports franchise sector is fighting government on ‘Vulnerable Workers’ bill, but what does the policy aim to do? A SmartCompany explainer

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Workplace relations is an area of increasing tension in federal politics at the moment, and reports this week that the franchise sector is lobbying the government to alter a bill designed to increase the penalties for serious contraventions of workplace law has revealed another potential conflict.

In March the government introduced its Fair Work Amendment (Protecting Vulnerable Workers) Bill into the House of Representatives, aiming to crack down on “dodgy bosses” by increasing maximum civil penalties for serious breaches of workplace law for individuals, franchisees and franchisors.

At the time Employment Minister Michaelia Cash said the coalition would fight to prevent organisations from abusing their power, no matter whether they were unions or business operators.

However, this morning Fairfax reports the franchise sector, including the Franchise Council of Australia, headed up by former federal small business minister Bruce Billson, has been engaging in a lobbying campaign to change the bill, with concerns it unfairly singles out the franchise sector for underpayment of workers. The sector wants the size of businesses to be taken into account when resolving underpayment cases, and is concerned about the impact of “joint liability” provisions that make both franchisors and franchisees responsible for any breaches of workplace law.

SmartCompany contacted the Franchise Council of Australia to discuss its concerns about the legislation this morning, but did not receive a response prior to deadline.

The legislation could have implications for those beyond the franchise sector, though: Here are three things you need to know about the government’s “vulnerable workers” bill.

What is the aim of the bill?

The legislation makes changes to the Fair Work Act to increase the maximum penalties for those engaging in systematic underpayments or knowingly allowing this to happen.

It would make it illegal for employers to request employees take part in “cash bank” arrangements, where part of their wage is repaid to their bosses after payroll has been processed, and would up the maximum penalty for franchisors engaging in underpayment from $54,000 to $540,000.

The bill also places a greater burden on franchisors, with companies facing fines of up to $54,000 if systematic underpayments are found in franchise businesses and the franchisor should have known this was happening.

What are the key concerns from the sector?

When the bill was introduced in March, the sector responded immediately that the changes would be a “massive threat” to the franchise ecosystem in Australia and could put off international companies from entering the local market, highlighting that the penalties would not stop unscrupulous providers, who are a minority.

“It’s inconceivable that you’d penalise the entire population of franchisors on the alleged actions on less than half a dozen,” Franchise Advisory Centre director Jason Gerhke told SmartCompany.

The Franchise Council of Australia has questioned why franchises have been singled out in conversations of underpayments, and said in March it would campaign to ensure the bill focused on “underpayments not paperwork and technical judgments”.

“The fact is the risk of worker underpayment exists across the economy and commercial relationships create a degree of control from one business over another that may impact on Fair Work Act compliance, yet the Government’s Bill targets only franchising,” the council said in March.

The council is concerned about the “joint employer” liabilities that would make franchisors responsible for the poor treatment of workers by their franchisees.

It has also called for a “approved compliance program” as a clear defence against prosecution on underpayment cases.

Gehrke believes the bill’s focus on increasing the liability of franchisors could result in them over-managing franchise operators, which could in turn make the idea of running a franchise less appealing all round.

“In the first instance, an existing franchisor may respond by demanding such a huge level of detail about how [a franchisee] pays their staff that the franchisee will be completely micro-managed,” he said in March.

However, the government insists the bill would only target those that “deliberately set out to do the wrong thing”.

“This means that those who are complicit or wilfully blind to underpayments in their network will be responsible for rectifying those underpayments,” Minister Cash said in a statement on the legislation last month.

Are franchise businesses the only employers that would be affected?

The franchise sector is concerned it is being singled out by regulators and say this could discourage stakeholders from getting involved in franchise businesses, but the legislation could affect more than just franchise operations.

The vulnerable workers bill increases maximum civil penalties within the Fair Work Act for breaches of the law, as well as extending the powers of the Fair Work Ombudsman with a proposal to give it evidence-gathering powers and the ability to investigate claims of exploitation, “even if no documents have been produced”, according the the legislation’s explanatory memorandum. The government says this would affect all bosses that are doing the wrong thing.

Meanwhile, the past two months the Fair Work Ombudsman has targeted specific regions, employment types and sectors as it launches audit programs into a variety of areas of concern. These include a series of unannounced audits of businesses in the Wollongong region, a campaign to highlight underpayment of Australian apprentices, and a new project targeting beauty and retail outlets along the East Coast.

“Previous audits into hair and beauty businesses and the retail industry have found high levels of non-compliance,” Acting Fair Work Ombudsman Michael Campbell said this week.

This new hair, beauty and retail campaign will build on our previous work to reinforce the need for all workplace participants to proactively ensure they are meeting their obligations under Australian workplace laws.”

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