The Yogurberry decision highlights the
importance the FWO attaches to accessorial
liability for breaches of workplace laws. In
fact, the FWO’s annual report for 2015–2016^5
shows that the FWO sought penalties
against accessories in over 90 per cent of the
litigations it commenced.
Key learning points
Both franchisees and franchisors can suffer
substantial brand damage as a result of
FWO actions, in addition to the actual costs
incurred in paying any penalties imposed,
rectifying any breaches and legal costs.
Franchisors should bear in mind that they
are very likely to be held liable as accessories
to violations of workplace laws by their
franchisees in circumstances where the
franchisor is actively involved in functions
such as:- establishing pay rates and conditions for
employees of their franchisees; - the day-to-day conduct of their franchisees’
businesses; - performing payroll functions on behalf of
their franchisees; - determining hours of work and leave
entitlements; and - more general dealings with employment
matters.
The Yogurberry case is a reminder that
franchisors should: - do what they can to ensure that all members
of the franchise network comply with
employment laws; - keep and retain adequate records relating to
employment matters; and - co-operate with the FWO where relevant,
including responding appropriately to any
warnings and requests for information
received from the FWO. In doing
so, however, franchisors should seek
appropriate legal advice to ensure that any
responses provided do not prejudice their
legal position.
In determining the level of involvement they
intend to have in the employment activities
of their franchisees, franchisors must balance
their desired level of control, which may
increase their risk of accessorial liability
for any breaches, against the possibility of
significant reputational damage that may
be suffered even where the franchisor is not
found liable.
pASTAcUp cASE^6
In September 2016, the Australian
Competition and Consumer Commission
(ACCC) instigated its first litigation under the
revised Franchising Code of Conduct (Code),
seeking penalties, declarations, injunctions,
findings of fact and costs.
The proceedings allege breaches of the Code
by Morild Pty Ltd (Morild), the franchisor
of the Pastacup food franchise system and
its former director Mr Stuart Bernstein, for
failure to disclose that Mr Bernstein had been
a director of two prior franchisors of Pastacup
that had become insolvent.
The case is currently ongoing and its outcome
will be reviewed with interest by members of
the franchising sector.looking forward to the year
ahead:Interestingly, the ACCC’s latest Small
Business Report, released on 25 January
2017, showed a trend of steadily declining
numbers of franchising complaints received
by the regulator since the commencement of
the new Code in January 2015. Members of
the franchising community will be paying
attention as to whether this trend continues
and whether it also translates into fewer
disputes and litigation in the industry.
As 2017 gears up, the franchising sector will
also be watching with interest to see:- the outcome of various cases instigated
in 2016 which have yet to be finalised, in
particular the Pastacup case, being the
ACCC’s first action seeking penalties under
the revised Code; - how the introduction of the new Unfair
Contract Terms regime manifests in its
application to franchise agreements and
related documents; - the form and effect of the implementation
of the Harper Review recommendations,
which proposed several changes to the
Australian Consumer Law^7 ; and - the progress of the Coalition Party’s policy
to “protect vulnerable workers” which
involves, among other things, proposed
amendments to the Fair Work Act that
will impose liability on franchisors and
parent companies who fail to deal with
exploitation by their franchisees.
Esther is a Senior Associate at MST
lawyers, a law firm renowned for its
franchising expertise.
located in Melbourne’s industry heartland,
MST lawyers has strong commercial law
skills and provides clients with sensible
solutions.
For more information contact Esther at:
03 8540 0200
[email protected]
http://www.mst.com.au(^1) Civic Video Pty Ltd v Paterson [2016] WASCA 69 (27 April 2016)
(^2) Guirguis Pty Ltd & Ors v Michel’s Patisserie System Pty Ltd & Ors
[2016] QDC 117 (27 May 2016)
(^3) TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse
(Franchising) Pty Ltd (No. 2) [2016] FCA 674 (8 June 2016)
(^4) Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016]
FCA 1290 (2 November 2016)
(^5) The report can be accessed at: https://www.fairwork.gov.au/annual-
report/02-performance-report/enforcement-outcomes
(^6) Australian Competition and Consumer Commission v Morild
Pty Ltd ACN 601 446 306 & Anor (Federal Court file number
WAD436/2016)
(^7) For more information see: http://www.australiancompetitionlaw.
org/reports/2014harper.html