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Franchisor held partially responsible for underpayment of franchise employees

A frozen yoghurt franchisor (and some of its related entities) have been found liable for one of its franchisee’s underpayment of 4 overseas workers.

The Fair Work Ombudsman media release detailed that

“The four exploited workers were paid as little as $8 an hour while working at [the employer’s] outlet at the World Square Shopping Centre in the Sydney CBD, leading to total underpayments of $17,827.

They were in Australia on 417 working holiday visas at the time and spoke little English.”

Justice Flick, in handing down $146,000 in civil penalties, found that the master franchisor, an associated payroll company and a company officer all had roles in setting pay rates for the actual employing entity.  Justice Flick found that all the Respondents, including the master franchisor and the entity that ran the payroll for the franchisee “had knowledge of, and participated in establishing rates of pay, making payment of wages, determining hours of work, and dealing with employment-related matters in respect to the employees…”.

His Honour also found that the company officer “was the sole director and company secretary of [the master franchisor], being the company which owned [the employer], and was an “officer” of the three corporate Respondents. [The director] was the person who set the rates of pay to employees, gave instructions to the manager of the [employing entity’s] store, and occasionally gave directions to the employees personally.”

Having determined the level of involvement of the other three Respondent’s with respect to the actual employing entity’s conduct, Justice Flick apportioned the $146,000 in civil penalties accordingly, with the master Franchisor being ordered to pay $25,000, the payroll company $35,000 and the Director $11,000.  The employing entity was ordered to pay the balance.

The Fair Work Ombudsman Natalie James stated:

“The result of this matter sends a clear warning to the operators of franchise networks in Australia that refusing to take responsibility for addressing exploitation in their networks is not a viable option…”

The decision sends a clear message to franchisors that they may be held accountable for their franchisee’s treatment of workers.

Lisa Aitken is an Accredited Specialist in Workplace Relations Law and the Managing Partner of Aitken Legal, a law firm specialising in employment law for employers. The information in this column is intended as a guide only.  Liability limited by a scheme approved under professional standards legislation.

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