Home' The Franchise Review : December 2015 Contents THE FRANCHISE REVIEW
a potential risk of legislative intervention along the lines of
that proposed by Greens Senator Adam Bandt. In the United
States, representations by franchise industry bodies have
convinced some states to enact legislation to specifically
acknowledge that franchising does not constitute a joint
employer relationship; however, most governments are
keeping their powder dry on this issue for the moment, and it
is hard to see any Australian Government enacting legislation
to insulate franchisors in this manner.
There is justifiable concern as to the concept of joint employer
liability in franchising, as it strikes at the heart of the franchise
model. As a matter of legal principle, any third party other
than the employer should only be liable for the employees
of another party where they have essentially acted as an
accessory, aiding and abetting the breach of the law by
the franchisee; however, it may no longer be that simple.
NLRB General Counsel Richard Griffin recently observed
that 'business formats have become more prescriptive, so
it is no longer possible for franchisors to totally disavow any
responsibility for employment matters'.2
The NLRB is an independent United States Federal Agency
vested with the power to safeguard employees' rights to
organise and to determine whether to have unions as their
bargaining representative. There is no real equivalent to the
NLRB under Australian law -- probably as a result of the
inherent strength of the Australian trade union movement.
The NLRB is essentially trying to change the law in the
United States in relation to joint employer liability, and has
issued legal proceedings against United States McDonald's
franchisees and the franchisor McDonald's USA LLC as joint
employers. The proceedings have been issued in relation to
alleged conduct of franchisees in the wake of recent industrial
action in the United States.
The Department has a role similar to Fair Work Australia, and
has in recent times taken action against several franchise
chains in relation to workplace matters. Most have been
resolved by agreement.
2 Brief to the NLRB by General Counsel Richard Griffen.
The NLRB is taking a very assertive position, with an
outcome likely only after a definitive ruling is ultimately
made by the United States Supreme Court some years
hence. The Department's role seems very much like
that of Fair Work Australia, with its primary aim being
compliance. The Department appears to take a more
pragmatic view of the workplace breaches in franchise
systems, and cites favourably the recent agreement
reached by the Department with the Subway organisation
in relation to training, education and compliance
initiatives. It is looking to enter into similar 'partnership'
initiatives with other franchise companies to improve
compliance, in preference to using its scarce resources in
The clear learning from the United States is that there
is an appetite for some level of franchisor oversight of
employment compliance matters within their network. The
fundamental issues that have given rise to regulatory interest
in the franchise sector in the United States are relatively
widespread instances of breach of the law. At the same time,
regulators say some franchise systems are not doing their bit
to assist with regulatory compliance.
That is not the case in Australia, as franchise systems have
worked collaboratively with Fair Work Australia to develop
training and enhance compliance, and to ensure that further
new initiatives in this area are proposed. The FCA approach
of working with regulators is clearly the preferred model.
The best chance of the sector avoiding any regulatory
action around joint employment is for the industry to be
seen as being part of the solution in improving compliance,
not as part of the problem. The correct characterisation
of franchisor will then be maintained as we understand it
more broadly: as information and systems provider, trainer
and custodian of the brand, not as joint employer of the
3 Dr David Weil, administrator at the Department of Labor, in a presentation to the American
Bar Association Forum on Franchising in October 2015, bemoaned the Department's lack of
resources, with 100 investigators to monitor 7.3 million workplaces and 135 million employees.
As a matter of legal principle, any third party other than the employer should
only be liable for the employees of another party where they have essentially
acted as an accessory, aiding and abetting the breach of the law by the
franchisee; however, it may no longer be that simple
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