Landmark agreement sets new standard for the franchise industry

Peter Stewart

An agreement reached between the Fair Work Ombudsman and 7-Eleven last week is set to introduce a new standard for franchising in Australia. 

The highly published inquiry into issues concerning underpayment of employees and falsifying records by franchisees in the 7-Eleven system has now progressed following months of negotiation with a formal Proactive Compliance Deed now being entered into by the franchisor. 

The agreement commits 7-Eleven, as the franchisor, to introduce and oversee a number of systems that creates an obligation on its head office to closely monitor franchisees to ensure compliance and strong accountability for all operators in its network. 7-Eleven is expected to now take numerous steps to detect, investigate and rectify underpayments that have occurred, and to stamp out the culture that has permeated their franchisee network.

The agreement goes so far as to include admissions by 7-Eleven of its moral and ethical responsibility as a franchisor, to ensure compliance with the law in relation to all employees, and to meet Australian community and social expectations. 

“The measures in this deed are the most robust and comprehensive that any franchise brand has in place in Australia,” said Fair Work Ombudsman (FWO), Natalie James.  

The agreement reached is of particular importance considering the level of liability that has been attributed to the franchisor for the actions of its franchisees.  

While it is not uncommon for a franchise agreement to clearly state that it is solely the franchisee’s obligation to ensure compliance with relevant laws and statutory entitlements, as demonstrated by 7-Eleven’s experience a franchisor may still be held accountable should its franchisee fail to comply.  

The FWO noted in its original report on its inquiry into 7-Eleven, that the liability of 7-Eleven as franchisor was largely due to the fact that the franchisor was receiving a direct financial benefit from profitable stores, suggesting that it may have been encouraged to turn a blind eye to non-compliant practices where these lead to larger profits for stores and larger royalties being paid to it as a result. In addition, the lack of action by the franchisor, despite being made aware of numerous instances where its franchisees had breached statutory requirements, contributed to the FWO’s motivation to seek a comprehensive and extensive commitment by 7-Eleven to address the issues found. 

As the FWO stated in April, there is an expectation that “franchisors are sophisticated business operators who have the capacity to work with their franchisees to ensure a high level of compliance. 

 “With the government committing to new laws to enhance franchisor responsibility for workplace entitlements,” Ms James called on all franchises to “consider what steps they might take to ensure their network is compliant.”  

Accordingly we suggest to all of our franchisor clients that they may need to consider what steps they should be taking to ensure that they don’t find themselves in a similar position to 7-Eleven and how they might assist and oversee their franchisees in order to monitor compliance with Australian workplace laws.

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