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Workplace Relations – what every franchisee should know

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For most franchisees, wages and other employment costs form a significant proportion of costs incurred in operating a franchise business.

A failure to fulfil minimum employment obligations may result in substantial back-payments as well as the imposition of penalties.  It is critical that employers understand their obligations and do not ‘cut corners’ in attempts to minimise employment costs.

Changes in workplace relations legislation, including the introduction of the Fair Work Act, affect not only existing but new employers.  This can be complicated where a new franchisee has purchased an existing franchise and has taken over the employees of the previous franchisee.

The transition from existing arrangements to the modern awards will present a challenge for small businesses nationally as all employers move towards standard minimum award obligations. 

The referral of industrial relations powers in all States, except for Western Australia, means that employers, whether incorporated or employing as a sole trader or partnership, are subject to the Fair Work Act.  This means that, with the small exception of sole traders and partnerships in Western Australia, all franchisees are now covered by the federal workplace relations system and the Fair Work Act.

Not all franchises are created equal

There can be no assumption that employers operating under the same franchise system will have the same minimum wage obligations.  Minimum wage obligations applicable to existing franchisees may accordingly be different to minimum wag obligations applicable to new entrants into a franchise system.

All existing certified agreements, collective agreements, AWAs and ITEAs that have not been formally replaced or terminated continue to operate under the current legislation, even if they have passed their nominal expiry date.  This will also be the case where a certified agreement, collective agreement, AWA and ITEA has been inherited as part of a transfer of business.

While these agreements continue to operate, from 1 January 2010, all existing registered agreements will be considered to incorporate:

  • the National Employment Standards (NES) to the extent that the registered agreement does not provide more favourable entitlements for employees
  • minimum base rates of pay derived from the applicable underpinning modern awards (note, however, that penalty rates and other modern award entitlements will not be read into the agreement)

The vast majority employees who are not subject to a registered agreement will be covered by a modern award.  This includes new employers who incorporated following 27 March 2006 that have, up to 1 January 2010 enjoyed the status of being award free.

The only group of employees that are not covered by a modern award are those in traditionally award free occupations such as managerial employees and professional employees such as accountants and finance, marketing, legal and human resources.

The ten golden rules

All employees, whether covered by a registered agreement, modern award or award free, are entitled to the benefit of the NES.  All employers should therefore treat the NES as their ten golden rules.

The NES are:

  1. Maximum Weekly Hours:  An employer must not request an employee to work more than 38 hours, unless the additional hours are ‘reasonable’.
  2. Requests for Flexible Working Arrangements:  An employee who is a parent or carer for a child under school age, or under 18 with a disability, may request an alteration in their working arrangements to assist in caring responsibilities.  An employer may only refuse such a request on ‘reasonable business grounds’.
  3. Parental Leave:  An employee with over 12 months’ continuous service is entitled to a period of up to 12 continuous months of unpaid parental leave for the birth of their child or adoption of a child for whose care they are responsible.
  4. Annual Leave:  Permanent employees are entitled to 4 weeks of paid annual leave (or 5 weeks in the case of a prescribed shiftworker).
  5. Personal/Carer’s Leave & Compassionate Leave:  An employee is entitled to 10 days per year of paid personal/carer’s leave with respect to their own or a family or household member’s illness or injury, and 2 days of paid compassionate leave for each occasion a family or household member is subject to a serious threat to their life, or dies.
  6. Community Service Leave:  Employees engaging in an eligible community service (e.g. SES, CFA etc as well as jury service) are entitled to be absent from work, provided their absence is reasonable in the circumstances.
  7. Long Service Leave:  Employees are entitled to long service leave in accordance with their applicable award, registered agreement or any applicable state and territory legislation.
  8. Public Holidays:  Employees are entitled to be absent from work on a prescribed public holiday with pay.
  9. Notice of Termination & Redundancy Pay:  An employer cannot terminate an employee’s employment unless they have provided notice, in writing, to the employee with the requisite period of notice or payment in lieu.  Additional severance pay entitlements now exist for all employees in cases where their employment is terminated due to the redundancy of their position.
  10. Fair Work Information Statement:  The ‘Fair Work Information Statement’, which will explain the NES, information on awards and agreement making, rights of entry, freedom of association and the role of Fair Work Australia, must be provided to all new employees upon commencement.

Working out what to pay

Except in the case of the small number of occupations that are not modern award covered, all employee minimum rates of pay must meet or exceed the minimum base rate of pay provided under the applicable modern award.  This is the case also for employees covered by a registered agreement.

Employees who are not covered by a registered agreement will also be entitled to the benefit of other entitlements provided under the modern awards.  Most entitlements provided under the modern awards commenced operation from 1 January 2010, including for post-27 March 2006 employers, and employers previously bound by state or federal awards that may not have provided for similar entitlements. 

Entitlements operative under the modern award with full effect now include:

  • Allowances
  • Overtime loadings
  • Limitations on hours of work
  • Annual leave loading

The only entitlements not yet to take effect as specifically provided under the modern awards are:

  • Base rates of pay
  • Casual or part-time loadings
  • Saturday, Sunday, public holiday, evening or other penalty rates
  • Shift penalties

These entitlements transition over a 4 year period to take into account vastly different entitlements existing under the state and federal awards that operated previously.  From 1 July 2010, existing base rate and penalty rate entitlements started to transition to the modern award entitlements.

The general principle is that for each year of the transitional period, rates will adjust by 20% of the difference between the current entitlement and the modern award entitlement, whether upwards or downwards, provided there is no actual reduction in an employee’s take home pay.

Example

An employer may currently have no penalty rate obligation on a Saturday, but may be now covered by a modern award providing for an additional penalty rate of 50% on Saturdays.  The employer will transition to this penalty rate as follows:

Date                                           Pay rate

Up to 1 July 2010                     Plus 0%
From 1 July 2010                     Plus 10%
From 1 July 2011                     Plus 20%
From 1 July 2012                     Plus 30%
From 1 July 2013                     Plus 40%
From 1 July 2014 onwards    Plus 50%

From 1 July 2014, all minimum entitlements, including base rates of pay and penalty rates, across Australia will be uniform, providing relief for franchisees operating across state borders.

Alternatives to the modern awards

The only way a franchisee is able to avoid the operation of the modern awards is through the development and implementation of an enterprise agreement. 

The Fair Work Act provides for new mechanisms for groups of franchisees to enter into a single enterprise agreement under a single interest employer authorisation.

Single interest employer authorisations do not require franchisor participation and represent an ideal opportunity for groups of franchisees to minimise time and financial costs associated with enterprise agreements as only one agreement is subject to consultation, voting, lodgement and assessment.  Single interest employer authorisations have been gained by franchisees in a number of major franchise systems such as KFC, Dominoes and McDonalds.

What all franchisees should know

All franchisees must know how the Fair Work Act applies to their particular workplace and what the impact of modern awards and the NES will be.  In cases where these new obligations are not able to be easily managed, or simply do not suit a franchisee’s business, alternatives including enterprise agreement making should be considered.

With a clear understanding of minimum employment obligations, franchisees are then able to focus on developing their employees and growing their business.

Author:  Katie Sweatman

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