At $174 billion dollars, franchising is Australia’s 3rd largest industry sector with more than 94,000 franchise outlets across more than 1,200 networks.
Franchisors, as the owner of the brand, can have a significant influence or control over the franchisee's affairs. Sometimes, this influence only extends to the intellectual property allowing a franchisee the use of the franchise branding, trademark or logo as the major feature of the commercial relationship.
More often, the franchisor has much more control that just allowing the business to use its branding or trademark. Most franchise agreements will provide the franchisor with contractual rights to manage, determine or command the franchisee entity about financial, operational and/or corporate matters. For example, things like trading hours, sales targets or business expenses.
Clearly both franchisor and franchisee exercise a level of control. When we look at this arrangement in terms of WHS legislation, a WHS duty cannot be discharged or transferred, but can be shared. Therefore, when the Franchisor (a PCBU) has some say over the Franchisee’s (also a PCBU) operations, the Franchisor retains a level of responsibility and must discharge their duty to the extent that the Franchisor has the capacity to influence and control the matter.
This means, to protect workers from health and safety injury or illness, the Franchisor and the Franchisee must enter into reasonable arrangements or agreements with each other to make sure everyone’s duties are met, while at the same time avoiding unnecessary duplication of effort.
The level of accountability/liability will depend on the degree of influence or control in all franchise arrangements. Determining whether influence or control is significant will depend on the franchise model and the specific parties, such as how much the franchisor influences or contributes to management or operational decisions of the franchisee business. For example, if a Franchisor specifies the equipment to be used, it’s reasonable that they provide instructions and a training program for the equipment in order to use it safely and the way intended.
The level of complexity is often not fully understood by the franchisor or the franchisee and without clearly defined responsibilities and effective consultation, there can be serious, life changing outcomes.
A Safe Work Australia Case Study has aimed to assist in clarifying the health and safety duties held by Franchisors and franchisees.
The Case Study, involving a café franchise, highlighted how franchisor and franchisee, who are both PCBU’s, were intertwined in their legal relationship and there was considerable onus on all parties to effectively consult by sharing expectations, systems, processes and reporting arrangements.
In most cases, the franchisor will have the resources to establish the basic safety requirements for franchisees by providing a WHS system such as procedures and training material etc. that aligns with the franchise risk profile. Often these basic safety requirements are set and forget, however the franchisor should regularly consult with franchisees to ensure the framework is, and remains, suitable for franchisees, including when changes are made. The franchisor should also ensure that the franchisee understand their duty to implement the policies and procedures provided, to train workers, notify the franchisor of incidents and maintain a healthy workplace.
According to Safe Work Australia these duties apply regardless of any terms included in the franchising agreement. The franchisor cannot contract out of or transfer its WHS obligations to the franchisee, nor can the franchisee transfer its WHS responsibilities to the franchisor (or anyone else). The franchisor and a franchisee can, however, enter into an agreement to divide responsibility according to who is best placed to manage the WHS risk or meet a WHS obligation. However, this alone will not be enough for them to meet their duties, with each party responsible to confirm the action is being carried out and the risks has been addressed.
This may require the Franchisor to be a little more “hands on” than may have been the case in the past, for example, providing a training package to franchisees may be insufficient. However, verifying that the training is delivered and understood would ensure the training package is achieving its intended purpose such as worker competency and awareness of hazards related to the task. Franchisors share the role in ensuring duties are met by the Franchisee and the Franchisee has a role in keeping the franchisor aware of incidents and the effectiveness of the systems they have provided.
If you are seeking assistance navigating your duties as a Franchisor or a Franchisee, talk our team at Verus to put these duties into practical risk management strategies designed to keep everyone safe and engaged in their respective workplace.