Franchisees protected, contractors in limbo: current and future laws


Franchisees protected, contractors in limbo: current and future laws

Franchisees and contractors are receiving different treatment under the law in terms of unfair treatment from principal businesses under both the current laws and the proposed changes to the law by the Federal Government, according to a commentator at a recent conference.


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Franchisees and contractors are receiving different treatment under the law in terms of unfair treatment from principal businesses under both the current laws and the proposed changes to the law by the Federal Government, according to a commentator at a recent conference.

Joellen Riley, from Sydney Law School at Sydney University, made this comment at a recent conference in Sydney.

Protection of franchisees from harsh and unfair treatment

There is a contrast between steps the Federal Government has taken to protect franchisees from harsh and unfair treatment by businesses and its forthcoming proposals to exclude the majority of the workforce from protection against unfair dismissal.

This argument was presented at the Annual Labour Law Conference conducted by the industrial relations research organisation acirrt in Sydney on 8 September 2005.

Riley noted that franchising is regulated by a Franchising Industry Code of Conduct that in turn is covered by sec 51AD of the Trade Practices Act 1974. The Code states, among other things, that a franchiser cannot arbitrarily terminate a franchisee. Riley further noted that in franchised businesses such as fast food chain restaurants or service stations many aspects of the work are tightly controlled by the franchiser.

She pointed out that the current Federal Government has legislated the protection of franchisees on the ground that it is protecting small businesses against exploitation, but now intends to remove access to equivalent protections for employees of businesses with less than 100 employees – many of whom, ironically, may be employed in franchised businesses.

Impact of new provisions for contractors

Riley’s presentation mainly discussed the Government’s intention to amend the workplace relations legislation as it applies to independent contractors. She noted that little detail about the proposed changes has so far emerged, other than that there will be a new Bill to regulate the 'employment' of independent contractors and labour hire workers, and that it is claimed to provide 'improved protection' for them. Given the current information gap, Riley made some suggestions as to what the Bill could and should contain.

Riley described contractors as being 'up on the trapeze with no support', but noted that many of them enjoyed the freedoms and flexibility that contract work provided for them. She suggested that the Government’s main motive appeared to be to clarify the status of contractors in order to prevent them being deemed to be employees, as has happened in some court cases, which in turn had entitled them to access remedies available to 'normal' employees.

Problems for Federal Government

At the same time, the Government needs to apply and maintain some legislative controls in order to prevent scam contractor arrangements sneaking through the system.

The Government may also feel that its position on this issue is threatened by the following factors:

  • judicial paternalism – courts sometimes override decisions that 'entrepreneurs' have already made for themselves

  • State legislation tends to use a wider test of what is an 'employee', Queensland in particular, and this is considered to provide rivalry to the Federal Government’s intentions

  • several State governments have conducted their own inquiries into labour hire practices, to investigate how the industry really operates, and the Federal Government would prefer to override these.

Barriers may also exist within the Government’s own agencies. A House of Representatives inquiry has recommended that the common law test of employment be retained, and components of the personal income tax assessment test be added to it. It is suggested that the Tax Office does not want people to escape from PAYG obligations, as seen so far in the elaborate tests such as the 80/20 rule and 'results-oriented test'. Riley suggests that the continuation of both these barriers means that the proposed changes may in practice make little difference to the status quo.

Common law and trade practices provisions

The question arises as to what substantive provisions a new Act could contain to establish and protect the rights of independent contractors.

Riley argued that there are already some 'solutions' to the issues available in both common law and statute law. These include:

  • 'good faith' obligations in the performance of contracts

  • provisions that prohibit open-ended discretions for either party to a contract

  • the doctrine of estoppel – if a party has not acted in accordance with contractual

  • provisions, informal undertakings made between the parties will take precedence
    provisions covering economic duress (which have been used against unions in the past, so conceivably could be used against employers) and unconscionable dealing.

Common law principles can work for both sides, but the downside is that access to remedies is more expensive and more difficult.

Relevant Trade Practices Act provisions include:

  • sec 51AA which provides a general prohibition on unconscionable conduct

  • sec 51AC which covers unconscionable conduct in business transactions with extra protections for small businesses

  • sec 52, which covers misleading and deceptive conduct and has often been used in employment-related cases

Suggestions for the new contractors Bill

As noted above, not much has been revealed about the proposed new Bill so far. Riley recommended that it should include the following provisions:

  • provision for collective representation of contractors, to allow a level playing field

  • inclusion of 'unfair contract' provisions, consistent with other 'unfair contract' laws. For example, legislation that covers lending contracts with financial institutions enables businesses to opt out of contracts with those institutions.

  • dispute resolution procedures that are low-cost and have minimal time delays

  • appropriately flexible remedies, eg consistent with Trade Practices Act remedies – for example if it is possible to salvage the working relationship and resume work, options to do so should exist.

Further information

Further information about this conference is available from ACIRRT.
Riley has also written a book that covers the above subject matter in greater detail. Employee Protection at Common Law is due for release by Federation Press in November 2005.


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