Following an audit of 34 Pizza Hut franchisees last year, the Fair Work Ombudsman is cracking down on non-compliance with Fair Work laws. Last week, the Fair Work Ombudsman (FWO) slammed fast food giant Pizza Hut in a media release for failing to take the agency’s concerns about non-compliance within its network seriously. During an investigation, it was discovered a franchisee in Newcastle failed to pay its 24 employees $19,762 between November 2015 and May 2016.

Background

It is alleged the NSW franchisee paid its junior employees aged 16 to 20 based on an old award that had been superseded. Despite performing a range of duties, including customer service, making pizzas, deliveries, cleaning the store and assisting to open and close the store, the employees were paid low flat rates. The FWO deemed the wages as unlawful because it contravened the employees’ agreement and the Fast Food Industry Award 2010. The pizza retailer “undercut the minimum rates for ordinary hours, overtime and public holiday work”. It was found four of the workers were underpaid more than $3000, with the largest individual underpayment being $4791 of an international student from Kenya, and failed to adhere to its record-keeping and pay slip obligations.

Issues

At the time of the underpayments, the store operator claimed he did not receive training from the Pizza Hut head franchisor on his obligations on workplace laws. Apparently, the Pizza Hut franchise was his first business since immigrating from India. Ombudsman Natalie James said since publication of its findings of the Pizza Hut compliance activity on 27 January 2017, the Pizza Hut head office still lacked “any meaningful response or commitment”. Ms James said she is not confident the head office is taking the agency’s concerns about non-compliance within its network seriously due its failure to take “concrete action”. Until the Pizza Hut network appropriately solves its compliance issues, the agency will continue working with those in the network and head franchisor.

Outcome

The FWO reminds business of the consequences of not proactively ensuring there are adequate systems in place to promote and ensure compliance. In this instance, non-compliant franchisees were issued compliance notices, infringement notices and letters of caution. Franchise systems who care about their reputation should take steps to ensure their employees receive their lawful entitlements. After results of the audit was released last year, the FWO took legal action against a Brisbane Pizza Hut franchisee for engaging in sham contracting activity and underpaying a delivery driver more than $6,000.

Although Pizza Hut chief executive Lisa Ransom said the head franchisor has a responsibility to ensure its frachisees understand their obligations as employers. However, in Ms James’s perspective, what the retailer has done so far is not enough. She said: “We expect better from them, because they should have systems in place to make sure people who buy their outlets, who might not be experienced business people, do have the information they need to pay their workers right.” Finally, Ms James notes if the Government’s Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 was already in force, it would place additional obligations on franchisors.

Final Thoughts

As of today, the Newcastle Pizza Hut franchisee has made attempts to fully co-operate with Fair Work Inspectors, and has started rectifying the underpayments under an Enforceable Undertaking (EU) with the FWO. It is expected the store operators will back-pay all employees in full by January 2018.

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Fiona Lu

Fiona is a Paralegal working in our content team which aims to provide free legal guides to facilitate public access to legal resources. With an interest in information, media, consumer and employment law, her primary focus is on how technology will affect the future of the legal industry.