Subway franchisee allegedly underpaid worker over $16,000 despite third-party advice on minimum rates

A Sydney-based Subway franchisee will be taken to court by the Fair Work Ombudsman over allegedly underpaying a worker more than $16,000, despite being advised about minimum award rates by a third-party company that works with the Subway franchisor.

Legal action has been commenced in the Federal Circuit Court by the ombudsman against Danmin “Irene” Zhang, the franchisee of two Subway stores in Artarmon and Stanmore, and her company G & Z United Pty Ltd.

The Fair Work Ombudsman claims Zhang underpaid a Chinese employee who worked at the two Subway stores a total of $16,345 between October 2014 and April 2016, excluding a four month period where the worker returned to China.

The workers was allegedly paid flat rates between $14 and $14.50 for her work, with underpayment allegedly occurring in regards to minimum rates, casual loadings, and penalty rates.

The worker was also allegedly underpaid work clothes allowances, and the ombudsman claims the business also contravened various record-keeping and pay slip laws.

The underpayment allegedly occurred despite the business having received information from a third party advisor, the Independent Purchasing Company Australasia (IPCA), about minimum award rate wages payable to employees. The IPCA works with the Subway franchisor to ensure franchisees are compliant with minimum requirements.

The underpayment allegedly occurred despite the summaries from IPCA being posted on the walls of Zhang’s Subway businesses. The worker has since been back paid in full.

Jason Gehrke, director at the Franchise Advisory Centre, told SmartCompany the allegations could be a case of “willful mischievousness”.

“The franchisee is accused of ignoring the advice of the third party engaged to assist the workplace around the correct rates of pay, to the extent where they had the rates on their walls and they still didn’t pay them,” Gehrke says.

Despite third party advise being in place, he believes there can be some cases “where you can lead a horse to water but you can’t make it drink”.

Gehrke says he expects to see less and less of this alleged contravention from franchisees moving forward as the issue continues to gain traction and attention from the government, who are looking to introduce their Protecting Vulnerable Workers Bill this year.

“There’s such a high level of awareness on these issues, and given the impending bill, franchisors are working towards being compliant,” he says.

While Gehrke says “historically” franchisors would have left franchisees largely to their own devices when it comes to pay rates and employing staff, many are now putting more of a focus on ensuring franchisees are paying workers correctly.

One way that franchisors are getting involved with franchisees around this issues is through third party advisories such as IPCA, but Gehrke believes these systems may not do enough.

“From a brand protection point of view, a franchisor who ensures franchisees are advised and aware of correct rates of pay may in future pending government legislation still not necessarily be doing enough to mitigate their full risks of franchisee misbehaviour,” he says.

“So some are taking it a step further by setting up centralised payroll systems, and conducting regular audits of franchisee’s payrolls.”

The ombudsman is keen to work with franchisors that are looking to introduce such systems, with Ombudsman Natalie James saying in a statement franchisors should endeavour to put systems in place to ensure compliance.

“With the Government proposing new laws to capture franchisors that fail to deal with exploitation of workers by their franchisees, the Fair Work Ombudsman’s door is always open. We are always willing to work with any franchise ready to take action to show it takes compliance with workplace laws throughout its network seriously,” she said.

In a statement to SmartCompany, Subway communications manager Ben Miles said: “We are supportive of FWO actions in this matter. The franchisee is in default of their franchise agreement and an exit plan is in place”.

The IPCA did not provide a comment, and SmartCompany was unable to contact the company director prior to publication.

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