Understanding the Impact of the Fair Work Legislation Amendment on Franchisors
- Neda Whelan (LLB, LLM, GDLP)
- Nov 3, 2025
- 4 min read
Updated: Jun 3
Introduction
The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 and the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 represent significant changes to Australian employment law. For franchisors, these reforms deepen an already intricate web of regulatory risk. This article examines how these changes impact franchisors across Australia, focusing on sectors most vulnerable to these regulatory shifts.
Redefining Employment Through Section 15AA
The introduction of Section 15AA into the Fair Work Act signifies a deliberate reversal of the High Court's decisions in CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2.
From 26 August 2024, determining whether someone is an employee requires examining the "real substance, practical reality, and true nature of the relationship." This means considering the totality of the relationship, not merely the contractual labels chosen by the parties involved.
The Parliamentary Bills Digest explains that Section 15AA aims to “reinstate the ‘multi-factorial’ test applied by courts and tribunals to determine if a worker is an employee or independent contractor prior to the High Court decisions” mentioned above.
Section 15AA and Its Implications for Franchisors
The reforms carry important implications for franchisors whose systems involve unusually high levels of operational oversight. The same tests used to determine whether an arrangement is one of ‘independent contractor’ can also be applied to assess if there is a true ‘independent’ relationship between franchisor and franchisee.
The key is to examine the relationship to decipher if there is genuine commercial autonomy. Even when control is exercised to maintain quality and brand standards, if franchisees have limited commercial discretion, the relationship could be characterized as employment, regardless of the contract’s wording.
Questions to Consider
To navigate these changes, consider the following questions:
What is the level of control that the franchisor has over pricing and revenue streams?
How is work or customers allocated?
What oversight exists over the direction and supervision of daily operations?
Can a franchisee advertise, accept independent work, or operate another business, or are they economically tied to one income stream?
What degree of control is there over supply chain purchases?
What degree of control is there over the franchisee's ability to grow their business?
Are payments structured more like wages (per job or per shift) than business revenue?
Is the franchisee’s income fixed or guaranteed, rather than linked to profit and loss?
Does the franchisee bear any genuine financial risk, such as covering their own costs or managing variable demand?
No single answer to these questions will be the ‘silver bullet’ that topples a franchise system. However, stepping back and viewing the relationship as a whole with these questions in mind will help you understand the reality of the situation, rather than just the contractual label.
Sector-Specific Vulnerabilities
While every franchise system must be examined through the lens of commercial autonomy versus operational control, certain sectors are inherently more exposed under Section 15AA. The vulnerability arises not from bad intent, but from the very structure of the business model, where control, standardization, and brand protection are essential to service delivery.
1. Mobile and On-Demand Services
Cleaning, lawn care, maintenance, and car detailing networks often rely on centralized booking platforms and fixed pricing. When franchisees do not source their own clients or set their own rates, the model can resemble a rostered work system. Even if framed as efficiency, the absence of pricing or client autonomy is a key vulnerability.
2. Logistics and Delivery Systems
Courier and parcel delivery franchises face heightened risk when routes, schedules, or performance metrics are dictated by head office. The greater the reliance on an app or dispatch software to allocate work, the closer the relationship comes to the gig-economy model that the reforms seek to capture.
3. Food and Quick-Service Outlets (QSR)
Smaller food or coffee franchises with tightly controlled menus, suppliers, and pricing may be exposed when franchisees are effectively paid a set return for operating the site, rather than generating profit from trading. While uniformity in brand presentation is expected, when financial outcomes are predetermined, commercial independence becomes questionable.
4. Home Care and NDIS Service Franchises
In home-care systems, franchisors often control scheduling, compliance, and client management to meet regulatory standards. This degree of operational direction, while necessary for quality assurance, can also limit franchisee discretion and mirror the dynamics of employment.
5. Digital and Platform-Based Micro-Franchises
Emerging “work-from-home” or digital marketing franchises can blur lines where income depends entirely on centrally generated leads or sales conversions. If franchisees are paid per transaction or per shift and lack scope to develop their own client base, they risk being seen as dependent contractors.
6. Low-Investment or Lifestyle Franchises
Models marketed as “side hustles” or “supplementary income” opportunities often promise predictable returns with minimal input. These structures can undercut the core premise of business ownership and expose franchisors to both employment and misleading-representation claims.
The common thread across these sectors is economic dependency, where the franchisee’s opportunity to earn and grow is largely determined by the franchisor’s system. Understanding these vulnerabilities allows franchisors to refine their operations, preserve compliance, and strengthen the integrity of genuine business ownership within their networks.
Looking Forward
The Closing Loopholes reforms represent more than incremental compliance adjustments; they signal a fundamental shift in how Australian law views complex business structures designed to diffuse employment obligations.
Success in this environment requires embracing compliance as a strategic imperative rather than a regulatory burden. Franchisors that invest in sophisticated compliance architecture, genuine franchisee partnerships, and innovative operating models will not only survive but may find unexpected competitive advantages. Conversely, those that persist with outdated structures or minimal compliance efforts face escalating regulatory intervention and potential criminal prosecution.
Disclaimer: This article provides general information only and is not legal advice. The law is complex and varies based on individual circumstances. You should seek specific legal advice about your particular situation before making any decisions about legal matters.
Neda Whelan
Neda Whelan is the Founder and Principal of Whelan Lawyers. With over a decade of experience as former General Counsel for major national networks such as Clark Rubber and Jim's Group, she provides practical, commercial-first legal strategies for franchisors and business owners.
