[2010] FWAFB 8826 [2010] FWAFB 8826 Download Word Document FAIR WORK AUSTRALIA REASONS FOR DECISION Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 Sch. 6, Item 4 - Application to make a modern award to replace an enterprise instrument. Sch. 6, Item 5 - Application to terminate an enterprise instrument. Kentucky Fried Chicken Pty Limited (EM2009/2) Shop, Distributive and Allied Employees Association (C2009/11425) VICE PRESIDENT WATSON DEPUTY PRESIDENT IVES COMMISSIONER ROBERTS SYDNEY, 23 NOVEMBER 2010 Application to make a modern award to replace an enterprise instrument - whether the instrument is an enterprise instrument - whether the operations of Kentucky Fried Chicken Pty Ltd and its franchisees are a common enterprise - Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, Schedule 6, items 2, 3. Introduction [1] At the conclusion of the hearing of these matters on 15 November 2010 we announced our decision that we were satisfied that the KFC National Enterprise Award 2001 1 (the Award) is an enterprise award-based instrument within the meaning of items 2 and 3 of schedule 6 of the Fair Work Transitional Provisions and Consequential Amendments Act 2009 (the Transitional Act). We now publish the reasons for our decision. [2] At the hearing on the jurisdictional issue on 15 November 2010 Mr P Kite SC with Mr G Boyce of counsel represented Kentucky Fried Chicken Pty Limited (KFC Pty Ltd) and Mr J Fernon SC and Mr M Rinaldi of counsel represented the Shop, Distributive and Allied Employees Association (SDA). [3] KFC Pty Ltd is the business that operates the Kentucky Fried Chicken (KFC) franchise in Australia, it is wholly owned by Yum Restaurants Australia Pty Ltd (Yum). The jurisdictional objection [4] The SDA contends that KFC Pty Ltd and the KFC franchisees are not a single enterprise within the meaning of the Transitional Act and the Award is not an enterprise award-based instrument. [5] Sub-item (2A) of item 2 of Schedule 6 of the Transitional Act provides: “(2) An enterprise award-based instrument is an award-based transitional instrument, other than a State reference public sector transitional award, to which subitem (2A) or (2B) applies. (2A) This subitem applies to an award-based transitional instrument that is an award or a State reference transitional award, if the award or State reference transitional award covers employees in: (a) a single enterprise (or a part of a single enterprise) only; or (b) one or more enterprises, if the employers all carry on similar business activities under the same franchise and are: (i) franchisees of the same franchisor; or (ii) related bodies corporate of the same franchisor; or (iii) any combination of the above.” [6] Sub-items (1), (2) and (3) of item 3 of Schedule 6 provide: “(1) A single enterprise is: (a) a business, project or undertaking that is carried on by an employer; or (b) the activities carried on by: (i) the Commonwealth, a State or a Territory; or (ii) a body, association, office or other entity established for a public purpose by or under a law of the Commonwealth, a State or a Territory; or (iii) any other body in which the Commonwealth, a State or a Territory has a controlling interest. (2) For the purposes of subitem (1), if 2 or more employers carry on a business, project or undertaking as a joint venture or common enterprise, the employers are taken to be one employer. (3) For the purposes of subitem (1), if 2 or more related bodies corporate each carry on a single enterprise: (a) the bodies corporate are taken to be one employer; and (b) the single enterprises are taken to be one single enterprise. Note: However, an enterprise instrument or a modern enterprise award could just relate to a part of that single enterprise.” [7] KFC Pty Ltd submits that it and the KFC franchisees are businesses that carry on a common enterprise within the meaning of Schedule 6, item 3 sub-item (2). It submits, by reference to the Full Bench decision concerning Pizza Hut, 2 that there is no basis for distinguishing between the common enterprise and common purpose of KFC Pty Ltd and KFC franchisees on the one hand and Yum and Pizza Hut franchises on the other. [8] The SDA submits that the operation of KFC franchises can be likened to the operation of Bakers Delight franchises which have been found by the Australian Industrial Relations Commission not to be conducting a common enterprise. 3 It submits that the main point of difference between KFC franchise operations and Pizza Hut franchise operations is that KFC has no demarcated delivery zones. It is a walk-in retail business, like Bakers Delight. It further submits that KFC franchise businesses potentially compete with one another for passing trade in the same way as Bakers Delight franchises. [9] The SDA also submits that the common enterprise does not extend to service company subsidiaries of franchisees, such as the company that provides labour to the Queensland Franchisee, Collins Restaurant Management Pty Limited (Collins). [10] The SDA also refers to the business of Yum, the Australian subsidiary of Yum International. It submits that as Yum operates two brands in Australia, Pizza Hut and KFC, it is not in a common enterprise with KFC franchisees. The Evidence [11] Evidence was led from the Operations Director of Yum, Mr Richard Wallis and owners of three KFC franchises. [12] Mr Wallis gave detailed evidence about the business of KFC Pty Ltd and franchisees. The standard franchise agreement summarises the Franchise system and their operations as follows: “ Background Facts Franchisor and/or its Affliliated Companies have developed a unique and valuable system for the preparation, marketing and sale of certain quality food products under various trade marks, service marks and trade names owned by them. The system is a comprehensive restaurant system for the retailing of a limited menu of uniform and quality food products, emphasising prompt and courteous service in a clean and wholesome atmosphere which is intended to be particularly attractive to families. The foundation and essence of the System is the adherence by franchisees to standards and policies providing for the uniform operation of all restaurants within the System including, but not limited to, serving designated food and beverage products; the use of only prescribed equipment and building layout and designs; and strict adherence to designated food and beverage specifications and to prescribed standards of quality, service and cleanliness in restaurant operations. Compliance by franchisees with the foregoing standards and policies in conjunction with the trademarks, service marks and trade names provides the basis for the valuable goodwill and wide acceptance of the System. Moreover, Franchisee’s performance of the obligations contained in this agreement, and adherence to the tenets of the System constitute the essence of the licence provided for herein.” [13] Mr Wallis gave evidence about the various ways in which this system operates. He said that as the KFC outlets operate in a virtually identical way they do not compete with each other. [14] Ms Judy Fenton, Human Resources Manager of Collins, a subsidiary of a KFC franchisee, gave evidence in relation to the operation of KFC franchises in Queensland and Tweed Heads, New South Wales. She gave evidence that Collins is an employment company that contracts its labour to Collins Restaurants Qld Pty Ltd and Collins Restaurants (NSW) Pty Ltd, the operators of KFC stores in Queensland and Tweed Heads respectively. [15] Ms Fenton said that Collins regularly interchange staff with Yum. She said that KFC outlets are very reliant on KFC franchisees to perform well and successes or failures in particular outlets can impact the whole brand. She said that Collins has traditionally operated within the Queensland Industrial system. [16] Mr Frank Soertsz, a KFC franchisor, gave evidence about what he describes as the close KFC franchise community. He gave evidence of a franchisee association whose purpose is to ensure that franchisees have a strong say in matters affecting the business and its overall success. [17] Another franchisee, Mr Craig Hosking, gave similar evidence about the way in which the franchise operates within the KFC network. Common Enterprise [18] Both parties addressed the test for a common enterprise expressed by Mason J (as he then was) in Australian Softwood Forest Pty Ltd v Attorney-General (NSW); Ex Rel Corporate Affairs Commission 4 (the Australian Softwood Case) in which his Honour said: “An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts of profits. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants and, accordingly, a common enterprise.” [19] KFC Pty Ltd submitted that application of the test leads to the conclusion that KFC and its franchisees are a common enterprise. The SDA distinguished the circumstances and said that the application of the facts in this matter leads to the opposite conclusion. Conclusions [20] In our view, a consideration of the evidence in this matter leads to the conclusion that the Award is an enterprise award-based instrument. KFC outlets are not isolated stand alone businesses. They are operated under franchise agreements which require a very high level of standardisation and cooperation. Most features of the business are standardised and operated under the KFC umbrella. This extends to appearance, design, purchasing, operations, pricing and marketing. Profit is effectively shared as KFC Pty Ltd obtains a proportion of revenue from franchisees. [21] In our view KFC Pty Ltd and its franchisees carry on a business as a common enterprise. They are closely connected and contribute to the overall purpose of successfully operating KFC outlets. [22] Such a business is taken to be one employer for the purposes of sub-item 2 of Item 3 of Schedule 6 to the Transitional Act and is therefore a single enterprise. As the Award applies to the franchisees specified as bound by the Award, the Award covers part of a single enterprise within the meaning of sub-item 2A of Item 2 of Schedule 6 and by virtue of that definition is an enterprise award-based instrument capable of being subject to both of the applications in these matters. [23] In determining whether the Award is an enterprise award-based instrument capable of modernisation it is necessary to consider its current status by reference to the scope of its application. We do not consider that the question of subsidiary service companies arises from the evidence concerning the Collins Restaurant companies and their related service company as they are not currently respondent to the Award. To the extent that the award respondents include any such companies, we note that sub item 3(3) of Schedule 6 deems related companies to be one employer. [24] We do not consider that the other operations of KFC Pty Ltd’s parent company, Yum, affect our conclusion. Yum also operates a business in relation to Pizza Hut outlets. We see no difficulty in an enterprise operating two businesses being covered by separate enterprise awards with respect of each business. In any event an award is still an enterprise award-based instrument if it applies to part of a single enterprise. The Award does not extend to Pizza Hut operations. It only extends to the KFC business. That business extends to the common enterprise comprising Yum’s subsidiary KFC Pty Ltd and its KFC franchisees. [25] For these reasons we conclude that the applications are valid and may be heard and determined. We will continue to hear and determine the merits of the applications. VICE PRESIDENT WATSON Appearances : P Kite SC with G Boyce of counsel for Yum Restaurants Australia Pty Ltd J Fernon SC with M Rinaldi for Shop, Distributive and Allied Employees Association Hearing details: 2010. Melbourne 15 November 1 AP807485 2 [2010] FWAFB 7591 3 Re Bakers Delight Holdings Ltd and Others PR923670 4 (1981)148 CLR 121 Printed by authority of the Commonwealth Government Printer <Price code C, AP807485  PR503962 >