by Jessica Kanevsky
A recent case handed down by the Industrial Court of New South Wales on 2 March 2011 highlights the requirement for a franchisor to ensure the occupational health and safety of its franchisees. The franchisor in Inspector Estreich v Parker Hannifin (Australia) Pty Ltd  NSWIRComm 11 was fined $110,000 after an “erroneous view” of its safety obligations towards its franchisees led to an explosion that injured a worker.
The franchisor, Parker Hannifin (Australia) Pty Ltd (Parker Hannifin) was in the business of supplying motion control products including fluid connector products, hydraulic components, filtration and automation products. The franchisor purchased the ENZED Group in June 1989 and developed the ENZED franchise network. Hose Doctor franchisees were granted the right to operate a mobile hose and fitting service business. Parker Hannifin has 61 franchised ENZED Service Centres, 129 franchised Hose Doctor mobile businesses and 67 of its employees working directly for the ENZED Service Centres throughout Australia.
Mr Michael Pascoe was the working director of MCP Maintenance & Contracting Pty Ltd (MCP), a Hose Doctor franchisee of Parker Hannifin. MCP purchased the Hose Doctor franchise in March 2007.
The franchised business provided mobile servicing of high pressure hoses and hydraulic hose fittings and accessories. Hose Doctor franchisees drive vans that are specially fitted with a rear workshop and report to an ENZED Service Centre which allocates clients and performs administrative tasks. MCP utilised an ENZED Service Centre located at Wetherill Park. That centre was operated by Ricomore Pty Limited (Ricomore).
Hose Doctor franchisees were required to comply with Parker Hannifin’s mandatory specifications, standards, operating procedures and training requirements. Parker Hannifin had documented occupational health and safety procedures that MCP was required to follow. MCP was required to lease or purchase a van for the operation of its franchise and the van was to be painted and customised at the cost of MCP and stocked by Ricomore. There were also obligations on MCP to maintain the van in good repair. There was no obligation in the franchise agreement requiring MCP to have the van approved by Parker Hannifin.
Prior to the explosion incident in June 2008, Parker Hannifin had not considered it had any responsibility to ensure that the vans used by the Hose Doctor franchisees complied with the relevant State occupational health and safety laws or Australian Standards regarding such matters as the carriage of dangerous gases.
Parker Hannifin understood that because the Hose Doctor franchisees had purchased, owned and operated their vans, each Hose Doctor franchisee was responsible under their franchise agreement for ensuring that their vans complied with the relevant occupational health and safety laws.
In June 2008, Mr Pascoe was driving his Isuzu van from a client’s premises to a supplier’s premises when there was an explosion in the workshop compartment of his van. The force of the explosion sent metal into its cabin and blew out the front windscreen.
Pascoe escaped with minor injuries, but as a result of this incident Parker Hannifin was charged with and pleaded guilty to breaching s10(1) (duties of controllers) of the New South Wales Occupational Health and Safety Act 2000 for the failure to require that any motor vehicle used by a Hose Doctor franchisee contained a ventilation system that would eliminate the possibility of oxygen and acetylene building up.
Although Parker Hannifin exercised control over Hose Doctor franchisees, its mandatory specification standards and operating procedures did not ensure that Hose Doctor franchisees complied with Australian Standards in respect of the storage and transport of flammable substances. The Australian Standards require proper ventilation in the carrying of dangerous gases. The judgement of Marks J in Inspector Townsend v Carrier Air Conditioning Pty Ltd  NSWIRComm 74 which was handed down two months prior to the incident was said to demonstrate the forseeability or obviousness of the risks, the serious consequences of dangerous gases exploding and the simple remedial steps of ventilation available that underlined the objective seriousness of Parker Hannifin’s offence.
Parker Hannifin contended that MCP could have put into place additional safety systems and noted that Mr Pascoe’s injuries were only minor. It was also noted in the report commissioned by WorkCover that the “root cause” of the explosion was poor trade practice on the part of the person who had left the valves in the workshop compartment of the van open.
In the course of the proceedings, Parker Hannifin admitted that it had made misguided assumptions about the extent of its safety obligations towards its Hose Doctor franchisees and confirmed that after the incident new safety processes including procedures for storing flammable gases had been introduced.
The Court held that Parker Hannifin was wrong in assuming that it was only responsible for the health and safety aspects of the products it supplied to the ENZED Service Centres who then supplied them to the Hose Doctor franchisees. This assumption had been made by Parker Hannifin because of the fact that Hose Doctor franchisees were independent businesses that were subcontracted to perform service functions using Parker Hannifin’s products.
Justice Haylen found that Parker Hannifin’s failure to give safety directions regarding the safe storage of dangerous gas constituted a serious and potentially fatal breach. Although it was accepted that Parker Hannifin’s failure was caused by an “erroneous view of its obligations, these wrong assumptions could not reduce the seriousness of the offence resulting in the $110,000 fine.
This case is a timely reminder that a franchisor may be responsible for ensuring that the premises (including a vehicle) that it has control (or limited control) over by virtue of the franchisee/franchisor relationship complies with relevant occupational heath and safety laws, notwithstanding that a franchisee is an independent business proprietor.