FWO secures penalties against franchisor

The Fair Work Ombudsman has secured a significant penalty in the Federal Court against a franchisor, accepting arguments that they should have reasonably known that eight separate franchisees were underpaying staff entitlements and failing to keep employment records.

85 Degrees Coffee Australia Pty Ltd (“85 Degrees”) is part of a worldwide franchise operation that sells coffee and related food through franchised cafe stores.

The FWO uncovered a series of contraventions by eight separate franchisees dating back to 2019 involving underpaying award entitlements as per the General Retail Industry Award 2010.

The contraventions included failure to pay:

• • minimum hourly rates;
  • casual employment loading;
  • penalty rates (weekends, public holidays and evenings);
  • overtime (weekdays, weekends and public holidays);
  • breaks between shifts allowances (failure to have a 12-hour break);
  • laundry allowance;
  • annual leave on termination.

The franchisees also breached the legislative requirements to keep employment records, pay wages either weekly or fortnightly, or issue payslips to employees.

Section 558B(1) of the Fair Work Act 2009 imposes liability on a ‘responsible franchisor entity’ and the potential to incur civil penalties for contraventions by its franchisees but only where the franchisor or one of its officers knew, or could reasonably be expected to have known, that the contraventions of the same or similar where likely to occur.

In evidence before Federal Court Justice Robert Bromwich, 85 Degrees admitted that they knew there was a likelihood of contraventions occurring following correspondence from the FWO. Further, they also admitted roughly a quarter of the way through the contravening period that despite their actual knowledge of contraventions occurring, they did not take reasonable steps to prevent the contraventions from occurring.

Justice Bromwich imposed a civil penalty of $1.44M on 85 Degrees.

In commenting on the penalty imposed, Fair Work Ombudsman Anna Booth said ’85 Degrees conduct in this matter was completely unacceptable. The company had been on notice for some time about compliance issues in its network but failed to take reasonable steps as a responsible franchisor to address those issues.’

She added, ‘All franchisors, including international chains in the Australian market, need to be aware that the Fair Work Ombudsman will continue to hold them to account if they turn a blind eye to compliance problems in their network’.

Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576 (fedcourt.gov.au)

85 Degrees franchisor penalised $1.44 million – Fair Work Ombudsman

For questions about award and agreement entitlements, mandatory employment records, franchising, or other employment questions, please contact Dean Cameron at Workforce Advisory Lawyers – We Know Employment Law on 0417 622 178, 1300 WAL LAW or via email to dean.cameron@workforceadvisory.com.au

Disclaimer: This information is provided as general advice on workplace relations and employment law. It does not constitute legal advice, and it is always advisable to seek further information regarding specific workplace issues. Liability limited by a scheme approved under professional standards legislation.

Ref: 463.0924