Franchisor Penalised $1.44M, Underpayment of Wages

Image Source: 85DegreesBakeryCafe/Facebook

 

Compliance and reporting is often the downfall of many businesses. In 2024, it is more important than ever that businesses are proactive in protecting themselves from litigation exposure, and not just reactive. The Fair Work Ombudsman has recently imposed penalties totaling $1.44 million on the franchisor of the ’85 Degrees’ brand in Australia for failing to ensure compliance within its franchise network, resulting in underpayments at several Sydney franchisee outlets.

In this article, we will break down this case and outline what employers should do to prevent situations like this from unfolding. 

Penalties for 85 Degrees Coffee Australia

The penalties were levied against 85 Degrees Coffee Australia Pty Ltd (’85 Degrees’), which managed several 85 Degrees-branded locations in NSW and the ACT and oversaw franchisee-operated outlets.

These penalties are the third highest ever achieved by the Fair Work Ombudsman.

This case is significant as it is the first time the FWO has applied the “responsible franchisor entity” provisions of the Protecting Vulnerable Workers reforms to hold a franchisor accountable for its franchisees’ actions in court.

The legal action by the Fair Work Ombudsman involved employees, including many young and visa-holding workers, at eight 85 Degrees-branded franchisee-operated outlets in Sydney in 2019. 

It was discovered that nine workers were underpaid a total of $32,321.

Although 85 Degrees did not directly underpay the workers, it was held liable under the responsible franchisor entity provisions for underpayment breaches, as well as record-keeping and payslip violations. The company was aware from 1 April 2019 that its franchisees might commit these or similar breaches and did not take reasonable steps to prevent them.

This penalty follows the FWO’s securing of $475,200 in penalties against 85 Degrees in 2022 for exploiting young Taiwanese students in Sydney and an Enforceable Undertaking with the company in 2015 due to underpayments and record-keeping violations.

Fair Work Ombudsman Anna Booth emphasised that the $1.44 million in penalties serves as a reminder to business owners everywhere and franchisors who are aware or should reasonably be aware of potential breaches by their franchisees and fail to take reasonable preventative measures can face severe consequences. 

The latest violations were discovered through proactive audits by the Fair Work Ombudsman. Businesses should be prepared for an audit at all times, ensuring all contracts, documentation and processes are updated and in accordance with the law. 

NB Employment Law is hosting a webinar soon on Wage Theft and Underpayment of Wages. Our webinars are designed to equip employers with the information they need to succeed in these times. You can find our upcoming events here.

Underpayment of Wages Determined

The workers affected were employed in cashier, baker, and kitchenhand positions at the 85 Degrees franchisee outlets in Parramatta, Castle Hill, Hurstville, Campsie, Chatswood, Burwood, Eastwood, and Chippendale.

These workers were underpaid minimum wages, overtime entitlements, penalty rates for weekend, public holiday, and evening work, casual loadings, and a laundry allowance under the General Retail Industry Award 2010, as well as annual leave entitlements under the National Employment Standards, between 1 January and 31 December 2019.

Additionally, one worker was not paid on a weekly or fortnightly basis as required under the Award, and another was not compensated at the penalty rate for insufficient breaks between shifts.

Individual underpayments ranged from $239 to $15,198.

The franchisees repaid the workers in full following the FWO’s proactive audit, and no court action was taken against the franchisees. Justice Bromwich highlighted the importance of deterrence, citing the high risk of future breaches in the industry and the need for penalties to deter potential violators, particularly other franchisors.

Justice Bromwich noted that systemic non-compliance by franchisees, especially in the food retail sector and affecting vulnerable workers on temporary visas, prompted the reforms that introduced franchisor liability. Protecting vulnerable workers, including visa holders, remains a priority for the FWO. The FWO initiated 138 litigations involving visa holder workers in the six financial years up to June 2023.

To safeguard your business and ensure compliance, NB Employment Law is dedicated to protecting the longevity of your business. We offer expert legal advice and provided outlined, proactive measures you can take which will help you navigate complex employment matters and maintain a compliant workplace. Protect your business with NB Employment Law and mitigate the risks associated with non-compliance.