Posted by Elizabeth Gore-Jones
on 14 June 2024
85 Degrees, a coffee shop chain based in Sydney, has been fined $1.44 million for underpayment issues related to its franchisees. This marks the first instance where the Fair Work Ombudsman (FWO) has successfully prosecuted a franchisor under the “responsible franchisor entity” provisions of the Fair Work Act 2009 (Cth).
In 2019, eight franchisee-operated outlets of 85C Daily Café were found guilty of underpaying employees. Violations included non-compliance with minimum wage standards, casual employment loading, penalty rates, overtime payments, shift break allowances, laundry allowances, and annual leave payouts on termination. Additionally, the franchisees failed to maintain proper employment records, issue regular payments, and provide payslips.
Although 85 Degrees did not directly underpay the workers involved, the FWO argued that the franchisor is liable as a responsible franchisor entity because it should have known about the potential for its franchisees‘ violations. The company was also held responsible for broader payroll violations affecting a total of 20 workers, including the nine underpaid employees, who worked as cashiers, bakers, and kitchenhands.
The Federal Court's decision, delivered by Justice Bromwich on June 4, highlighted the franchisor's repeated failures. He pointed out that 85 Degrees had previously entered into an Enforceable Undertaking with the FWO in 2015 to address similar issues, yet continued to breach employment laws both as an employer and through its franchise model.
Justice Bromwich also emphasized the need for strong deterrents, noting the company's insufficient efforts to ensure compliance among its franchisees. He condemned 85 Degrees for failing to prevent or adequately address these violations, despite being aware of the risks.
Deterrence was in part, not just to “encourage an upward spiral of compliance, but also helping to stave off a downward spiral of non-compliance”, stated Justice Bromwich. He underscored that franchisors must not overlook franchisee violations as standard business practice, stressing that legislative measures aim to hold franchisors accountable alongside their franchisees.
This ruling sends a powerful message to franchisors about their responsibilities to actively monitor and enforce compliance within their franchise networks.
For expert guidance on navigating franchise and business law compliance, we are here to help. Contact us today to protect your franchise network by ensuring that your business practices uphold legal standards.
