Consequences hit boiling point: FWO imposes $1.44 million in penalties on franchisor

“Systematic failure to ensure compliance within its franchise network,” including underpayments of vulnerable workers at several Sydney-based franchisee outlets, has resulted in the Federal Court (the Court) imposing $1.44 million in penalties against the franchisor, 85 Degrees Coffee Australia Pty Ltd (85 Degrees).

This million-dollar penalty is the third highest ever secured by the Fair Work Ombudsman (FWO) and comes after the regulatory body secured more than $475,000 in fines back in 2022 and entered into an Enforceable Undertaking with the company in 2015.

Here our experts take you back to where this case started, explain how nine workers were underpaid a total of $32,321, and why the FWO continues to hold franchisors accountable for the conduct of its franchisees.

More than a million reasons to heed the warnings of the FWO

From the north-west to the south-west, 85 Degrees operated eight franchise outlets across Sydney and underpaid employees ranging from $239 to $15,198 between 1 January and 31 December 2019. Discovering the latest contraventions after conducting a proactive audit, the FWO uncovered that in addition to being underpaid minimum wages, the workers were also denied:

• Overtime entitlements and casual loadings;
• Penalty rates for weekends, public holidays, and evening work;
• Laundry allowances under the General Retail Industry Award 2010; and
• Annual leave entitlements under the National Employment Standards (NES).

For 85 Degrees, this isn’t the first time the business has been before the Courts and faced the consequences of wrongdoings. In 2015, the franchisor was made aware of several record-keeping and pay slip contraventions and underpayments and it’s because of this that it’s alleged 85 Degrees knew of these compliance issues and its franchisees’ financial circumstances making them legally liable for each offence.

Unpacking the decision

Justice Robert Bromwich found that “85 Degrees does not, and could not, dispute the FWO’s accurate assertion that the facts demonstrate a systematic failure to ensure compliance within its franchise network.”

In handing down his decision, Justice Bromwich concluded that general deterrence was of the utmost importance saying the risk of future contraventions in the industry by similar participants was high and the need to impose a significant penalty would serve as a reminder – and deterrent – to other would-be contraveners to think twice before turning a blind eye to compliance.

The severity of these penalties reminds us that the protection of vulnerable workers remains a priority for the FWO.

There’s nothing to worry about – if you’re doing everything right!

The FWO has a long history of going after franchisees for failing to comply with Australia’s strict workplace laws including intentionally underpaying staff, and as we continue to see businesses brought before the Court, it’s a reminder for all employers that if you’re doing something wrong, you will get caught and face severe consequences.

This isn’t the first time the regulatory body has issued a stern warning to businesses, and it certainly won’t be the last with this case being the first time the FWO has used franchisor liability provisions in the Fair Work Act 2009 (Cth).

In mid-2023, the FWO announced that it had recovered $509 million in unpaid wages and entitlements over the last financial year – the second consecutive year that the FWO has recovered more than half a billion dollars in underpayments.  This reiterates that the FWO has a stern focus on workplace compliance and will take active measures to ensure that workers receive their rightful entitlements.

How can Citation HR help?

We know that most business owners wouldn’t dream of intentionally committing wage theft or breaching workplace laws, mistakes can and do happen – this is where Citation HR can help you. Our team of workplace relations experts can complete a comprehensive HR compliance audit of your business that helps uncover issues before they become problems – and the best part – this service is included in our monthly, cost-effective subscription that’s designed to protect your business from costly risks.

About our author

Sebastian Diaz is a Workplace Relations Advisor at Citation Group. In his role, Sebastian regularly provides advice on workplace matters to find solutions for clients.