On 9 February 2023, the Fair Work Ombudsman (FWO) announced that it has commenced legal action against a franchisor for the first time. The legal action is against 85 Degrees Coffee Australia Pty Ltd, which is the head franchisor of the 85°C Daily Café brand that operates outlets across New South Wales and the Australian Capital Territory. The FWO has alleged that 85 Degrees is legally liable for the alleged contraventions by its franchisees, including underpayments of workers, as a “responsible franchisor entity” under the Fair Work Act 2009 (Cth).
A Responsible Franchisor Entity, as defined in the Act, is a franchisor with significant influence or control over the franchisee’s affairs, including its compliance with workplace laws. Such influence or control includes providing significant assistance or resources to the franchisee relating to marketing, business planning, training, or supply of goods and services.
The responsible franchisor entity has obligations to ensure that their franchisees comply with workplace laws and can be held liable for any breaches that occur under certain circumstances including if the franchisor knew or should have known about the breach.
The Fair Work Ombudsman alleges that 85 Degrees was aware of compliance issues within its network as a result of an Enforceable Undertaking given by 85 Degrees Coffee Australia Pty Ltd to the FWO in 2015.
In the Court action by the FWO it is alleged that 85 Degrees did not take reasonable steps to prevent contraventions by its franchise outlets. The FWO alleges that this has resulted in underpayments, record-keeping and pay slip contraventions across the relevant franchisee outlets affecting 20 workers, including young workers and visa holders, in Sydney.
The FWO discovered the alleged underpayments and record-keeping breaches when it conducted proactive audits. The affected workers were underpaid minimum rates, overtime entitlements, penalty rates for weekend, public holiday and evening work, casual loadings, and a laundry allowance under the General Retail Award 2010; and annual leave entitlements under the National Employment Standards, between 1 January and 31 December 2019.
The FWO alleges that 85 Degrees is liable for each of the alleged franchisee contraventions. The franchisor is now facing penalties of up to $63,000 per contravention as well as making good the underpayments.
This legal action is a reminder that franchisors could be held accountable if they do not take action to prevent breaches in their networks and a warning about the powers of the FWO being extensive and actively applied.
At Long Saad Woodbridge Lawyers, we have been advising franchisors for over 20 years in relation to their obligations regarding the protection of vulnerable workers, pay and entitlements. We are committed to helping our clients take reasonable steps to prevent contraventions and ensure that their franchise networks are compliant with workplace laws. Speak with our team to learn more.
Important Disclaimer: The content of this article is general in nature and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.