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The FWO breaks fresh legal ground by holding café business liable for actions of franchisees.
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Franchisor faces court for alleged Fair Work breaches by outlets
09 February 2023
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10 minute read
The Fair Work Ombudsman is for the first time taking legal action against a franchisor alleging that it is liable for contraventions – such as underpayments to workers – by its franchisees.
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The head franchisor of the “85°C Daily Café” brand, 85 Degrees Coffee Australia Pty Ltd, will face Federal Court as a “responsible franchisor entity” for alleged non-compliance by eight outlets in Sydney in 2019.
The eight franchisees allegedly underpaid nine workers a total of $32,321, with shortfalls ranging from $239 to $15,198.
The FWO claims 85 Degrees is legally liable for the alleged contraventions under the Fair Work Act because it should reasonably have known its franchisees would underpay the workers or commit similar contraventions.
It said 85 Degrees was also legally liable for record-keeping and pay slip contraventions that allegedly occurred at the relevant outlets affecting 20 workers, including the nine.
They were engaged in cashier, baker and kitchenhand positions and included a number of young workers and visa holders.
Underpayments and record-keeping contraventions in the 85 Degree network became the subject of an FWO Enforceable Undertaking in 2015.
The FWO now alleges that 85 Degrees’ knowledge of compliance issues as a result of the Enforceable Undertaking and subsequent audits, its knowledge of its franchisees’ financial circumstances, and its knowledge that the franchisees had limited English and limited awareness of workplace laws, is also relevant to its liability.
Fair Work Ombudsman Sandra Parker said the litigation highlighted that franchisors could be held accountable if they did not take action to prevent breaches in their networks.
“Under federal law, where franchisors operating in Australia do not take reasonable steps to prevent contraventions by their franchise outlets, we will act,” Ms Parker said.
“In this case we allege 85 Degrees – who had been on notice for many years about compliance issues – should reasonably have known some of its franchisees would underpay their workers and breach record-keeping and pay slip requirements.”
The action follows 85 Degrees being penalised $475,200 in court last year for exploiting young Taiwanese students in Sydney under the guise of a purported internship arrangement in 2016 and 2017.
The Fair Work Ombudsman discovered the latest alleged underpayments and pay slip and record-keeping breaches when it conducted proactive audits.
It is alleged the nine of 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 also alleges that pay frequency laws were breached and that one worker was not paid a penalty rate.
Those involved worked at the 85°C Daily Café franchisee outlets in Parramatta, Castle Hill, Hurstville, Campsie, Chatswood, Burwood, Eastwood and Chippendale.
The alleged record-keeping contraventions include an allegation that time records were falsified.
The Fair Work Ombudsman alleges that 85 Degrees is liable for each of the alleged franchisee contraventions.
The individual franchisees back-paid the workers in full as a result of the FWO’s proactive audit and the Fair Work Ombudsman has not taken court action against the franchisees.
The Fair Work Ombudsman is seeking penalties against 85 Degrees Coffee Australia Pty Ltd in relation to multiple contraventions of the Fair Work Act. The company faces penalties of up to $63,000 per contravention.
The first directions hearing in the Federal Court in Sydney is still to be scheduled.
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