By Carla Novacevski

The Fair Work Ombudsman (FWO) has commenced its first prosecution of a franchisor – in this case, the Taiwan-owned head of a coffee shop chain. The charge? Alleged underpayment of workers across eight franchisees. The prosecution deepens a commitment to protecting vulnerable workers, as promised by the Australian Government, and sends signals to franchisors that they cannot ignore lawbreaking by their franchisees.

Considered by many to be a test case of franchisor liability for breaches by its franchisees, it’s the first time the FWO has commenced legal action against a franchisor with the allegation that, as a ‘responsible franchisor entity,’ the franchisor is legally liable for alleged contraventions by its franchisees. This includes underpayments of workers – a major focus of the FWO this year.

The FWO made its position clear when it announced on 9 February that it was alleging that the head franchisor of the 85 Degrees coffee chain committed underpayments and filed fake wage records in 2019. The alleged underpayments totalled $32,321 at eight cafes, with record-keeping and payslip breaches affecting 20 workers including nine allegedly underpaid between $239 and $15,198.

The latest FWO allegations:

  • Workers have been underpaid minimum, overtime and penalty rates.
  • Workers weren’t paid their entitlements of casual loadings, a laundry allowance and annual leave entitlements.
  • Time records have been falsified.

The FWO is seeking penalties of up to $63,000 per contravention.

It’s not the first time the FWO has focused on 85 Degrees – in fact, the case marks the third time in four years that 85 Degrees has been accused of exploiting migrant workers.

It was mere months ago, in November 2022, that the franchisor was penalised $475,000 for exploiting directly-employed Taiwanese students through 70-hour work weeks and sham internships across 2016-17.

Before this, in 2015 the franchisor received an enforceable undertaking after four backpacking visa holders, again from Taiwan, were underpaid $43,000.

The prosecution follows legislation announced five years ago by the Turnbull Government, Fair Work Amendment (Protecting Vulnerable Workers) Act 2017. Such legislation was enacted to stop franchisors from turning a blind eye to breaches after it was revealed that 7-Eleven franchisees underpaid vulnerable workers by $173 million.

Government gunning for underpayment prosecutions; focus on franchisors

When the prosecution began in February 2023, Ombudsman Sandra Parker blasted 85 Degrees’ head company in a public statement, saying 85 Degrees “should reasonably have known some of its franchisees would underpay their workers and breach record-keeping and payslip requirements” because 85 Degrees “has been on notice for many years.”

“Under federal law, where franchisors operating in Australia do not take reasonable steps to prevent contraventions by their franchise outlets, we will act,” Parker added.

Interestingly, because workers were back-paid in full, individual 85 Degrees franchisees aren’t being prosecuted – so far.

The FWO is intent on prosecuting – and they often conduct surprise inspections

Surprise inspections aren’t uncommon – in fact, the FWO recently conducted surprise inspections on Brisbane-area shopping mall food court operators – with 75 percent failing. From businesses failing to pay penalty rates or casual loading and breaching pay slip obligations to underpayment of minimum hourly rates, these are just some of the serious shortfalls made.

Now is a great time for an HR Health Check Audit to ensure compliance so you can pass a surprise inspection and avoid FWO prosecution. HR Assured guides you through compliance with intuitive workflows, legally-sound tools, templates and employee self-service – not to mention over-the-phone support from legal experts.

The following are the areas of compliance which HR Assured’s software, phone, email and chat support can help you shore up so you’re not vulnerable to the reputational damage of FWO charges.

We wrote the book on staying on the right side of the Fair Work Ombudsman

It’s no secret that the FWO has always targeted businesses that get workplace compliance wrong. However, now that the regulator has intensified its focus on this issue and increased its investigation and prosecution activities, all employers are on notice. Get this FWO compliance eBook, created by our experts, and start staying safe.

The eBook is a must-have guide for businesses that explains the ins and outs of compliance mistakes, the consequences, and how to avoid them.

If you’re not already an HR Assured customer and you’d like to try our award-winning 24/7 Telephone Advisory Service, contact us for a FREE no-obligation consultation.

If you’re a client and you have a question about workplace compliance, be sure to contact HR Assured’s 24/7 Telephone Advisory Service and we can keep you on the right side of the law.

Carla Novacevski is a Workplace Relations Advisor based at HR Assured’s Melbourne Office. In her role at HR Assured, Carla tends to client queries via the Telephone Advisory Service. She is currently completing a Bachelor of Commerce and Law, majoring in Accounting, and is passionate about expanding her knowledge through a variety of placements in multiple areas of law.