Franchisors could be held liable for franchisees breaching workplace laws

The Federal Court action has been taken against 85 Degrees Coffee Australia, which has outlets across NSW and the ACT.

The Fair Work Ombudsman alleges that 85 Degrees was liable as a “responsible franchisor entity” under the Fair Work Act for alleged non-compliance by eight 85°C Daily Café franchisee-operated outlets in Sydney in 2019.

The FWO alleges that while 85 Degrees did not directly underpay nine workers a total of $32,321, it is legally liable for the alleged underpayment contraventions because it should reasonably have known its franchisees would underpay the workers or commit similar contraventions.

The nine workers were allegedly 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 payable when workers do not receive an adequate break between shifts.

Alleged individual underpayments range from $239 to $15,198.

The alleged record-keeping contraventions include an allegation that time records were falsified.

The FWO also alleges 85 Degrees is liable for record-keeping and pay slip contraventions that allegedly occurred at the same franchisee outlets and affected 20 workers, including the nine allegedly underpaid.

The legal action comes after 85 Degrees was the subject of an enforceable undertaking between it and the FWO 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.”

“We also prioritise protection of vulnerable workers. Any workers with concerns about their pay or entitlements should contact us,” Ms Parker said.

This legal 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. 

That case related to 85 Degrees’ direct employees who worked at factories and cafes operated by 85 Degrees in Sydney.

The Fair Work Ombudsman discovered the latest alleged underpayments and pay slip and record-keeping breaches when it conducted proactive audits.

What does this mean for real estate? 

A spokesperson for the Fair Work Ombudsman said franchisor liability laws came into effect in October 2017 as part of amendments to the federal Fair Work Act.

“Franchisors, in any industry, can be held responsible and face penalties in court if their franchisee doesn’t follow workplace laws,” the spokesperson said.

“This applies in instances where they knew or reasonably should have known about their franchisee’s contraventions and failed to take reasonable steps to prevent them.”

O*NO Legal – The Real Estate Agents’ Lawyer Founder Kristen Porter said the case was a timely reminder for real estate franchisors that they could be held liable for the non-compliances of their franchisees if it’s deemed that they should have reasonably known their franchisees would commit the contraventions. 

“At the end of the day there are certain things that a franchisor can be liable for, for the actions of their franchisees, and it can be quite scary,” she said.

“I have been talking with a few of our franchisor clients about these topics because some of them weren’t really aware of the extent of the liability.”

Ms Porter also warned that clauses in franchisee agreements that stipulated that a franchisee would indemnify the franchisor in the case of any breeches, may not hold up in court.

“Whether that is actually enforceable is in question,” she said.

“When anyone gets sued, or action is taken, they always go after the person with the deepest pockets and that’s usually the franchisor.

“They will usually go after the franchisor first and the franchisor may try and recover it from the franchisee but by then the reputation of the brand has already been damaged.”

How you can prevent a contravention?

Ms Porter said it was possible for real estate franchisors to be held accountable for franchisee contraventions across a range of areas, including employment practices and a contractor being wrongly classified.

She said it was important for franchisors to stay on top of potential compliance issues to protect themselves.

“Franchisors, do you know what your franchisees are doing?” Ms Porter said.

“Are you providing them enough training and what systems do you have in place to make sure that they know the right award that applies and they are classifying their people correctly?

“Are they paying them correctly?”

Ms Porter said franchisors should bring in outside experts to train their franchisees and make it easy for them to access the right help.

She said to ensure you were following the employment conditions under the right award for each team member as there were several employees could fall under in real estate.

“You could have two people sitting next to each other and one could be under the clerks award and the other could be under the real estate award,” Ms Porter said. 

“It depends on the job description and what they’re doing.”

What happens next for 85 degrees?

The Fair Work Ombudsman alleges that 85 Degrees is liable for each of the alleged franchisee contraventions, despite the individual franchisees back paying the workers.

There is no court action against the franchisees.

The Fair Work Ombudsman is seeking penalties against 85 Degrees Coffee Australia 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.

For more information

The FWO spokesperson said the ombudsman encouraged franchisors to educate themselves on their rights and responsibilities and to seek help if needed, including from FWO.

More information is available on the FWO website about when franchisors can be held responsible and in its franchisor responsibility fact sheet.

Franchisors can also contact the FWO directly online.

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Kylie Dulhunty

Kylie Dulhunty is the Deputy Editor at Elite Agent.