Legal action against a cafe franchisor for underpayment to workers

This legal action follows a case for exploiting young students under the guise of a purported internship arrangement.

The Fair Work Ombudsman has for the first time commenced a legal action against a franchisor alleging that as a “responsible franchisor entity” it is legally liable for alleged contraventions by its franchisees, including underpayments of workers.

Facing the Federal Court is 85 Degrees Coffee Australia Pty Ltd (‘85 Degrees’), the head franchisor of the ‘85°C Daily Café’ brand that operates 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.

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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.

It is alleged that 85 Degrees is also legally liable for record-keeping and pay slip contraventions that allegedly occurred across the relevant franchisee outlets and affected 20 workers (including the nine allegedly underpaid).

The need for 85 Degrees to take action to address underpayment and record-keeping contraventions in its network was the subject of an Enforceable Undertaking between the company and 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.

The 20 affected workers in Sydney – who were engaged in cashier, baker and kitchenhand positions – included a number of young workers and visa holders.

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.

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“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.

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 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 alleged contraventions occurred in relation to workers at the 85°C Daily Café franchisee outlets in Parramatta, Castle Hill, Hurstville, Campsie, Chatswood, Burwood, Eastwood and Chippendale.

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.