Fair Work Ombudsman action against 85 Degrees Coffee franchisor

For the first time, the Fair Work Ombudsman has taken legal action against a franchisor, seeking to hold it liable for the underpayment by franchisees.

It is alleged 85 Degrees is liable as a ‘responsible franchisor entity’ under the Fair Work Act for alleged noncompliance by eight franchisee-operated outlets in Sydney in 2019.

For the first time, the Fair Work Ombudsman has taken legal action against a franchisor seeking to hold it liable for the underpayment of workers by franchisees.

The FWO has launched Federal Court action against 85 Degrees Coffee which runs outlets in New South Wales and the Australian Capital Territory.

The regulator alleges 85 Degrees was liable as a “responsible franchisor entity” under the Fair Work Act for alleged noncompliance by eight franchisee-operated outlets in Sydney in 2019.

The FWO said 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 the regulator in 2015.

The FWO 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.

While 85 Degrees did not directly underpay nine workers a total of $32,321, the FWO claims it is legally liable because it should reasonably have known its franchisees would underpay the workers or commit similar contraventions.

The FWO claims 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.

Fair Work ombudsman Sandra Parker. Picture: Aaron Francis

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.”

This legal action follows 85 Degrees being penalised $475,200 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.

In the current proceedings, the 20 affected workers in Sydney – who were engaged in cashier, baker and kitchen hand positions – included a number of young workers and visa holders.

Nine of the affected workers were allegedly underpaid minimum rates; overtime entitlements; penalty rates for weekend, public holiday and evening work; casual loadings; a laundry allowance and annual leave entitlements.

The franchisees back paid the workers in full as a result of the FWO’s proactive audit. 85 Degrees Coffee Australia Pty Ltd faces penalties of up to $63,000 per contravention.