Fair Work Ombudsman wins landmark underpayments case against 85 Degrees

Landmark ruling imposes $1.44m in penalties on a coffee chain for the underpayment of workers by franchisees.

Workers at eight 85 Degrees cafes in Sydney were underpaid.

Fair Work Ombudsman Anna Booth has put employers on notice after a landmark Federal Court ruling imposed $1.44m in penalties on a coffee chain franchisor for the underpayment of Sydney workers by franchisees.

The penalties against 85 Degrees are the third highest secured by the FWO and the first time the regulator has used provisions in federal workplace laws to hold a franchisor to account for underpayment of workers by its franchisees.

Federal Court judge Robert Bromwich upheld the FWO’s case that 85 Degrees had demonstrated a “systematic failure to ensure compliance within its franchise network”, including underpayments at eight franchisee outlets in Sydney.

While 85 Degrees did not directly underpay the workers by $32,321, the court held it was ­legally liable for the under­payment, record-keeping and pay slip contraventions because it should reasonably have known, and from April 2019 did know, its franchisees would commit the conduct and did not take reasonable steps to prevent that.

In 2022, the FWO secured $475,200 in penalties against 85 Degrees for exploiting Taiwanese students. Seven years earlier, the FWO entered into enforceable undertakings with the company after underpayment and record-keeping contraventions.

Fair Work Ombudsman Anna Booth

Ms Booth said the $1.44m in penalties showed franchisors who knew or could reasonably be expected to have known that a contravention by a franchisee would occur, and failed to take reasonable steps to prevent those contraventions, could face serious consequences.

“85 Degrees’ conduct in this matter was completely unacceptable,” she said. “The company had been on notice for some time about compliance issues in its network but failed to take reasonable steps as a responsible franchisor to address those issues.

“All franchisors, including international chains in the Australian market, need to be aware that the FWO will continue to hold them to account if they turn a blind eye to compliance problems in their network. Franchisors must take action.”

Justice Bromwich found there had been “repeated contravening conduct by 85 Degrees itself and later in failing to take reasonable steps to prevent its franchisees doing more of the same”, and that 85 Degrees had now “abandoned its business in Australia and is unlikely to resume that business”.

“85 Degrees did not ultimately find a way of achieving compliance by its franchisees, but rather gave up and has not really tried to do so at all,” he said.

Justice Bromwich found that general deterrence was of the utmost importance, saying the risk of future contraventions by similar participants in the same industry was high and there was a need to impose a penalty “to deter other would-be contraveners, and especially other franchisors”.

He said the exposé of systemic non-compliance by franchisees, especially in the food retail industry and particularly affecting vulnerable workers on temporary visas, had been the background to the package of legal changes that introduced franchisor liability.

“In the franchise context, it must not be seen as acceptable for franchisors to tolerate, or turn a blind eye to, franchisee contraventions as an ordinary part of business,” Justice Bromwich said.

“The clear legislative intention is to encourage compliance by making franchisors responsible for non-compliance as well [as] the employer franchisees.

“Compliance virtue becomes a commercial vice, and compliance vice becomes a commercial virtue. Sufficiently severe sanctions are needed to prevent this.”