‘Ignorance and inattention’: Bubble tea giant Chatime fined for wage scandal

Bubble tea chain Chatime and its managing director Chen “Charlley” Zhao have been penalised for underpaying more than 150 employees, some earning rates as low as $7.59 an hour, and many of whom were vulnerable junior workers and international students.

The Federal Circuit and Family Court ordered the bubble tea business to pay $120,960 and Zhao a personal penalty of $11,880 for his involvement in the underpayments.

Chatime has been fined for underpaying staff.Credit: Simon Schluter

The Fair Work Ombudsman launched legal action in 2019 against Chatime and Zhao after conducting an audit in 2016 that found staff employed at stores directly operated by the chain were paid flat rates as low as $7.59 to $24.30 an hour and routinely did not receive award entitlements like loadings and penalty rates.

In total, 152 workers – including 41 who were aged below 21 and nearly 100 visa holders and international students – were underpaid some $162,533 between August and December 2016.

This masthead revealed in a 2019 investigation that Chatime head office had underpaid workers in its corporate stores as far back as 2009 by as much as $6 million. An internal audit of more than 20 outlets found 86 per cent were underpaying workers.

Chatime Australia chief executive Carlos Antonius, with managing director and co-founder Chen “Charlley” Zhao.

Judge Nicholas Manousaridis ruled that Zhao was involved and aware of the essential elements of the contraventions by approving to omit casual loadings and weekend rates, but also found that Zhao did not believe he was committing Chatime to engage in unlawful activity.

The Fair Work Ombudsman alleged Zhao “aided and abetted, counselled or procured” underpayments despite being informed in 2013 by the company’s then-chief financial officer, Lawrence Chen, that their system at the time was unlawful.

Chen prepared a presentation for Zhao that showed what the business was currently paying staff and what it should be paying under the Fast Food Award, which would cost an additional $854,862 a year once minimum award rates, uniform allowance, casual loading and weekend penalties were factored in.

Zhao was presented with an alternative model, named “costing model B”, proposing to pay minimum ordinary hourly rates but not penalty rates, overtime or casual loading, which would cost the business an additional $254,258 a year. Zhao instructed Chen to implement this model.

Manousaridis rejected Chatime’s submission that it was “unfair” to characterise the contraventions as “serious” or “substantial”.

“The contraventions came about through ignorance and inattention by those who managed Chatime’s business,” he stated in his judgment.

The bubble tea chain received a 20 per cent “discount” on its penalties for admitting to and rectifying underpayments in a timely manner. This was not extended to Zhao, whose involvement in some of the contraventions led to underpayments of around $73,000.

“Unlike Chatime, Mr Zhao did not admit his involvement in any of the contraventions, and for that reason, it would not be open to extend to him any discount for having admitted his involvement in any of the contraventions,” Judge Manousaridis said.

A spokesperson for Chatime Australia said it was pleased Judge Manousaridis had handed down his decision and that the business’ most valuable assets were its people.

“At Chatime we see our employees as family and recognise they are the key to our success,” the spokesperson said.

“We strive to be an employer of choice and uphold our values of being a fair, open and transparent business playing by the rules and being a good corporate citizen.

“We recognise that underpayments are a serious issue impacting the franchise industry (indeed the community at large) and we have made and will continue to make significant improvement in people capabilities (internal and external), business/payroll systems, compliance, training, and education to ensure full compliance at all times.”

Fair Work Ombudsman Anna Booth said the conduct in this matter by a franchisor of Chatime’s size was “completely unacceptable” and that the number of vulnerable underpaid workers was concerning.

“We expect franchisors to not only pay their own staff correctly but to take responsibility for ensuring that their franchisees comply with the law,” she said.

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