The Fair Work Ombudsman (FWO) has successfully imposed penalties amounting to $1.44 million on the franchisor of the ’85 Degrees’ brand in Australia. This penalty is a result of the franchisor’s “systematic failure to ensure compliance within its franchise network,” including the underpayment of employees at various Sydney franchise locations.
The Federal Court has levied these penalties against 85 Degrees Coffee Australia Pty Ltd (’85 Degrees’), which managed several 85 Degrees-branded outlets in New South Wales (NSW) and the Australian Capital Territory (ACT) and served as the head franchisor for multiple franchisee-operated locations.
These penalties are the third highest ever obtained by the Fair Work Ombudsman.
This case marks the first instance where the FWO has utilized the “responsible franchisor entity” provisions of the Protecting Vulnerable Workers reforms in court to hold a franchisor accountable for its franchisees’ actions.
The FWO’s legal action pertains to workers, including many young workers and visa holders, employed at eight 85 Degrees franchisee-operated outlets in Sydney in 2019. Nine workers were underpaid a total of $32,321.
While 85 Degrees did not directly underpay the workers, it has been held legally accountable under the responsible franchisor entity provisions for the underpayment violations and various record-keeping and pay slip violations. This is because the franchisor should have reasonably known, and from April 1, 2019, did know, that its franchisees would commit such violations. The company did not take adequate steps to prevent these from occurring.
This penalty follows a $475,200 penalty against 85 Degrees in 2022 for exploiting young Taiwanese students in Sydney and an Enforceable Undertaking with the company in 2015 in response to underpayments and record-keeping violations.
Fair Work Ombudsman Anna Booth emphasized that the $1.44 million penalties highlight the serious consequences for franchisors who fail to address compliance issues within their networks.
“85 Degrees’ conduct in this matter was completely unacceptable. The company had been aware of compliance issues within its network for some time but failed to take appropriate steps as a responsible franchisor to resolve these issues,” Ms. Booth stated.
She added, “All franchisors, including international chains operating in Australia, should be aware that the Fair Work Ombudsman will continue to hold them accountable if they ignore compliance problems within their network. Franchisors must take action.”
The protection of vulnerable workers is a priority for the FWO, and workers with concerns about their pay or entitlements are encouraged to contact the FWO.
The FWO uncovered these latest violations during proactive audits.
The affected workers, employed as cashiers, bakers, and kitchen hands, worked at 85 Degrees franchisee outlets in Parramatta, Castle Hill, Hurstville, Campsie, Chatswood, Burwood, Eastwood, and Chippendale.
The underpaid workers were denied minimum rates, overtime, penalty rates for weekends, public holidays, and evening work, casual loadings, and a laundry allowance under the General Retail Industry Award 2010, as well as annual leave entitlements under the National Employment Standards, between January 1 and December 31, 2019.
Additionally, one worker was not paid on a weekly or fortnightly basis as required, and another was not paid a penalty rate for inadequate breaks between shifts.
Individual underpayments ranged from $239 to $15,198.
The franchisees involved have back-paid the workers in full as a result of the FWO’s audit, and no court action has been taken against these franchisees.
Justice Robert Bromwich noted, “85 Degrees does not, and could not, dispute the FWO’s accurate assertion that the facts demonstrate a systematic failure to ensure compliance within its franchise network.”
Justice Bromwich highlighted that there had been repeated non-compliance by 85 Degrees and a failure to take reasonable steps to prevent similar violations by its franchisees. He added that 85 Degrees has since abandoned its business in Australia and is unlikely to resume.
Justice Bromwich emphasized the importance of general deterrence, noting that future violations by similar industry participants are highly likely. He stressed the need for penalties to deter other potential violators, particularly other franchisors.
He remarked that the systemic non-compliance by franchisees, especially in the food retail sector and affecting vulnerable workers on temporary visas, had prompted the legislative reforms introducing franchisor liability.
“In the franchise context, it must not be seen as acceptable for franchisors to tolerate or ignore franchisee violations as an ordinary business practice,” Justice Bromwich said.
“The legislative intent is clear: to encourage compliance by holding franchisors responsible for non-compliance alongside employer franchisees. Violations of entitlement obligations and related record-keeping provide a competitive advantage to non-compliant entities, making compliance a commercial disadvantage. Therefore, significant penalties are necessary to prevent this from being the case.”
