Franchisee to Pay $305,000 in Damages for Sexual Harassment Claim

The Federal Court of Australia (FCA) ordered the operator of a former Mad Mex franchisee to pay $305,000 in damages to an employee who was sexually harassed and victimised at work.

The Sex Discrimination Act 1984 (Cth) (SD Act) protects employees from sexual harassment. Following the Respect@Work amendments, it also prohibits sex-based harassment.

The case in brief

• The employee, a 21-year-old on a visa, worked for a Mad Mex franchisee between 2021 and 2023.
  
• In April 2023, she complained to Mad Mex about conduct by Mexicali’s owner Mr Khan, and later that year, she lodged a complaint with the Australian Human Rights Commission (AHRC) and commenced proceedings in the FCA.
  
• The franchisee had gone into liquidation before the matter began, so the case proceeded against the owner personally under the SD Act.
  

The court accepted the employee’s evidence that:

• Between September 2021 and February 2023, Mr Khan and other employees harassed her on the grounds of sex.
  
• Between January and February 2023, Mr Khan sexually harassed her directly.
  
• Mr Khan (via his lawyer) victimised her by sending Concerns Notices claiming her complaints were defamatory.
  

What the FCA decided

• On the harassment on the grounds of sex claim: the FCA found some conduct didn’t meet the strict test in s28AA SD Act, but it confirmed that the workplace culture normalised sexualised behaviour.
  
• On the sexual harassment allegations: the FCA accepted the employee’s account and found the conduct was undoubtedly sexual harassment.
  
• On the victimisation claim: the FCA ruled that the Concerns Notices were intended to intimidate the employee and amounted to unlawful victimisation.
  

Damages awarded

The FCA ordered Mr Khan to pay a total of $305,000, made up of:

• $130,000 for past and future economic loss (the employee had been unable to work since her complaint and would require psychiatric care before returning to work)
  
• $170,000 in general damages (finding her quality of life was “drastically decreased” and that she developed multiple psychiatric conditions as a result of Mr Khan’s behaviour)
  
• $5,000 in aggravated damages (given the “improper” and “unjustifiable” nature of Mr Khan’s conduct, especially as he was in a position of power)
  

The FCA noted the employee was a “psychologically fragile and vulnerable young woman” at the time, which increased the severity of the impact.

What this means for SMEs

This case highlights the serious consequences of workplace harassment, not just for large corporates but for SMEs as well. Small businesses cannot assume they are insulated from these risks — if anything, the close-knit nature of SMEs makes culture and compliance even more important.

Key points for employers:

• You have a positive duty under anti-discrimination laws to take reasonable and proportionate steps to ensure your workplace is free from harassment.
• Complaints must be taken seriously, investigated properly, and never met with threats or victimisation.
• A poor workplace culture — even where inappropriate comments are brushed off — can create an environment where serious misconduct escalates.
  

Key takeaway for SMEs

Harassment claims can destroy employee wellbeing, business reputation, and finances. The $305,000 in damages in this case shows the potential cost of getting it wrong.

For SMEs, the priority should be to:

• Put in place clear anti-harassment policies
• Provide training and awareness for staff and managers
• Foster a workplace culture where inappropriate behaviour is not tolerated
• Respond to complaints with care, professionalism, and fairness
  

Preventing harassment isn’t just about avoiding lawsuits — it’s about protecting your people and building a safe, respectful workplace.

Disclaimer: The contents of this article are adapted from the original source at www.austpayroll.com.au, and are shared for informational purposes only; we are not responsible for the accuracy of its claims.