85 Degrees Coffee Australia Pty Ltd (’85 Degrees’), the head franchisor of the ’85°C Daily Café’ brand that operates outlets across NSW and the ACT, is set to face the Federal Court is over alleged contraventions committed by its franchisees.
It is first time the Fair Work Ombudsman is pursuing legal action against a franchisor for such liability. The Fair Work Ombudsman alleges that 85 Degrees was liable as a “responsible franchisor entity” under the Fair Work Act for alleged non-compliance by eight 85°C Daily Café franchisee-operated outlets in Sydney in 2019.
The FWO stated that while 85 Degrees did not directly underpay nine workers a total of $32,321, it is legally liable for the alleged underpayment contraventions because it should reasonably have known its franchisees would underpay the workers or commit similar contraventions.
The FWO also stated that 85 Degrees is also legally liable for record-keeping and payslip contraventions committed by the said franchisees which affected 20 workers (including the nine allegedly underpaid) who worked as cashiers, bakers, and kitchenhands, some being young workers and visa holders.
The nine underpaid workers were underpaid minimum rates; overtime entitlements; penalty rates for weekend, public holiday and evening work; casual loadings; and a laundry allowance under the General Retail Award 2010; and annual leave entitlements under the National Employment Standards, between 1 January and 31 December 2019. Individual underpayments range from $239 to $15,198.
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,” 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 payslip requirements.”
This legal action follows 85 Degrees being penalised $475,200 in court 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.
The FWO discovered the latest alleged underpayments and payslip and record-keeping breaches when it conducted proactive audits.
The FWO also stated that pay frequency laws were breached and that one worker was not paid a penalty rate payable when workers do not receive an adequate break between shifts. The record-keeping contraventions include an allegation that time records were falsified.
The individual franchisees back-paid the workers in full as a result of the FWO’s proactive audit and the Fair Work Ombudsman has not taken court action against the franchisees. Franchisor 85 Degrees Coffee Australia Pty Ltd on the other hand faces penalties of up to $63,000 per contravention.
The first directions hearing in the Federal Court in Sydney is yet to be scheduled.
