On 4 June 2024 the Federal Court of Australia handed down the decision of Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA. This decision resulted in the Fair Work Ombudsman penalising the Australian franchisor of the 85 Degrees brand $1.44 million for its “systemic failure to ensure compliance within its franchise network” which included underpayments at several of their Sydney franchisee outlets.

85 Degrees Coffee Australia Pty Ltd (85 Degrees) is a franchisor which was made responsible for the contravening conduct of eight of its franchisees after prosecution by the Fair Work Ombudsman (FWO) for reaches of section 558B of the Fair Work Act 2009 (Cth).

The FWO claimed that 85 Degrees had engaged in contraventions such as underpayment of employees and award entitlements and related record keeping deficiencies.

Two prior proceedings were commenced by the FWO and they include the contraventions that took place between 1 July 2016 to 26 June 2017 and the responsible franchisor contraventions that occurred in 2019.

The 2016-2017 contraventions involved 85 Degrees failing to pay entitlements of its own employees whilst the 2019 contraventions involved franchisees of 85 Degrees failing to pay their employees.

Findings and reasoning against the franchisor

It was held that 85 Degrees did not directly underpay the workers however 85 Degrees was legally liable under the responsible franchisor entity provisions for contravening this provision. This was because 85 Degrees should have known, and from 1 April 2019 was aware, its franchisees would commit the contraventions and although knowing this did not take reasonable steps to prevent this from occurring.

The contraventions resulted in individual underpayments between $239 to $15,198. As a result, each of the franchisees of 85 Degrees back paid the employees who were affected by the contraventions.

Justice Robert Bromwich found that 85 Degrees had engaged in “repeated contravening conduct” where they “fail[ed] to take reasonable steps to prevent its franchises doing more of the same”.

Justice Bromwich also stated that 85 Degrees has now “abandoned its business in Australia and is unlikely to resume that business” because of the penalties incurred due to the multiple contraventions which had been admitted.

Key takeaways

This case is the first time the FWO has in court used the “responsible franchisor entity” provisions.
This case highlights that franchisors could face serious consequences if they know or could reasonably be expected to know about a contravention that may occur and fail to take reasonable steps to prevent the contravention.
The penalties imposed on the franchisor are the third highest ever secured by the FWO. This derives from Justice Bromwich’s insistence on general deterrence to bring future contraventions by similar businesses to an end.

Ensuring compliance with Fair Work as a Franchisor is at the utmost importance to discourage your business from incurring high penalties. If you are unsure to whether you are ensuring compliance within your franchising business or need assistance with your case, please contact our specialist Dispute Resolution and Litigaiton Team.

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Inshani Ward
Senior Associate
T: +61 3 9611 0110 | M: +61 413 557 157
E: iward@sladen.com.au

Jasmine O’Brien
Principal
T: +61 3 9611 0149 | M: +61 401 926 108
E: jobrien@sladen.com.au

Jordan Bauer
Senior Associate
T: +61 3 9611 0130 | M: +61 447 710 137
E: jbauer@sladen.com.au

Ellise Kotsu
Law Clerk
T: +61 3 9611 0198
E: ekotsu@sladen.com.au