Fair Work Ombudsman turns up the heat – ‘85 Degrees’ franchisor faces legal liability for franchisees’ breaches of Fair Work Act

The Fair Work Ombudsman (FWO) has, for the first time, utilised the ‘responsible franchisor entity’ provisions of the Fair Work Act 2009 (Cth) (FW Act) by commencing prosecution proceedings in the Federal Court against 85 Degrees Coffee Australia Pty Ltd (85 Degrees), the franchisor of the ‘85°C Daily Café’ brand that operates across New South Wales and the Australian Capital Territory.

In 2019 the FWO conducted audits which revealed that a number of individuals who were employed by franchisees within the 85 Degrees franchise network had been underpaid their minimum legal entitlements. Following the audit, the franchisee employers rectified the underpayments and no further action was taken against them.

85 Degrees is now being prosecuted for having failed to take reasonable steps to ensure that its franchisees did not contravene the FW Act.

Under the franchisor liability provisions of the FW Act, franchisors can be held legally liable if:

• a franchisee contravenes certain provisions of the FW Act; and
• the franchisor, or one of its officers, knew or could reasonably be expected to have known that the franchisee would, or was likely, to commit the contravention or a similar contravention.

In order to avoid liability, franchisors need to be able to show that they took reasonable steps to prevent the franchisee from contravening the FW Act. Relevant to whether action taken by a franchisor will be sufficient to constitute ‘reasonable steps’ is:

• the franchisor’s size and resources;
• the extent to which the franchisor had the ability to influence or control the franchisee’s arrangements with its own employees; and
• the extent to which the franchisor took steps to ensure that franchisees understood the requirements set out in the FW Act and assess the franchisee’s compliance with those requirements.

If the FWO is successful in its prosecution, 85 Degrees faces penalties up of to $63,000 per contravention of the FW Act. It can also be ordered to pay compensation to affected employees.

DMAW Lawyers will continue to provide updates on the progress of the proceedings.

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.

The authors would like to thank Lachlan Chuong for his assistance in preparing this article.