Franchisor liability laws under the Fair Work Act used by the FWO against 85 Degrees Coffee Australia

By Carmen Wu, Lawyer

On 15 September 2017, the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) introduced, for the first time in Australia, franchisor liability in relation to the contravention of workplace laws by franchisees (see our previous articles on this topic here).

These new laws have never been tested in Court, until now.

On 9 February 2023, the Fair Work Ombudsman (‘FWO’) initiated proceedings against 85 Degrees Coffee Australia Pty Ltd, the franchisor behind the 85 Degrees Café franchise (‘85 Degrees Franchisor’).

The FWO alleges that the 85 Degrees Franchisor:

• Is liable for underpayments owed by its franchisees to their respective employees;
• Knew or could be reasonably be expected to have known that the underpayments (and other like or similar contraventions) would occur; and
• Had a significant degree of influence or control over franchisee entity’s affairs at the time the underpayments occurred.

In 2015, the 85 Degrees Franchisor agreed to provide an enforceable undertaking to the FWO to repay employees of its franchisees who were underpaid.

In 2022 the Court imposed a penalty of $475,200 against the 85 Degrees Franchisor after the FWO audited the franchise system and observed further occasions of franchisees underpaying employees.

What can Franchisors do to mitigate these risks

 Franchisors will not be liable if they take reasonable steps to prevent their franchisees from contravening workplace laws.

Franchisors should consider:

• Establishing processes for receiving and addressing complaints about alleged workplace law contraventions;
• Providing guidance, education and resources for franchisees in relation to workplace laws;
• Proactively auditing franchisees to ensure that they are complying with workplace laws; and
• Pulling appropriate levers under their respective franchise agreements with franchisees to encourage and/or mandate compliance with workplace laws.

The expectation is that Franchisors with more resources will have the ability to take the reasonable steps as outlined above.

Conclusion

 This is a timely reminder for all Franchisors that franchisor liability laws in Australia are alive and well.

Franchisors and Sub-franchisors who have not already taken reasonable steps to mitigate potential franchisor liability should contact the MST Lawyers Employment Law team by email or call +61 3 8540 0200 to discuss their options.