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  • Writer's pictureBrian AJ Newman LLB

Landmark Ruling on Franchisors' Industrial Relations Responsibilities: A Step Towards Accountability

In a significant ruling that will resonate across the franchise sector, the Federal Court has imposed a hefty $1.44 million fine on 85 Degrees Coffee Australia Pty Ltd for its franchisees' underpayments and record-keeping breaches. This landmark decision underscores the crucial responsibilities franchisors hold under the Fair Work Act, particularly s558B, which holds franchisors liable if they could reasonably have known about their franchisees' breaches.

Landmark Ruling on Franchisors' Industrial Relations Responsibilities: A Step Towards Accountability
Landmark Ruling on Franchisors' Industrial Relations Responsibilities: A Step Towards Accountability

Justice Robert Bromwich found that 85 Degrees Coffee Australia Pty Ltd failed to uphold its duty as a "responsible franchisor". The company admitted it could have reasonably been expected to know that breaches would occur in 2019 and did not take the necessary steps to prevent them. Furthermore, from April 2019, the company was aware of the likelihood of contraventions due to correspondence from the Fair Work Ombudsman (FWO), yet failed to take corrective action.

The judge highlighted that 85 Degrees had a history of non-compliance, having been fined $475,000 in 2022 for underpaying Taiwanese interns when it operated under a direct employment model. Prior to this, the company entered an enforceable undertaking with the FWO in 2015 for underpayments and record-keeping failures dating from 2009 to 2014.

Justice Bromwich noted that 85 Degrees' repeated breaches demonstrate a systemic failure to ensure compliance within its franchise network. The underpayments in the latest case, totalling $32,321.19, have been rectified by the eight franchisees involved. Despite the rectification, the court found it necessary to impose a significant penalty to deter similar conduct by other franchisors.

The FWO sought a penalty of $1.6 million, factoring in a 10% discount for the company's cooperation. In contrast, 85 Degrees argued for a lower fine of $670,320, with a 20% reduction for cooperation. Alternatively, they suggested a penalty of $1,345,680, treating the breaches as a single course of conduct. Justice Bromwich ultimately decided on a 15% reduction, setting the fine at $1.44 million.

Justice Bromwich emphasised the need for a penalty that promotes general deterrence, given the company's pattern of non-compliance and its failure to prevent franchisee breaches. He pointed out that the "major point of distinction" between this case and previous ones was the lower amount of underpayments, but stressed that the systematic nature of the breaches warranted a strong deterrent response.

This ruling sends a clear message to all franchisors about their responsibilities under the Fair Work Act. Fair Work Ombudsman Anna Booth highlighted the significance of this decision, stating that it underscores the risks responsible franchisors face if they fail to prevent franchisee contraventions.

The case against 85 Degrees Coffee Australia Pty Ltd is a pivotal moment in ensuring compliance and accountability within the franchise sector. It reinforces the principle that franchisors must take reasonable steps to prevent breaches and uphold their obligations to ensure fair treatment of all employees within their network.

As advocates for fair work practices, we at 1800ADVOCATES applaud this decision. It sets a vital precedent for holding franchisors accountable and protecting workers' rights across Australia.

For further information or assistance with employment and human rights matters, please contact 1800ADVOCATES. We are here to support you in navigating the complexities of industrial relations and ensuring compliance with the Fair Work Act.

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