85 Degrees franchisor fined $1.44 million for underpayments

The franchisor of the 85 Degrees brand in Australia has been fined $1.44 million after it underpaid nine employees in 2019.

The underpaid employees included staff who were serving cashier, baker, and kitchenhand positions, according to the Fair Work Ombudsman (FWO).

They were underpaid minimum rates, overtime entitlements, penalty rates for weekend, public holiday, and evening work, casual loadings, as well as a laundry allowance under the General Retail Industry Award 2010.

They were also owed their annual leave entitlements under the National Employment Standards.

They were underpaid a total of $32,321, between January 1 and December 31,2019, with individual underpayments ranging between $239 and $15,198.

The FWO launched legal action against the franchisor after discovering the contraventions during an audit.

While 85 Degrees did not directly underpay the workers, the FWO stated that it is legally liable under the responsible franchisor entity provisions.

This is because 85 Degrees should have known, and did know by April 2019, that its franchisees would commit the violations and it failed to take reasonable steps to prevent them, according to the FWO.

Federal Court decision

In his decision, Justice Robert Bromwich found that 85 Degrees "does not, and could not, dispute the FWO's accurate assertion that the facts demonstrate a systematic failure to ensure compliance within its franchise network."

"In the franchise context, it must not be seen as acceptable for franchisors to tolerate, or turn a blind eye to, franchisee contraventions as an ordinary part of business," Bromwich said.

The court stressed the penalty was needed to deter other would-be violators, especially other franchisors.

"The clear legislative intention is to encourage compliance by making franchisors responsible for non-compliance as well [as] the employer franchisees… Sufficiently severe sanctions are needed to prevent this from being the case," Bromwich said.

Responsible franchisor entity

The penalties imposed against the franchisor is the third highest ever secured by the FWO, it said in a media release.

It is also the first time that the FWO used the "responsible franchisor entity" provisions of the Protecting Vulnerable Workers reforms to hold a franchisor accountable for the conduct of its franchisees.

"85 Degrees' conduct in this matter was completely unacceptable. The company had been on notice for some time about compliance issues in its network but failed to take reasonable steps as a responsible franchisor to address those issues," said Fair Work Ombudsman Anna Booth in a statement.

"All franchisors, including international chains in the Australian market, need to be aware that the Fair Work Ombudsman will continue to hold them to account if they turn a blind eye to compliance problems in their network. Franchisors must take action."