85 Degrees liable for franchisee conduct, fined $1.44m

85 Degrees liable franchisee conduct
As a franchisor 85 Degrees has been found accountable for franchisees payment contraventions.

The 85 Degrees Coffee bakery chain franchisor has copped a $1.44 million fine for “systematic failure to ensure compliance within its franchise network”.

This is the third highest fine secured by the Fair Work Ombudsman.

The landmark case is the first instance of the FWO using the responsible franchisor entity provisions of Protecting Vulnerable Workers reforms. These provisions hold a franchisor accountable for the conduct of its franchisees.

The case relates to young workers and visa holders, employed at eight franchisee-operated outlets in Sydney in 2019. Nine of the workers were underpaid a total of $32,321.

The court found that while 85 Degrees did not directly underpay the workers, it is legally liable for the franchisees’ actions. The court found it should reasonably have known, and from 1 April 2019 did know, its franchisees would commit underpayment, record-keeping and pay slip contraventions, and failed to take reasonable preventive steps.

A systematic failure

Justice Robert Bromwich found “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.”

Justice Bromwich said 85 Degrees has now “abandoned its business in Australia and is unlikely to resume that business”.

“85 Degrees did not ultimately find a way of achieving compliance by its franchisees, but rather gave up and has not really tried to do so at all,” Justice Bromwich said.

“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,” he said.

Failure to take reasonable steps

Fair Work Ombudsman Anna Booth said “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.

“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,” she said.

In 2022 the FWO secured $475,200 in penalties against 85 Degrees for exploiting young Taiwanese students in Sydney. Prior to that, in 2015, it entered into an Enforceable Undertaking in response to underpayments and record-keeping contraventions.

Underpayments paid pack

In the most recent case individual underpayments ranged from $239 to $15,198.

The individual franchisees back-paid the workers in full as a result of the FWO’s proactive audit and the regulator has not taken court action against the franchisees.