The Federal Court has handed out a substantial fine of $A1.44M, with $A315K attributed to record-keeping breaches in regarded to employee pay records, to 85 Degrees Coffee Australia.

The Fair Work Ombudsman took the company to court for “systematic failure to ensure compliance within its franchise network”, including underpayments at a number of its Sydney franchisee outlets.

The contraventions by the franchisees entailed underpayment of employee award entitlements and related recording-keeping deficiencies in regard to the Fair Work Act.

The Fair Work Ombudsman’s legal action related to workers, including a number of young workers and visa holders, employed at eight 85 Degrees-branded franchisee-operated outlets in Sydney in 2019. Nine of the workers were underpaid a total of $A32,321.

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.”

Justice Bromwich found that there had been “repeated contravening conduct by 85 Degrees itself and later in failing to take reasonable steps to prevent its franchisees doing more of the same”, and further that 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,” his Honour said.

Justice Bromwich found that general deterrence was of the utmost importance, saying the risk of future contraventions by similar participants in the same industry is high and there was a need to impose a penalty “to deter other would-be contraveners, and especially other franchisors”.

His Honour noted that the exposé of systemic non-compliance by franchisees, particularly in the food retail industry and particularly affecting vulnerable workers on temporary visas, had been the background to the package of reforms that introduced franchisor liability.

“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,” Justice Bromwich said.

“The clear legislative intention is to encourage compliance by making franchisors responsible for non-compliance as well [as] the employer franchisees. Slippage on all or any of the entitlement obligations and related record-keeping obligations gives contravenors an immediate competitive advantage, and those who comply a competitive disadvantage, both ways extending to franchisors.

“Compliance virtue becomes a commercial vice, and compliance vice becomes a commercial virtue. Sufficiently severe sanctions are needed to prevent this from being the case.”

The full judgement can be found at the Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd FCA 576.