Insights / June 6th, 2024

Franchisor Flogged By Federal Court

Justice Bromwich of the Federal Court of Australia has handed a $1,440,000 fine to a Franchisor found to have fallen well short of its ‘responsible franchisor duties’ under the Fair Work Act 2009.  His Honour previously handed down the AU$10M record workplace penalty to the Commonwealth Bank in February of this year.

The Decision

Franchisor, 85 Degrees Coffee Australia Pty Ltd, is on the receiving end of a penalty that was designed to punish and deter other Franchisors from failing to give the expected levels of attention, consideration, and action, to the duties a Franchisor is required to exercise under the Fair Work Act 2009.

  • The reasons for the fine included:

  • The Franchisor had a history of compliance failures (2015 FWO undertaking);

  • The Franchisor had a history of failing to pay its own staff (2022 FWO Prosecution with a $475K fine);

  • There was a ‘systematic failure to ensure compliance within its franchise network’;

  • The Franchisor had effectively ‘given up’ on seeking to have its franchisees achieve compliance;

  • The Franchisor knew about a large portion of the contraventions, and it knew, or should have known of, its obligations more generally.

The fine could have been more had his Honour included elements in the fine for specific deterrence.  However, he did not consider this to be necessary in circumstances where the Franchisor had chosen to remain registered in Australia and ‘face the music’ in respect of the proceedings and the ultimate fine (the Franchisor had elected to commence withdrawal from the Australian market after the 2022 FWO Prosecution).

Franchisors to Manage Risk

This decision reminds Franchisors that they need to take all reasonable steps to manage and address the risks associated with running a Franchise network.  A Franchisor may still be prosecuted even where a Franchisee has not been prosecuted

Things that will factor in, to reasonable steps:

  • the scope and resources available;

  • the ability to influence or control the franchisee’s conduct;

  • any action taken to ensure that the franchisee had a reasonable knowledge and understanding of their legal obligations;

  • arrangements for assessing compliance;

  • arrangements for receiving and addressing possible complaints about alleged underpayments or other alleged contraventions;

  • arrangements (whether legal or otherwise) with the franchisee to encourage or require the franchisee to comply with the workplace laws.

Remember Commonwealth criminal underpayment laws commence on 1 January 2025, with increased penalties and potential for incarceration in the worst cases so now is the time to review the arrangements you have in place and consider whether you are doing enough to manage the legal risks.

Bromwich decision: Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576

For any enquiries, please contact Joe Murphy in our Employment and Workplace Relations Team.

The author would like to thank Millie Papworth and Zoe McQuillan for their contribution to this article.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.