Experience or exploitation? A Taiwanese coffee brand has been fined almost half a million dollars for its extraordinary exploitation of visa workers through purported internships and 70-hour work weeks. The Fair Work Ombudsman (FWO) has alleged the franchisor accountable for the underpayments of its franchisees.
Background
The coffee brand Eighty-five Degrees franchises 14 cafes in NSW. Between July 2016 and June 2017, its franchisee shops were caught exploiting 8 Taiwanese students on working holiday visas, under the purported name of “internship”. The workers were paid under minimum rates, with no penalty rates, superannuation, overtime or annual leave entitlements, but with merely a lump sum of $1300 per month for working 60-70 hours per week, resulting in individual underpayments between $50,213 and $58,248.
Even worse, from January 1st to December 31st, 2019, there were a further nine workers alleged to be treated with the aforementioned conditions, with individual underpayments ranging from $239 to $15,198. In total, there has been more than 20 workers jeopardised by the franchisees’ workplace contraventions including underpayments, record-keeping and pay slip issues.
How is this relevant to Franchisors?
The franchisees’ breaches were discovered by the FWO upon their commission of proactive audits. The FWO claims that the franchisor is “accountable” as “it should have reasonably known” of the possibility of such an event occurring given the franchisees’ limited English proficiency and understanding of Australian laws. However, the franchisor had failed to take any necessary action to prevent violations against the Fair Work Act. As a result, the head franchisor 85 Degrees Coffee Australia Pty Ltd is now facing penalties of up to $475,200 with $63,000 per contravention.
This represents the fifth highest record ever secured by the FWO and marks the first time the Ombudsman has ever commenced legal action against a franchisor for breaches by its franchisees.
Although the franchisor argued that the franchisees’ operation had been compliant with Taiwanese law, Justice Bromwich believes that the company “should have been aware that Australian law applied to the employment here”.
The Ombudsman Sandra Parker said FWO would “prioritise” protecting vulnerable employees and encouraging affected employees with workplace fairness concerns to actively seek for assistance.
Key Takeaways
The FWO is taking a more proactive approach in scrutinising breaches and ensuring compliance. Therefore, franchisors and franchisees should take this opportunity to revise and update their franchise agreements. It may also be desirable for franchisors to have domestic regulatory policies in place, and to take “reasonable steps to prevent contravention by their franchise outlets”.
Also consider the Updates to the Franchising Code of Conduct as of April 2022
If you require legal advice or any assistance with navigating these changes, please do not hesitate to reach out to our franchise lawyers at 1300 337 997 or enquiries@openlegal.com.au!
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
Selina is currently completing her Science (Financial Mathematics and Statistics) and Laws degree at the University of Sydney. She is interested in commercial law, technology law and fintech-related areas.
