As a franchisor, you must ensure your franchisees comply with their legal employment obligations, as you may be held liable for their breaches. In a landmark step, the Fair Work Ombudsman (FWO) has initiated proceedings against a franchisor for breaching vulnerable workers’ laws. This should be a warning to all franchisors to take reasonable steps to ensure their franchisees comply with workplace laws. The introduction of the Vulnerable Workers Act in 2017 meant that franchisors could be held liable for any franchisee workplace violations. The FWO has taken enforcement action against franchisors, such as the well-known 7/11 case. However, the FWO has not commenced legal action against a franchisor until now.
In February 2023, the FWO commenced legal action against the franchisor of the 85 Degrees franchise network. If the FWO is successful, 85 Degrees may face penalties of up to $65,000 per contravention. This article will summarise the current action taken by the FWO against 85 Degrees.
Prior Action Taken Against 85 Degrees
85 Degrees is no stranger to enforcement action by the FWO. In 2015, 85 Degrees entered a formal enforceable undertaking after the FWO found that franchisee employees had been underpaid. This enforceable undertaking required 85 Degrees to:
- pay for workplace relations training for both managers and directors of 85 Degrees; and
- to engage an external accountant to conduct audits of the franchise network in 2016 and 2017.
What Are the Claims?
Currently, the FWO has brought claims that:
- 8 franchisee-operated outlets underpaid employees in Sydney in 2019, with the underpayments amounting to a sum of $32,321;
- 85 Degrees is legally liable for the alleged underpayment of the employees, where the franchisor reasonably should have known its franchisees were underpaying employees; and
- 85 Degrees is liable for record-keeping and pay slip contraventions that the FWO alleges occurred across the 8 franchisee-operated outlets.
The FWO claims the franchisor is liable for the underpayment throughout its network due to 85 Degrees’ knowledge of:
- the compliance issues in the network due to the previous enforcement action brought against 85 Degrees;
- the franchisees limited English and limited knowledge of workplace laws; and
- the financial circumstances of the franchisees.
What Must the FWO Prove?
As this is the first case to proceed to court, there is limited precedent for how a court will apply the tests set out in the Fair Work Act.
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How Can I Protect Myself as a Franchisor?
As a franchisor, you can take proactive steps to limit your risk here, including:
- providing comprehensive training to franchisees regarding their workplace laws;
- undertaking regular audits of franchisees within your network to monitor workplace compliance;
- providing template employment documents to franchisees;
- reviewing employment documents used by franchisees; and
- engaging lawyers well-versed in franchising and employment laws to assist and advise concerning your obligations.
Key Takeaways
This case demonstrates that the Fair Work Ombudsman will take action against a franchisor if they believe that the franchisor is liable for the franchisee’s contravention of workplace laws. This includes commencing legal action against franchisors for the conduct of their franchisees. As such, your franchise should ensure it assesses its current policies and ensure it takes proactive measures to protect itself.
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Frequently Asked Questions
The Fair Work Ombudsman claims the franchisor is liable for the franchisee’s employee underpayment because the franchisors knew (i) compliance issues in the network due to the previous enforcement action brought against it; (ii) the franchisees had limited English and limited knowledge of workplace laws; and (iii) the franchisee’s financial circumstances.
85 Degrees may face penalties of up to $65,000 per contravention.
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