In a historic test of the vulnerable workers legislation that is likely to redefine what is ‘reasonable measures’, a franchisor is being prosecuted for the underpayments made by its franchisee. The case, which is before the Federal Court, represents a tougher stance by the government and Fair Work and is holding the franchisor responsible for the breaches as if the staff were employed directly and seeking penalties for the underpayments and record-keeping breaches. All businesses of all sizes should take this case as a clear sign that the full, correct and compliant payment of staff that are working in their networks, is the responsibility of employers, brand partners, franchisors and ‘intimately connected’ businesses.
The Fair Work Ombudsman has lodged proceedings in the Federal Court against franchisor of the cafe network 85 degrees Coffee for the underpayment of workers and record-keeping breaches of eight franchisee operated locations.
The Fair Work Ombudsman is alleging that the Franchisor 85 Degrees Coffee Australia Pty Ltd as a “responsible franchisor entity” is liable for the underpayments and the breaches because it did not take reasonable measures to ensure compliance and it should reasonably have known the breaches would occur or were occurring.
85 Degrees is facing penalties of $63,000 per breach for each of the record-keeping breaches, including a falsification breach, as well as for each of the underpayments.
“The penalties the franchisor is facing in this case could be massive as each time there is an underpayment or pay slip or record-keeping breach the penalty is $63,000. So, every week the conduct continued, for every employee that penalty can be applied”, explains ACAPMA’s Elisha Radwanowski.
“What is also really interesting to note in this case is that the franchisee businesses were not prosecuted or penalised for the underpayments and record keeping breaches, not even for falsifying documents. They ensured all workers received their backpay after engaging with the FWO but did not face penalties for the breaches themselves, those are being squarely levelled at the franchisor business”, explains Elisha.
Fair Work Ombudsman Sandra Parker, in discussing the case, outlined that 85 Degrees has “been on notice for many years about compliance issues” and “should reasonably have known some of its franchisees would underpay their workers and breach record-keeping and pay slip requirements”.
“Its knowledge of its franchisees’ financial circumstances, and its knowledge that the franchisees had limited English and limited awareness of workplace laws, is also relevant to its liability”, continued the Ombudsman.
“The takeaway of this case, for all businesses, not just for franchisors, should be that corporate structure will not excuse wilful blindness when it comes to the payment and employment compliance of workers that are ‘intimately connected’ to a business or network”, outlines Elisha.
“Parties in a network need to take reasonable measures to ensure the correct payment and conditions for workers in the network. This includes traditional franchisor/franchisee networks, but also includes brad partner networks as well as individual business that have shared directors or other similar ‘intimate’ connection”, continued Elisha.
“The message is clear all businesses, large and small, stand alone and in a network, all need to be putting into place systems now to ensure compliance. These systems should be externally and independently reviewed on a regular basis to provide directors, boards and brand partners, satisfaction that Reasonable Measures are being undertaken to ensure compliance. Without this regular, external, independent review businesses are opening themselves up to this kind of prosecution”, concluded Elisha.
ACAPMA provides Assisted Compliance Auditing for fuel wholesale, transport and retail businesses, focusing on identifying issues and then providing the support, guidance and resources to address issues. For more information on the ACAPMA Assisted Compliance Audits, members can email employment@acapma.com.au.
Elisha Radwanowski BCom (HRM & IR)
ACAPMA
Source: https://acapmag.com.au/2023/02/reasonable-measures-failure-leads-to-landmark-prosecution/.
