Image Source: 85DegreesBakeryCafe/Facebook
Ensuring Compliance in HR and Payroll: Lessons from 85 Degrees Coffee Australia’s Wage Violations
In 2024, the Federal Court of Australia ruled on a significant case involving 85 Degrees Coffee Australia Pty Ltd, serving as a crucial lesson for HR and payroll professionals. The case highlighted the company’s liability for failing to prevent wage violations across its franchise network, underscoring the necessity of rigorous compliance mechanisms within franchising operations.
Understanding the Violations
The court found that numerous employees were underpaid, missing proper compensation for minimum wages, casual loadings, and penalty rates as mandated under the General Retail Industry Award. These breaches extended beyond direct wage underpayment to failures in maintaining accurate employee records, reflecting systemic issues within the company’s compliance framework.
The Role of Franchisors
A pivotal takeaway from the case is the responsibility of franchisors in overseeing their franchisees. The court’s decision underscored the expectation that franchisors maintain adequate control and oversight to prevent such violations. This involves implementing standardized payroll systems, conducting regular audits, and ensuring that franchisees are fully aware of and comply with labour laws.
Penalties for 85 Degrees Coffee Australia
The Fair Work Ombudsman (FWO) imposed penalties totaling $1.44 million on 85 Degrees Coffee Australia Pty Ltd for failing to ensure compliance within its franchise network, resulting in underpayments at several Sydney franchisee outlets. These penalties, among the highest ever imposed by the FWO, were the first under the “responsible franchisor entity” provisions of the Protecting Vulnerable Workers reforms. This case set a precedent by holding a franchisor accountable for its franchisees’ actions in court.
The Extent of Underpayments
The legal action involved employees, many of whom were young and visa-holding workers, at eight 85 Degrees-branded franchisee-operated outlets in Sydney in 2019. It was discovered that nine workers were underpaid a total of $32,321. Despite not directly underpaying the workers, 85 Degrees was held liable under the responsible franchisor entity provisions for underpayment breaches, as well as record-keeping and payslip violations. The company was aware from 1 April 2019 that its franchisees might commit these or similar breaches and failed to take reasonable steps to prevent them.
This penalty followed previous actions, including $475,200 in penalties in 2022 for exploiting young Taiwanese students and an Enforceable Undertaking in 2015 due to underpayments and record-keeping violations. Fair Work Ombudsman Anna Booth emphasised that the penalties serve as a reminder to business owners and franchisors that failing to take reasonable preventative measures when aware of potential breaches can result in severe consequences.
Steps for Compliance
- Education and Training: Regular training sessions for all franchise managers and staff on employment law and award obligations should be mandatory. This ensures that all levels of the organisation are aware of their responsibilities and the legal requirements they must adhere to.
- Robust Auditing Processes: Implementing frequent and thorough audits of wage payments and employment records can help identify and rectify discrepancies early. Proactive audits by the FWO, which uncovered the violations at 85 Degrees, illustrate the importance of this step.
- Effective Communication Channels: Establishing clear and confidential lines of communication for employees to report any discrepancies or concerns regarding their pay or working conditions is crucial. This empowers employees to speak up without fear of retribution.
- Leveraging Technology: Utilizing robust payroll systems can streamline compliance efforts, but it is essential to ensure that these systems are legally checked for initial data entry accuracy. Regular updates and checks are necessary to maintain compliance.
The Importance of Preparedness
The latest violations at 85 Degrees were discovered through proactive audits by the Fair Work Ombudsman. Businesses must be prepared for an audit at all times, ensuring all contracts, documentation, and processes are up-to-date and in accordance with the law. This readiness not only helps in avoiding penalties but also in maintaining a reputation for fair and lawful employment practices.
Justice Bromwich, in his ruling, highlighted the importance of deterrence, citing the high risk of future breaches in the industry and the need for penalties to deter potential violators, particularly other franchisors. Systemic non-compliance by franchisees, especially in the food retail sector and affecting vulnerable workers on temporary visas, prompted the reforms introducing franchisor liability. Protecting vulnerable workers, including visa holders, remains a priority for the FWO, which initiated 138 litigations involving visa holder workers in the six financial years up to June 2023.
Conclusion
The 85 Degrees Coffee case illustrates the consequences of neglect and mismanagement in payroll and HR practices, especially within a franchising framework. For businesses operating under similar models, it is crucial to ensure that their operational practices uphold the highest standards of compliance to prevent legal repercussions and maintain their reputation.
This case serves as a potent reminder that proactive compliance is not just a legal requirement but a critical component of ethical business practices. As HR and payroll professionals, adhering to these practices is paramount in protecting both the employees’ rights and the business’s integrity. By taking proactive measures such as education, robust auditing, effective communication, and leveraging technology, businesses can navigate complex employment matters and maintain a compliant workplace, safeguarding their longevity and reputation.
It is important, now more than ever, that employers and business owners are prepared, and that compliance is not only met, but proactively and routinely audited. Protect your business, with NB Employment Law, and secure a complimentary consultation today with our seasoned team of Lawyers for Employers.
Written By
Jonathan Mamaril
Director
NB Employment Law