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Selected cases

Federal Court of Australia · [2024] FCA 576

Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd

A Federal Court case about franchisor responsibility for franchisee underpayments, record keeping and Fair Work penalties.

Federal Court of Australia4 June 2024

Plain-English explainers, not legal advice. Check the linked official source before you rely on a specific section, and get advice for your situation.

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Quick read

  • Franchisors cannot treat franchisee payroll compliance as someone else's problem where they have enough control and warning signs.
  • A Federal Court case about franchisor responsibility for franchisee underpayments, record keeping and Fair Work penalties.

Use this to check

  • Responsible franchisor liability can apply where a franchisor knew or should have known franchisee Fair Work contraventions would occur or similar contraventions were likely.
  • Payroll compliance systems should cover records, payslips, award rates, penalty rates, overtime, allowances and leave on termination.
  • Prior investigations, enforceable undertakings and direct-employer history can make later franchisee breaches much harder to treat as isolated.

Decision snapshot

  1. 1

    What happened

    • 85 Degrees Coffee Australia was the Australian head franchisor for the 85 Degrees brand and had previously operated some of the stores itself.
    • In 2019, eight franchisee-operated stores underpaid employees and failed to keep required employment records or provide payslips.
    • The underpayments totalled $32,321.19 and were later rectified by the franchisees.
    • The company admitted it could reasonably be expected to have known the contraventions would occur, and admitted that from 1 April 2019 it actually knew similar contraventions were likely after correspondence from the Fair Work Ombudsman.
  2. 2

    What the court had to decide

    • The Federal Court had to determine civil penalties for admitted contraventions of section 558B(1) of the Fair Work Act by 85 Degrees as a responsible franchisor, including how record-keeping contraventions should be treated and what penalty was appropriate for deterrence.
  3. 3

    What the court decided

    • The Federal Court made agreed declarations and imposed penalties totalling $1.44 million, payable within 60 days.
    • The Court accepted that the franchisee underpayments had been rectified, but treated general deterrence, prior compliance history and the admitted failure to prevent likely contraventions as important penalty factors.

Practical impact

Practical read

  • Franchisors cannot treat franchisee payroll compliance as someone else's problem where they have enough control and warning signs.
  • If a brand knows similar underpayments are likely, it needs real prevention systems, not just template obligations in the franchise agreement.

Useful next steps

  • Responsible franchisor liability can apply where a franchisor knew or should have known franchisee Fair Work contraventions would occur or similar contraventions were likely.
  • Payroll compliance systems should cover records, payslips, award rates, penalty rates, overtime, allowances and leave on termination.
  • Prior investigations, enforceable undertakings and direct-employer history can make later franchisee breaches much harder to treat as isolated.
  • Franchisors should document reasonable prevention steps before a regulator asks what was done.
  • Build payroll compliance audits into franchise operations, not only onboarding.

Practical read

This is a franchisor-liability case with a very practical story. The problem was not just that individual cafe franchisees got payroll wrong. The Court dealt with whether the head franchisor was also responsible because it knew, or should have known, that franchisee underpayments and record failures were likely.

The background mattered. 85 Degrees had previously been investigated, had given an enforceable undertaking, had earlier contraventions as a direct employer, and had operated shops at some of the franchise locations. When the 2019 franchisee problems emerged, the Court treated the history and knowledge as central to penalty and deterrence.

For franchise systems, the lesson is direct. If the brand has meaningful influence over franchisees, payroll compliance needs active monitoring, training, records, escalation and audit rights. A franchisor that sees warning signs but does not take reasonable steps can face serious Fair Work exposure.

Checks to run

Key points

  • Build payroll compliance audits into franchise operations, not only onboarding.
  • Check franchisee records, payslips, classifications, penalties, overtime and leave payments.
  • Escalate regulator correspondence and franchisee underpayment signals quickly.
  • Record training, audits, rectification steps and follow-up with each franchisee.
  • Review whether the franchisor has enough influence or control to trigger responsible franchisor risk.

Key takeaways

  • Responsible franchisor liability can apply where a franchisor knew or should have known franchisee Fair Work contraventions would occur or similar contraventions were likely.
  • Payroll compliance systems should cover records, payslips, award rates, penalty rates, overtime, allowances and leave on termination.
  • Prior investigations, enforceable undertakings and direct-employer history can make later franchisee breaches much harder to treat as isolated.
  • Franchisors should document reasonable prevention steps before a regulator asks what was done.

Related topics

Employment & WorkplaceFranchising & Regulated IndustriesPayroll & Employer Payments

How Sprintlaw can help

Franchise AgreementEmployment ContractRegulatory Compliance