Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd

Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576 is a Federal Court penalty decision about franchisor liability for workplace breaches in a franchise network. The Court imposed total penalties of $1,440,000 on 85 Degrees Coffee Australia Pty Ltd as a responsible franchisor under s 558B(1) of the Fair Work Act 2009 (Cth).

The key point is that the workers were employed by franchisees, but the franchisor was still penalised because it admitted it was a responsible franchisor, admitted it could reasonably be expected to have known the contraventions would occur, admitted that from 1 April 2019 it actually knew similar contraventions were likely, and admitted it did not take reasonable steps to prevent them.

The judgment is especially relevant for franchise systems where head office tightly controls how stores operate. It is also important for businesses with a prior Fair Work history, because the Court treated that history as a significant part of the penalty analysis.

85 Degrees had previously run stores directly in Australia and employed staff itself. Around 2015, it began shifting to a franchise model. That change in structure did not mean it stepped away from day-to-day influence. The Court described the operation of the franchises as tightly controlled.

Under the franchise arrangements, franchisees had to operate in accordance with the 85 Degrees system. They had to comply with a detailed operations manual that set minimum performance standards and store management procedures. 85 Degrees required and provided training to store managers and other staff. Franchisees had to sell products purchased from 85 Degrees, which were manufactured at its central kitchen, and they had to sell those products at prices specified by 85 Degrees. They also had to use equipment and point of sale and security systems stipulated by 85 Degrees. On top of that, 85 Degrees had rights to inspect and audit franchisee records and to conduct mystery customer checks. It also leased store locations to three franchisees.

That level of control mattered because the Fair Work Act only imposes this kind of franchisor liability where the franchisor has a significant degree of influence or control over the franchisee entity’s affairs. The Court said those features practically explained why 85 Degrees admitted it was a responsible franchisor.

The workplace breaches occurred during the 2019 calendar year. The franchisees underpaid employees and failed to meet related record-keeping and payslip obligations. The admitted contraventions covered minimum rates, casual loading, Saturday, Sunday and public holiday penalty rates, evening penalties, overtime, a 12-hour break between shifts entitlement, a laundry allowance, annual leave on termination, payment frequency, payslips and employee records. There was also one false or misleading records contravention recorded in the orders.

The background made the case more serious. In November 2014, the Fair Work Ombudsman had started an investigation into 85 Degrees. That investigation uncovered earlier contraventions between 2009 and 2014. On 5 June 2015, 85 Degrees entered into an enforceable undertaking admitting those earlier contraventions. Then, in 2016 and 2017, audits conducted for the undertaking identified continuing breaches or risks of breaches. Mr Hsu, the managing director, was aware that significant underpayments had been identified by at least 10 October 2016.

There was also a separate earlier Federal Court proceeding about 2016 to 2017 contraventions by 85 Degrees as an employer. That earlier case resulted in a total civil penalty of $475,200 in 2022. So by the time the 2019 franchisee contraventions occurred, 85 Degrees already had a substantial Fair Work compliance history behind it.

In early 2019, the Fair Work Ombudsman began a proactive audit of 85 Degrees franchisees. Inspectors conducted site visits on 18 February 2019 and issued notices to produce records or documents in the days following. 85 Degrees admitted it became aware of the investigation at the time or soon after. On 1 April 2019, the regulator sent preliminary findings identifying contraventions. 85 Degrees admitted that from that date it actually knew contraventions of the same or a similar character were likely to occur, yet it did not take reasonable steps to prevent them.

The applicant was the Fair Work Ombudsman. The respondent was 85 Degrees Coffee Australia Pty Ltd. The proceeding was framed around 85 Degrees’ liability as a responsible franchisor, not around direct employment by 85 Degrees for the 2019 conduct.

The orders define the Franchisee Entities as Bright Sunny Pty Ltd, CPJ Group Pty Ltd, Crowd Group Go Pty Ltd, T.G.L Cake Pty Ltd, Xin Man Trading Pty Ltd and Yi Xuan Pty Ltd. The orders also separately record that WLH Pty Ltd contravened s 535(4) by making and keeping false or misleading records in respect of Jie Lu during the period from 21 January 2019 to 8 March 2019. The reasons state that the admitted contraventions were committed by eight franchisees. For a business reader, the practical point is that the case involved multiple stores and multiple employing entities across the network, not a one-off payroll mistake at a single location.

The declarations set out 17 categories of underlying contraventions by franchisees. These included failures to make and keep records required by the Fair Work Regulations, failures to give payslips, false or misleading records, underpayment of minimum rates, casual loading, Saturday penalties, Sunday penalties, public holiday penalties, evening penalties, overtime on different days, a 12-hour rest break entitlement, a laundry allowance, annual leave on termination, and payment frequency. The Court’s orders tie 85 Degrees’ liability to each of those underlying contraventions through s 558B(1).

That matters because responsible franchisor liability is not abstract. It attaches to actual civil remedy contraventions committed by franchisee employers. In this case, the Court was dealing with a broad pattern of payroll and record failures across the network during 2019.

The case turned on the responsible franchisor provisions inserted by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 and commencing on 15 September 2017. The key provision was s 558B(1) of the Fair Work Act.

In practical terms, s 558B(1) can make a franchisor liable where four things line up. First, a franchisee employer contravenes a civil remedy provision. Second, the franchisor is a responsible franchisor entity for that franchisee. Third, the contravention occurs in the franchisee’s capacity as a franchisee. Fourth, the franchisor or one of its officers knew, or could reasonably be expected to have known, that the contravention would occur, or knew or could reasonably be expected to have known that a contravention of the same or a similar character was likely to occur.

The judgment also refers to s 558A, which defines a franchisee entity and a responsible franchisor entity. A franchisor is only a responsible franchisor if it has a significant degree of influence or control over the franchisee entity’s affairs. That is why the Court spent time describing the operational features of the 85 Degrees network.

The Court also discussed the defence in s 558B(3), which is based on taking reasonable steps to prevent contraventions of the same or a similar character. The judgment notes a list of matters in s 558B(4) that may be taken into account, but 85 Degrees did not contend that it had taken those reasonable steps. The Court said that because of the nature of the franchise arrangements and the prior history of contraventions, 85 Degrees could never realistically have established that defence on the facts before it.

The underlying civil remedy provisions included s 44(1), s 45, s 535(1), s 535(4) and s 536(1) of the Fair Work Act, together with record-keeping obligations in the Fair Work Regulations 2009 (Cth). In plain language, those provisions covered National Employment Standards compliance, award compliance, employee records, false or misleading records, and payslips.

Another important issue was s 557. That section can require multiple contraventions to be treated as a single contravention in some circumstances. The catchwords show that one of the main legal questions was whether breaches of record-keeping obligations under the regulations could be treated as a single contravention by operation of s 557(1), and whether earlier authority on s 557 applied in the context of franchisors’ secondary liability under s 558B(1). This mattered because grouping can significantly change the final penalty figure.

The Court made extensive agreed declarations of contravention and ordered 85 Degrees to pay penalties totalling $1,440,000 to the Commonwealth within 60 days of 4 June 2024. The judgment makes clear that substantial civil penalties were common ground. The real dispute was about quantum.

85 Degrees had admitted the essential elements of liability. It admitted that it was a responsible franchisor. It admitted that it could reasonably be expected to have known that the 2019 responsible franchisor contraventions would occur. It also admitted that from 1 April 2019 it actually knew that contraventions of the same or a similar character were likely to occur because of the regulator’s correspondence. It further admitted that it did not take reasonable steps to prevent those contraventions.

The Court treated the company’s compliance history as highly relevant. The reasons refer to the 2014 investigation, the 2015 enforceable undertaking, the 2016 and 2017 audits identifying continuing breaches or risks, and the earlier Court penalty imposed in 2022 for 2016 to 2017 employer contraventions. The Court also considered the industry context of non-compliance and the vulnerability of workers as relevant to general deterrence.

At the same time, the Court considered admissions and contrition. The judgment records competing penalty positions. The Fair Work Ombudsman sought an overall penalty of $1,604,610 after a 10% discount for cooperation by way of admissions. 85 Degrees primarily sought $670,320 applying a 20% discount and arguing for a more favourable application of s 557. In the alternative, it sought $1,345,680 if its s 557 argument was not accepted. The Court fixed a final amount of $1,440,000.

The reasons also note an important comparison with the earlier 85 Degrees case. The overall underpayments in this proceeding were much lower, totalling $32,321.19, compared with $429,393.18 in the earlier employer case. The present underpayments had been rectified by the franchisees. Even so, the Court still imposed a very substantial penalty, showing that the seriousness of the case was not measured only by the dollar value of the underpayments.

The judgment included a correction table dated 7 June 2024. It corrected some figures in paragraph [87] and in the schedule tables, including replacing $1,694,220 with $1,694,700 in parts of the reasons and schedule. Those corrections did not alter the final total penalty ordered against 85 Degrees, which remained $1,440,000.

The timeline helps explain why the Court saw this as a repeat compliance problem rather than an isolated payroll mistake. The sequence shows earlier contraventions, an enforceable undertaking, later audits, a move to franchising, a fresh audit of franchisees, and then a penalty decision after 85 Degrees admitted liability.

This case is not just about a large franchise brand. It is relevant to any business model where one entity tightly controls how another entity runs a branded operation. The more the central business controls products, pricing, systems, training, store standards, software and audits, the harder it may be to say that workplace compliance is entirely someone else’s problem.

For franchisors, the practical message is that compliance systems need to be real and documented. If you have audit rights, use them. If you provide payroll templates, rostering systems or operational manuals, make sure they support lawful pay outcomes. If complaints, audits or regulator contact reveal problems, intervene quickly and across the network, not just at one store. The judgment shows that actual knowledge is not the only risk point. Liability can also arise where the franchisor could reasonably be expected to have known the contraventions would occur.

For franchisees, this case is not a shield. The franchisee remains the direct employer and still has primary obligations to pay staff correctly, issue payslips and keep records. Using head office systems does not guarantee award compliance. Award interpretation, classification, penalty rates, overtime, leave and payment frequency still need active checking.

For businesses with prior Fair Work issues, the case is a warning that history compounds risk. Earlier investigations, undertakings, audits and court findings can all be used to show that later breaches were foreseeable and that stronger deterrence is needed. A business in that position should not assume that fixing underpayments after the event will solve the problem. Rectification helps, but it may not prevent very substantial penalties.

Finally, this decision shows that record-keeping and payslip failures are not minor technicalities. In wage compliance cases, poor records often make the overall conduct look more serious and can increase the number of contraventions in play. Businesses should treat records, payslips and payroll data integrity as core compliance issues.

Business owners often ask whether this kind of case only affects very large franchise groups. The answer is no. The legal trigger is not size by itself. It is whether the franchisor has a significant degree of influence or control over the franchisee’s affairs, and whether the knowledge element in s 558B(1) is met.

Another common question is whether fixing underpayments later avoids penalties. This case shows the answer is also no. The underpayments in this matter had been rectified by the franchisees, and they were much lower than in the earlier 85 Degrees case, but the Court still imposed a very substantial penalty because of the broader compliance picture, the admissions, the prior history and the need for deterrence.

Businesses also ask whether record-keeping breaches are secondary compared with underpayments. The judgment points the other way. Record failures, payslip failures and false or misleading records were all part of the contravening conduct and were important to the penalty analysis. In practice, if your records are poor, it becomes harder to show that your payroll systems are compliant and easier for a court to see the conduct as systemic.

This page summarises the Federal Court judgment in Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576, decided by Bromwich J on 4 June 2024. It also reflects the correction table dated 7 June 2024.

The orders define the Franchisee Entities as Bright Sunny Pty Ltd, CPJ Group Pty Ltd, Crowd Group Go Pty Ltd, T.G.L Cake Pty Ltd, Xin Man Trading Pty Ltd and Yi Xuan Pty Ltd. The reasons also refer to eight franchisees and record a false or misleading records contravention by WLH Pty Ltd. Readers wanting store-by-store or employee-by-employee detail should consult the judgment, orders and agreed statement of facts referred to in the reasons.

This is general information, not legal advice. If your business operates a franchise or similar network and has had payroll complaints, audits or regulator contact, get advice on your current exposure and compliance systems.