Some of my readers will recall the 7- Eleven scandal of 2015. The Sydney Morning Herald reported it at the time as:
“The nation’s biggest convenience store chain is ruthlessly rorting wages of its workers…., 7-Eleven, is under fire for paying many of its staff as little as $10 an hour before tax with the company’s own figures suggesting up to two-thirds of its stores are ripping off their workers.”[1]
A Government inquiry revealed systematic abuse of working conditions by franchisees of temporary visa workers. Examples of abuse included workers being paid $10 per hour instead of the then award rate of $24 per hour, non-payment of penalty rates, requiring workers to do the job of 2 people, failure to pay overtime for shifts exceeding 10 hours. It also revealed that some franchisees were paying the worker the correct amount only to coerce the worker to refund half of it to them.
Indeed some franchisees were found to have fudged payslips and time sheets to deceive the Fair Work Ombudsman of their wrongdoing.
The Government responded to increasing community concern about the exploitation of vulnerable workers (including migrant workers) by unscrupulous franchisees by enacting the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017.
The legislation seeks to protect vulnerable workers by:
Introducing a higher scale of penalties for ‘serious contraventions’ of prescribed workplace laws.
- Increasing penalties for record-keeping failures.
- Making franchisors responsible for underpayments by their franchisees where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them.
- Expressly prohibiting employers from unreasonably requiring their employees to make payments (e.g. demanding a proportion of their wages be paid back in cash).
- Strengthening the evidence-gathering powers of the Fair Work Ombudsman (FWO) to ensure that the exploitation of vulnerable workers can be effectively investigated.
When introduced to Parliament it was advocated as being an effective deterrent to “unlawful practices including those that involve the deliberate and systematic exploitation of workers. It will also ensure the Fair Work Ombudsman has adequate powers to investigate and deal with serious cases involving the exploitation of vulnerable workers and the deliberate obstruction of its investigations.”[2]
It would seem at least one Franchisor was oblivious to this new legislation. In a recent Federal Court decision of Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576 the Court found that a Franchisor by the name of 85 Degrees Coffee that operated outlets across NSW and the ACT had known or could reasonably be expected to have known that its franchisees were underpaying employees’ entitlements including minimum wages, casual employment loading, penalty rates (weekends, public holidays and evenings), overtime (weekdays, weekends and public holidays), breaks between shifts allowance, laundry allowance, and annual leave on termination and failures to keep employment records, pay on a weekly or fortnightly basis and provide payslips as required.[3]
The issue before the court came down to the level of fine to be paid by 85 Degrees Coffee. It had admitted the contraventions.
The FWO sought an overall penalty of $1,604,610 after a 10% discount for cooperation by way of admissions. 85 Degrees sought a substantially lesser overall penalty of $670,320 applying the higher discount for cooperation of 20%.
The Court was not moved by the Franchisor’s arguments however and ordered payment of a penalty of $1,440,000 to the Commonwealth within 60 days after having had regard to the deterrence considerations the court must have regard to when determining the levels of such fines.
This case is significant as it represents the first time that the FWO has relied on the provisions to successfully prosecute a franchisor for the failings of its franchisees. It is also a stark reminder for Franchisors to have in place a robust audit process that ensures Franchisee compliance with the Fair Work provisions relating to employees.
For assistance with developing such an audit process don’t hesitate to contact us.
[1] https://www.smh.com.au/business/workplace/7eleven-investigation-exposes-shocking-exploitation-of-convenience-store-workers-20150828-gja276.htmld
[2]https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr5826_ems_e0207b3c-41de-45b8-9631-4d08f9f88e23%22
[3] Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576 Para 3 to 5.
