Significant decision case study: FroYo master franchisor penalised for involvement in workplace law contraventions

Facts

Yogurberry World Square Pty Ltd (Yogurberry World Square) operated a take-away frozen yoghurt and drinks franchise in World Square, Sydney.

Yogurberry World Square was a member of a group of family of companies including a payroll company and the master franchisor company for the Yogurberry brand, YBF Australia Pty Ltd (YBF Australia). Each member of the group of companies was involved in the operation of a business trading under the Yogurberry brand.

In 2013, the Fair Work Ombudsman (FWO) investigated the Yogurberry World Square store, which was at that time operated by YBF Australia. It found that YBF Australia had committed a number of contraventions of the Fair Work Act 2009 (Cth) (FW Act) and issued the company with a letter of caution and several infringement notices.

Sometime later, Yogurberry World Square (a related company to YBF Australia) took over operation of the Yogurberry World Square store.

In 2014 and 2015, the FWO made efforts to recover records from the Yogurberry companies relating to payment of wages and rosters. The new operator of the Yogurberry World Square store blamed the change in management for its inability to produce records.

The FWO then launched an investigation into the group of companies, including YBF Australia (the master franchisor).

As a result of the investigation, Yogurberry World Square admitted to a range of contraventions of the FW Act including underpaying wages, failing to pay penalties, failing to pay special clothing allowance, failing to keep proper records and failing to issue employees with payslips.

YBF Australia admitted to its involvement in the contraventions, as did the associated payroll company and an individual who was a director or an officer in each of the Yogurberry companies.

Decision of the Federal Court

As the contraventions were admitted by the Respondents, the court was left to decide on the quantum of penalties to be ordered.

In reaching a decision the court had regard to the maximum penalties available, the Respondents’ cooperation with the FWO and the objective seriousness of each contravention.

The court found that since 2013, the Respondents had been on notice of their obligations to comply with workplace laws and had deliberately not kept proper records, thus frustrating the FWO’s investigation into their workplace practices.

Furthermore, no evidence as to the financial position of the Respondents was provided to the court in the proceedings. This led the court to infer that the Respondents were intentionally trying to disguise their respective financial positions in order to prevent an evaluation of how each had profited from contraventions of the FW Act.

The court held that these factors, as well as the vulnerable nature of the employees concerned, increased the need for specific deterrence in this case. The court said that penalties imposed on employers and those involved in contraventions should not form part of “the cost of doing business.”

Ultimately, the court made orders that each Respondent pay a penalty:

  • YBF Australia - $25,000
  • Yogurberry World Square - $75,000
  • CL Group Pty Ltd - $35,000
  • Soon Ok Oh - $11,000

Total: $146,000

The court also ordered that:

  • YBF Australia and CL Group Pty Ltd conduct an audit to ensure that all employees or persons engaged to perform work under the Yogurberry brand in Australia are paid correctly, issued with payslips and proper records are kept;

  • Ms Oh and the master franchisor, YBF Australia engage a professional to train them and any other director or company secretary in respect to the FW Act, the Fair Work Regulations and the Fast Food Industry Award 2010; and

  • The Respondents pay the FWO’s costs.

Lessons from this decision

This is the first decision in which the FWO has secured penalties against a master franchisor for its involvement in contraventions of the FW Act.

Although the contraventions were admitted, this decision demonstrates that the FWO and the courts are interested in reducing the distance between franchisors and franchisees when it comes to contraventions of the FW Act, particularly in relation to employee entitlements. 

Shane Koelmeyer is a leading workplace relations lawyer and Director at Workplace Law. Workplace Law is a specialist law firm providing employers with legal advice, training and representation in all aspects of workplace relations, employment-related matters and WH&S.

02 9256 7500 | sydney@workplacelaw.com.au

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