bubble bubble toil and trouble: bubble tea franchisor in hot water over underpayment of wages

The Fair Work Ombudsman has prosecuted a former Chatime bubble tea franchisee after finding it underpaid workers more than $46,000 and failed to keep adequate records.

Fair Work Ombudsman v Panol DC Pty Ltd & Ors [2021] FCCA 373

The FWO commenced proceedings against Panol DC Pty Ltd, which operated a Chatime franchise, and its two directors, in relation to underpayment and record-keeping breaches of the Fast Food Industry Award 2010 (Award).

The breaches occurred over approximately eleven months and affected seventeen casual employees. The employees were each paid a flat rate that did not meet their entitlements to minimum weekly wages, casual loading, public holiday pay and special clothing allowances.

directors’ reliance on franchisor

The directors admitted to the underpayment allegations against them but gave evidence they had sought advice from Chatime, the franchisor, in relation to the payment of wages and allowances. The directors acknowledged their reliance did not absolve them from legal liability, but submitted their reliance was reasonable, given their lack of business experience.

The directors’ reliance on Chatime formed an important part of the case. The Federal Circuit Court imposed penalties of $41,600, $9,600 and $6,600 respectively against Panol and each of the two directors.

However, it suspended payment of the penalties against the two directors on the basis of their uninformed reliance, and indicated the penalties may be wholly set aside after three years, if the directors do not engage in any further breaches of the Fair Work Act 2009 (Cth) or an industrial instrument in that time.

key lessons

The case reveals the significant risks faced by employers who get the payment of wages wrong. The case also highlights the risk that franchisors may face when advising their franchisees in relation to their employment obligations, especially when the franchisee relied on this advice and or did not seek independent advice in relation to their obligations.

to avoid legal liability:

• Employers must ensure their workers receive the correct wages and entitlements. Particular care should be taken by employers who pay their workers an ‘all-inclusive flat rate’ that is intended to cover penalty payments and allowances.
• Employers must undertake their own due diligence in relation to the payment of wages and entitlements. Employers cannot rely on the mistaken advice they have received from another.
• Franchisors should not play the role of advisor to the franchisee but rather should have systems in place so as to allow the franchisee to be able to independently verify the required information and understand their obligations in relation to any employees.
• If a Franchisor, accepting these risks, still considers it needs to provide guidance or its computer systems manage payroll for franchisees, then it is critical that the Franchisor seek written legal advice in relation to all applicable levels and types of employees across each State, and have a retainer in place to ensure any employment rate changes are adopted as and when they happen.

Please contact our Employment, Safety and Migration and Franchising Teams should you require assistance ensuring your business’s compliance with employee’s wages entitlements and franchising obligations.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.