The focus of the Fair Work Ombudsman (FWO) on making franchisors accountable for the practices of its franchisees has resulted in a successful accessorial liability prosecution.

In Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290, the Federal Court ordered penalties totalling $146,000 against three corporate respondents (and one individual) who were part of a related group of companies within the Yogurberry Group, a frozen yoghurt brand with 23 stores throughout Sydney. The respondents included the franchisor and an individual who was an officer of each of the corporate respondents.

Background

The proceedings concerned the underpayment of four former employees at Yogurberry World Square, a franchise within the Yogurberry Group. The FWO also alleged that Yogurberry World Square deliberately failed to keep accurate employment records.

In addition to bringing proceedings against Yogurberry World Square, the FWO also took action against a number of related parties, being:

  • YBF Australia Pty Ltd (the former owner of Yogurberry World Square and the master franchisor of the Yogurberry Group)
  • CL Group Pty Ltd (the payroll company for Yogurberry World Square)
  • Ms Soon Ok Oh (a shareholder of YBF Australia Pty Ltd and CL Owner Pty Ltd, the parent company for both Yogurberry World Square and CL Group Pty Ltd).

Yogurberry World Square admitted the underpayments under the Fast Food Industry Award 2010 (Award) and the record keeping contraventions under the Fair Work Regulations 2009 (Regulations). Each of the other respondents also admitted their involvement as accessories to Yogurberry World Square’s contraventions.

Court orders

In determining penalties against each of the four respondents, the Court took into account the close relationship between each of the respondents, and Ms Oh’s involvement with each entity. In particular, since 2013, the FWO had written to Ms Oh about underpayment issues at Yogurberry World Square, including during the period when it was operated by YBF Australia. Given the serious nature of the contraventions, the Court ordered the respondents pay the FWO’s costs, and the following penalties:

  • Yogurberry World Square: $75,000
  • YBF Australia: $25,000
  • CL Group: $35,000
  • Ms Oh: $11,000.

The Court also ordered that:

  • YBF Australia (the franchisor) and CL Group (the payroll company) undertake an audit of all Yogurberry franchise stores in Australia, to determine their compliance with the Fair Work Act 2009 and the Award
  • YBF Australia, CL Group and Ms Oh engage a qualified workplace relations professional or organisation to provide training about employer obligations under the Award, the Fair Work Act 2009 and the Regulations.

Significance of the Yogurberry decision

The FWO has hailed this as a significant decision, with the Ombudsman Natalie James stating that ‘this is the first time the Fair Work Ombudsman has secured penalties against a master franchisor for being an accessory to the exploitative practices of one of its associated companies’.

While this is true, it should be noted that the franchisor admitted it was involved in the contraventions. This was most likely based on the close relationship between all of the respondents, including that the franchisor was the former owner of the franchise. Given these admissions, the decision does not set out any new principles for when a franchisor will be involved in the contraventions of a franchisee.

Notwithstanding this, the decision certainly sends a clear message to franchisors about the type of enforcement action that might be taken against them by the FWO. In light of this approach, all franchisors should carefully consider whether, and to what extent, a risk exists, for which they will be held to be ‘involved’ in a franchisee’s contraventions.