The Case

The Fair Work Ombudsman (FWO) sued three corporate respondents in the Yogurberry corporate group:

• the employer, Yogurberry World Square Pty Ltd (Yogurberry World), which operated the Yogurberry store in world square; and
• as accessories to the breaches committed by Yogurberry World:
  • YBF Australia Pty Ltd (YBF), which was the master franchisor of the Yogurberry chain;
  • CL Group Pty Ltd (CL Group), an associated entity of YBF); and
  • the common director Ms Soon Ok Oh.

The proceedings related to breaches of the modern award and Fair Work Act 2009 (Cth) (FW Act) for underpayment of wages, recordkeeping failures, failure to provide payslips and the exploitation of temporary work visa employees. By the time the case was heard, Yogurberry World had already compensated staff for the underpayment of wages.

The Verdict

Justice Flick of the Federal Court found that Yogurberry World had failed to comply with the FW Act by failing to pay wages in accordance with the award, failing to keep proper records and failing to issue payslips. He found the other respondents were accessories to those breaches committed by Yogurberry World.

The Federal Court found the accessory liability arose because:

1. YBF had:

• • established the rates of pay;
  • paid the wages;
  • set the hours of work; and
  • handled the employment matters for the four employees;

2. CL Group had undertaken the payroll, operational and accounting functions of the Yogurberry stores and therefore was an accessory as it had:

• • payroll functions;
  • determined hours of work; and
  • dealt with workplace matters with respect to the four employees;

3. Ms Soon Ok Oh, as director of the three corporate entities, had:

• • established the rates of pay of employees;
  • instructed the manager of the World Square store in the operation of the business, which affected the four employees; and
  • on occasion, also gave directions to the four employees.

The Federal Court ordered the four respondents pay the FWO costs and penalties of $146,000 as follows:

1. Yogurberry World: $75,000 2. YBF: $25,000 3. CL Group: $35,000 4. Ms Soon Ok Oh: $11,000

The Federal Court made high penalty orders, given the respondents’ refusal to cooperate with the FWO, failure to follow the FWO’s direction to keep records and failure to disclose financial information to the FWO when asked to do so.

YBF and CL Group were also ordered to organise an audit of the workplace to ensure compliance with the FW Act and the modern award. YBF, CL Group and Ms Soon Ok Oh were also ordered to organise training for its company officers about their obligations under the modern award, the FW Act and the Fair Work Regulations.

Lessons For You

Franchisors are likely to be found accessorily liable for breaches of workplace laws committed by franchisees where:

• they are involved in the daily operation of the franchisees’ businesses;
• hey set wages and conditions for employees of their franchisees;
• hey perform payroll functions on behalf of their franchisees;
• hey determine hours of work and leave entitlements; and
• hey deal with employment matters.

Any directions made by the FWO must be followed otherwise prosecutions can ensue and huge penalties imposed.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.