The Fair Work Ombudsman has taken legal action against the Australian franchisor of the Bakers Delight chain, alleging it is legally liable for extensive underpayments at three Hobart stores formerly operated by one of its franchisees.
It is alleged that 142 mostly young staff at Bakers Delight outlets in Kingston, Lindisfarne, and Eastlands were underpaid $1.25 million between July 2017 and October 2020.
The FWO is taking legal action in the Federal Court against Bakers Delight Holdings Pty Ltd, the franchisor of the Bakers Delight chain in Australia, in relation to a portion of the alleged underpayments.
It is alleged Bakers Delight Holdings is liable for $642,162 in underpayments at the three stores that occurred after February 2019 because it became aware the franchisee operating the stores had been underpaying staff but failed to take preventative action - and therefore it either knew or should reasonably have known further underpayments would occur.
In addition, the FWO is taking legal action against the couple that owned and managed the stores, John and Lisa Puglisi, and the couple’s company, Make Dough Enterprises Pty Ltd, which was the franchisee of the three stores and allegedly directly employed and underpaid the affected workers.
Make Dough Enterprises was placed into liquidation earlier this year when the three stores were closed.
It is the second time the FWO has used franchisor liability provisions in the Fair Work Act to allege in court that a franchisor is legally liable for the unlawful conduct of a franchisee. The first matter, against 85 Degrees Coffee Australia Pty Ltd, remains before the Court.
Acting Fair Work Ombudsman Kristen Hannah says the legal actions highlight that franchisors can be held accountable if they fail to take action to prevent breaches in their networks.
“We will use all laws and powers at our disposal to ensure franchisors are held to account when they fail to address non-compliance in their networks,” Ms Hannah said.
The FWO investigated the Kingston, Lindisfarne and Eastlands Bakers Delight outlets in response to intelligence gathered about potential non-compliance at the outlets.
Fair Work Inspectors allegedly discovered that staff were underpaid entitlements including minimum wages, weekend and public holiday penalty rates, overtime rates, leave entitlements and minimum shift pay, and had money unlawfully deducted from their termination pay.
It is alleged that the primary causes of the underpayments were Make Dough Enterprises, and the owners, failing to pay overtime rates listed in a 2012 Enterprise Agreement, and continuing to pay staff minimum rates listed in the Enterprise Agreement rather than increasing pay rates annually to ensure they were at least equivalent to minimum rates listed in the General Retail Industry Award.
Most of the allegedly underpaid staff were young workers, aged as young as 14, and four were visa holders.
The allegedly underpaid staff worked in sales and baking roles.
Alleged individual underpayments range from $74 to, in one case, a young apprentice baker being underpaid $106,281. All alleged underpayments remain outstanding.
No action on non-compliance issues
The FWO alleges Bakers Delight Holdings either knew or should have reasonably known the workers at the three stores would be underpaid because an audit the franchisor commissioned, completed in February 2019, identified underpayments and other non-compliance issues at the stores.
It is alleged that Bakers Delight Holdings provided the audit findings to Make Dough Enterprises and the owners in February 2019 and asked them to commit to a range of measures to address the non-compliance issues.
However, it is alleged that after Make Dough Enterprises and the owners refused to take any action, Bakers Delight Holdings took no further action to address the non-compliance issues and the underpayments persisted.
The FWO’s allegations against Bakers Delight Holdings are limited to alleged minimum wage, penalty rate, and overtime underpayment contraventions between February 2019 and October 2020.
However, it is alleged that Make Dough Enterprises and the owners committed or were involved in all underpayments between 2017 and 2020. It is also alleged that their minimum wage, penalty rate and overtime contraventions after February 2019 were committed knowingly and are ‘serious contraventions’, with a tenfold increase in maximum penalties applicable.
Make Dough Enterprises, and the owners, allegedly also committed a range of other contraventions of the Fair Work Act, including Make Dough Enterprises and Ms Puglisi allegedly providing false records to the Fair Work Ombudsman and all three allegedly failing to comply with Notices to Produce documents.
The Fair Work Ombudsman is seeking penalties against Bakers Delight Holdings, Make Dough Enterprises, and the owners for multiple alleged contraventions.
Penalties
Bakers Delight Holdings faces penalties of up to $66,660 per contravention; Make Dough Enterprises faces penalties of up to $66,660 per contravention or $660,000 per serious contravention; and the owners face penalties of up to $13,320 per contravention or $133,200 per serious contravention.
The Fair Work Ombudsman is also seeking court orders requiring Bakers Delight Holdings, Make Dough Enterprises and the owners to rectify the underpayments, plus interest and superannuation. (The back-payment order sought against Bakers Delight Holdings relates only to alleged minimum wage, penalty rate and overtime underpayments after February 2019).
The first case management hearing in the Federal Court in Hobart is scheduled for 26 July 2023.
