Fair Work Ombudsman Takes Legal Action Against Bakers Delight Franchisor for Extensive Underpayments

Key Takeaways

• Timely rectification of underpayments and adherence to relevant employment agreements are essential to prevent serious contraventions and penalties, including the new criminal offences once they become law.
• Understanding wage compliance is a complex legal question, and only experienced, specialised legal practitioners can precisely interpret legal and industrial wage compliance obligations accurately.
• Awards are not mere guidelines or subject to local interpretations; they carry legally binding obligations that businesses must adhere to meticulously.
• Franchisors must proactively address non-compliance within their networks to avoid legal liabilities.
• Regular monitoring and action against underpayment issues are crucial to ensure fair treatment of employees.
• Businesses should prioritise compliance with wage regulations and minimum employment standards to protect vulnerable workers.
• Businesses should ensure they understand the modern awards, enterprise agreements and contractual terms relating to wages and other monetary entitlements, as well as record-keeping obligations.

This month, the Fair Work Ombudsman (FWO) has announced that it has commenced significant legal proceedings against Bakers Delight Holdings Pty Ltd, the franchisor of the renowned Bakers Delight chain in Australia. The FWO alleges that the franchisor is legally responsible for extensive underpayments that affected three Bakers Delight stores in Hobart. These underpayments, amounting to a staggering $1.25 million, impacted 142 mostly young employees working at the Kingston, Lindisfarne, and Eastlands outlets between July 2017 and October 2020.

The FWO is pursuing the case in the Federal Court, alleged that Bakers Delight Holdings is liable for $642,162 in underpayments at the three stores from February 2019 onwards. The franchisor was allegedly aware of the franchisee’s underpayment practices but failed to take appropriate action, thereby making it accountable for further underpayments.

In addition to Bakers Delight Holdings, legal action is also being taken against the couple who owned and managed the three stores, John Vince Puglisi and Lisa Kay Puglisi, along with their company, Make Dough Enterprises Pty Ltd. Make Dough Enterprises operated as the franchisee for the three Bakers Delight outlets and allegedly directly employed and underpaid the affected workers. Consequently, Make Dough Enterprises went into liquidation earlier this year, leading to the closure of the stores.

This legal action against Bakers Delight Holdings marks the second instance in which the FWO has utilized franchisor liability provisions in the Fair Work Act to hold a franchisor legally accountable for the unlawful conduct of a franchisee. The first such case, involving 85 Degrees Coffee Australia Pty Ltd, is currently before the court.

Acting Fair Work Ombudsman, Kristen Hannah, emphasizes the importance of holding franchisors responsible for non-compliance within their networks. Following an extensive investigation, the FWO found that staff at the three Bakers Delight outlets experienced various underpayment issues, including minimum wages, penalty rates, overtime rates, leave entitlements, and minimum shift pay, in addition to unlawful deductions from their termination pay.

The majority of affected workers were young employees, with some as young as 14, and four were visa holders. The underpayments primarily stemmed from Make Dough Enterprises’ failure to adhere to specified overtime rates in a 2012 Enterprise Agreement. Furthermore, the company continued to pay staff minimum rates listed in the Enterprise Agreement instead of adjusting pay rates annually to meet minimum rates specified in the General Retail Industry Award.

While Bakers Delight Holdings’ alleged liability extends to underpayment contraventions from February 2019 to October 2020, Make Dough Enterprises, Mr. Puglisi, and Ms. Puglisi are alleged to have been involved in all underpayments between 2017 and 2020. Additionally, contraventions committed after February 2019 are considered “serious contraventions,” attracting higher penalties.

The FWO is seeking penalties against Bakers Delight Holdings, Make Dough Enterprises, Mr. Puglisi, and Ms. Puglisi for multiple alleged contraventions. Penalties range from up to $66,660 per contravention for Bakers Delight Holdings and Make Dough Enterprises, to up to $13,320 per contravention for Mr. and Ms. Puglisi. Furthermore, the FWO seeks court orders to rectify the underpayments, including interest and superannuation.

The FWO’s litigation comes on the eve of the third tranche of IR laws expected in September 2023. These changes will include the introduction of criminal offences targeting the more serious wage theft and wage compliance-related offences. Some States – including Queensland and Victoria – have already passed criminal laws relating to certain wage theft offences.