Fair Work Ombudsman v Yogurberry [2016] FCA 1290: Court Finds against Yogurberry

In the case of Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290 (2 November 2016), the master franchisor of the Yogurberry frozen yoghurt chain in Australia has been penalised over the exploitation of four Korean workers at one of its Sydney outlets in a precedent-setting Federal Court judgment.

Judgment

The judgment (which includes $146,000 in penalties and an order for a national audit of the Yogurberry chain) is the first time the Fair Work Ombudsman (the Ombudsman) has secured penalties against a master franchisor for being an accessory to the exploitative practices of one its associated companies.

Significantly, almost half of the total penalties were imposed against companies in the Yogurberry Group for being accessories to the exploitation of workers and the national audit requires the master franchisor to take extensive steps to ensure future compliance. 

The four exploited workers were paid as little as $8 an hour while working at a Yogurberry outlet at the World Square Shopping Centre in the Sydney CBD, leading to total underpayments of $17,827. They were in Australia on 417 Working Holiday Visas at the time and spoke little English.

Justice Flick found that the head Australian company and master franchisor of the Yogurberry chain (YBF Australia Pty Ltd) was directly involved in establishing pay rates and other practices at the store – and that the exploitation occurred despite prior warnings from the Ombudsman.

His Honour also found the Yogurberry master franchisor and its associated companies had deliberately not disclosed information about their financial status to the Ombudsman.

Justice Flick found [at para 31] that this was for the purpose of:

Background to the investigation

The Ombudsman investigated after an employee lodged a request for assistance – and the involvement of overseas workers and the fact that YBF Australia had previously been put on notice of the need to ensure employees were paid their lawful minimum entitlements were significant factors in the decision to commence legal action. The Ombudsman has previously issued YBF Australia with a Letter of Caution and two Infringement Notices (on-the-spot fines) and requested the company back-pay a number of employees.

During the Ombudsman’s latest investigation, the Yogurberry companies advised that wage records were not available for the relevant period because they were “missing due to the change of the internal accountant”.

However, His Honour found the Yogurberry companies had deliberately refrained from keeping records to frustrate any attempts by the Ombudsman to monitor its payment practices and for “the objective of gaining personal financial benefit by cloaking the quantum of payments made to employees from scrutiny”.

Justice Flick said that the conduct of the companies leads to the conclusion that they:

Ms James says that in an environment of increasing scrutiny, it is crucial that franchise operations are pro-active about ensuring they have systems in place to promote compliance in their networks.

Exploitation of workers

The four Korean workers (two of them aged 19 and 20), were underpaid between July 2014 and May 2015. The three companies penalised in Court are all part of the Yogurberry Group of companies operated by the same family:

• Yogurberry World Square Pty Ltd, which directly employed the workers, was penalised $75,000;
• YBF Australia Pty Ltd was penalised $25,000; and
• The Yogurberry Group’s payroll company, CL Group Pty Ltd, was penalised $35,000.

In addition, YBF Australia part-owner Soon Ok Oh was penalised $11,000 for her involvement in exploiting workers. In addition to the penalties, the Ombudsman secured a Court Order requiring the Yogurberry Group of companies to commission a professional external audit of all Yogurberry stores in Australia within the next two months and to rectify any underpayments discovered.

The Court also ordered the companies and Ms Oh to commission workplace relations training for managers and to pay the Ombudsman’s legal costs, to be quantified at a later date. The four Korean workers were paid just $8 an hour for up to six hours training, before being paid flat rates as low as $11 an hour.

Entitlements under the Award

Under the Fast Food Industry Award, the workers should have been paid between $14.82 and $18.52 an hour for ordinary hours. The workers also did not receive a special clothing allowance or superannuation entitlements and three had unlawful deductions made from their wages. Workplace laws relating to minimum shifts and classifications were also contravened and there were serious contraventions of record-keeping and pay-slip laws. Individual underpayments ranged from $1,926 to $6,380. The employees have now been back-paid in full. 

Comment from the Ombudsman

Fair Work Ombudsman Natalie James says the Court’s decision sends a strong signal to franchisors that they can be held accountable for exploitation in their networks, even if they use corporate structures to try to legally hold themselves at arms-length from practices in their outlets:

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Fair Work Ombudsman v Yogurberry World Square Pty Ltd [2016] FCA 1290 (2 November 2016)

$146,000 in penalties imposed in precedent-setting Court judgment against Yogurberry chain – fairwork.gov.au