Former Coffee Club franchisee hit with $180,000 penalty over “deliberately exploitative” cashback scheme

The former franchisee of a Coffee Club outlet in Nundah, Queensland has been fined a total of $180,900 after the Federal Circuit Court found he and his company engaged in multiple contraventions of the Fair Work Act, including a cashback scheme that “exploited” a 457 visa holder.

The franchise operator and director Saandeep Chokhani was penalised $30,000, with a further $150,900 of the penalties imposed against his company, Gaura Nitai Pty Ltd. The court case was instigated by the Fair Work Ombudsman (FWO) and court proceedings began in the Federal Circuit Court in early May.

The franchisee was found to have exhibited “deliberately exploitative” conduct towards an Indian employee who was working for the franchise as a cook, and was being sponsored by Chokhani for a 457 visa.

Despite the worker having been contracted to a salary of more than $53,000, the court found there were significant underpayments for public holiday, weekend, and overtime rates, totalling to $23,546. Additionally, the court found there were long periods of time where the worker did not receive any wages at all.

One such period was in 2014, where the worker had been unpaid for a period of four months, and a later one-month period in 2015. The court heard that in April 2015, the director of the franchise paid the worker a one-off transfer of $19,334, but then immediately directed him to withdraw $18,000 of that amount and repay it, threatening to cancel the sponsorship of his visa if he did not.

The worker told the court he was told by the director, “I will deposit this money into your account and you have to withdraw the money and hand it back to me. If you are not giving me back this money I’m going to cancel your visa.”

Fearing he would lose his visa and therefore lose the ability to stay in Australia, the employee repaid the franchisee, after being placed in a situation Federal Circuit Court Judge Jarrett said was “a bind”.

“He could not leave his employment because if he did so he would breach a condition of his visa and his ability to remain in Australia would be seriously compromised. He was effectively working for nothing.,” Judge Jarrett said in the judgment.

“I am satisfied that the [director] threatened [the worker] that if he did not pay the money back, he would take steps to see his visa cancelled. That was an inappropriate and grotesque exploitation of the power imbalance that existed between the [director and [the worker].”

A spokesperson for The Coffee Club told SmartCompany it is pleased with the outcome of the case, saying the business “strongly supports the work of the FWO in this area”.

“When we first became aware of the allegations, we worked proactively with the Fair Work Ombudsman, and took immediate action against the franchisee involved,” the spokesperson said.

“That combined effort resulted in the employee receiving the amounts due, and the franchisee has since been removed from our system.”

SmartCompany was unable to contact Saandeep Chokhani or his company for comment.

Cashback arrangements viewed ‘dimly’ by courts

Emily Lett, principal at Synergy Lawyers, says both the courts and the Fair Work Ombudsman take a “dim” view of the sort of behaviour described in this case, and she reminds businesses it’s not just the company who can get fined in court action.

“The fine imposed on the individual director is quite indicative of the seriousness of which they view this behaviour,” Lett says.

“If you engage in this type of behaviour, it’s not just the company involved that can be fined, there’s a substantial risk that directors and other individuals involved in the conduct may be fined as well.”

Lett notes there are “limited” circumstances where businesses can legitimately require employees to repay their wages, and often the details of those circumstances are clearly outlined in the award that applies to them.

While there are some circumstances in which costs can be recovered from an employee after they have used an employer’s private property, this area is complex, she says.

“In terms of requiring a repayment from an employee, an employer may recover actual costs directly incurred as a result of the voluntary private use of property of the employer. However, the employee’s use must be voluntary. I would also advise employers to double check their award or enterprise agreement to see if it the repayment is explicitly authorised in the circumstances,” she says.

“However, any repayment requirement must be reasonable. This area is a minefield, so get advice if you’re unsure.”

In a statement on the Coffee Club case, Fair Work Ombudsman Natalie James said the significant penalties imposed were an effort to “send a message” about the serious implications of exploiting foreign workers.

“We will do everything within our power to pursue any employer who thinks they can exploit the power imbalance they have over migrant workers they employ,” James said.

“Any unscrupulous employer tempted to engage in this sort of conduct should think again because there are serious consequences for this type of behaviour.”

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