$169,000 Chatime underpayment allegations surface

By Nick Hall | 18 Dec 2019 View comments

Booming bubble-tea business Chatime has been slammed by the Fair Work Ombudsman (FWO) for allegedly underpaying staff more than $169,000. Unlike previous instances in the sector, the Chatime underpayment allegedly occurred at franchisor-operated outlets in Sydney and Melbourne.

On Wednesday, the FWO announced that it had commenced legal action against the Australian franchisor and managing director Chen ‘Charlie’ Zhao for his alleged involvement.

Sandra Parker, Fair Work Ombudsman said that the alleged underpayments were uncovered during proactive audits.

“It is particularly disappointing to be making allegations of significant underpayments against a franchisor of this size. We expect franchisors to not only pay their own staff correctly but to take responsibility for ensuring that their franchisees comply with the law.”

“Enforcing workplace laws in the fast food sector and in franchise networks more generally continue to be priorities for the Fair Work Ombudsman,” Parker said.

Chatime underpayment allegations

According to the industry regulator, the Chatime underpayment occurred between August and December 2016.

During the period, Chatime Australia reportedly paid employees at company-operated stores flat rates as low as $7.59 to $24.30 per hour adopted a practice of not paying Fast Food Industry Award entitlements such as loadings and penalty rates.

Where the real concern lies is in the chain’s apparent disregard for compliance. The FWO has alleged that Chatime failed to comply with award wages, despite the former chief financial officer providing information on minimum award rates and highlighting that Chatime Australia was “only partially complying”.

The allegations of callous misconduct are concerning, particularly in light of recent migrant worker exploitation cases.

The Chatime underpayment reportedly involved 152 employees – including 42 junior workers and 95 visa holders, resulting in a loss of $169,320 in wages. Many of the visa holders were international students, with individual underpayments ranging from $58 to $3,990. The alleged underpayments have been rectified in full.

While it’s a particularly bad look for the bubble-tea business, underpayment has become a hot topic in the franchise space in 2019. Tracy Angwin, CEO and founder of the Australian Payroll Association believes that reform is needed to address the growing issue.

“Unfortunately, franchisors have traditionally provided very little support to their franchisees, including fit-for-purpose technology to help them with standard operating procedures as well as payroll training and advisory services,” she told Inside Franchise Business.

“With increasingly more attention on payroll mismanagement and errors from the regulators, this support needs to be provided as part of a franchise agreement, either directly or from a third-party provider.”

Chatime Australia outlook

If the Federal Court finds the alleged Chatime underpayment to be accurate, Zhao faces penalties of up to $10,800 per contravention, with Chatime Australia Pty Ltd up to $54,000 per contravention.

The FWO is also seeking orders requiring Chatime Australia to commission workplace relations training for Zhao and other management staff. The brand would then be required to commission an independent professional audit of its compliance with workplace laws, provide a copy of the audit report to the Fair Work Ombudsman and rectify any underpayments identified.

A directions hearing is listed in the Federal Circuit Court in Sydney on 29 January 2020.