VCAT's Warning to Employers: Prevent Sexual Harassment and Participate in the Process

What Employers Can Learn from the Spanish Doughnuts Sexual Harassment Case

McColley v Spanish Doughnuts Franchising Pty Ltd [2026] VCAT 665

A recent VCAT decision involving Spanish Doughnuts Franchising Pty Ltd provides a stark reminder of two important risks for employers: the consequences of failing to prevent workplace sexual harassment, and the dangers of failing to properly engage with litigation once a claim is commenced.

What happened?

According to the Tribunal's findings, McColley was a young employee working for Spanish Doughnuts Franchising in 2022. During her short employment, the CEO engaged in a pattern of conduct that included:

• sending suggestive and inappropriate messages;

• commenting on her appearance;

• offering gifts;

• arranging unnecessary one-on-one meetings;

• isolating her from colleagues;

• taking her on work-related trips that did not genuinely require her attendance; and

• pressuring her to share accommodation arrangements during a business trip.

The Tribunal ultimately found that the conduct created a workplace that was intimidating, hostile, degrading and offensive to women. It also characterised aspects of the CEO's behaviour as "predatory" and "grooming" in nature.

The first decision: losing the case before trial

Throughout the proceeding, the respondents repeatedly failed to comply with Tribunal directions requiring them to file evidence. The respondent referred to health issues and difficulties obtaining legal representation. However, VCAT found these explanations did not adequately justify the ongoing non-compliance.  

As a result, the Tribunal determined the proceeding in favour of the applicant. In other words, the respondents effectively lost the liability dispute because of their failure to engage with the proceedings properly.

The second decision: substantial compensation

Following the liability decision, VCAT conducted a further hearing to determine compensation. The Tribunal ultimately ordered the CEO and company to pay more than $72,000 in damages to McColley.

The award reflected the serious nature of the conduct and its impact on the worker. The Tribunal found both the individual perpetrator and the company liable.

Why was the company liable?

One of the most important aspects of the decision for employers is that liability did not stop with the individual alleged harasser.

The company was also held responsible for the conduct occurring within the workplace. The Court heard that the business had no dedicated HR function and no sexual harassment policies or training in place at the relevant times.

The case serves as a reminder that employers can be held vicariously liable for sexual harassment perpetrated by their employees, managers and executives unless they can demonstrate they took reasonable steps to prevent the conduct. A lack of policies, training, reporting pathways and preventative measures may make it much harder to establish that defence.

Key lessons for employers

1. Sexual harassment is a work health and safety issue

The facts of this case reinforce the growing recognition that sexual harassment is not merely a behavioural or HR issue. It is a psychosocial hazard capable of causing significant psychological harm. Employers should treat prevention efforts as part of their workplace health and safety framework.

2. Senior executives can create significant risk

The alleged harasser in this case was the CEO. Where misconduct is committed by a senior decision-maker, organisations face heightened legal and reputational exposure because the individual often represents the company's direction and culture.

3. Policies alone are not enough

Employers should ensure they have:

• up-to-date sexual harassment policies;

• regular workplace training;

• clear reporting pathways;

• independent complaint handling processes; and

• active monitoring of workplace culture.

Importantly, these measures need to be implemented in practice, not simply exist on paper.

4. Take legal proceedings seriously

A striking feature of this matter is that the respondents' procedural failures significantly influenced the outcome. Even where an employer believes allegations are exaggerated or unfounded, failing to comply with tribunal directions can effectively remove the opportunity to defend the claim.

5. Early intervention matters

Several of the behaviours identified by the Tribunal reflected boundary crossings that escalated over time. Employers should encourage early reporting and intervene before concerning conduct develops into more serious misconduct.

Final thoughts

The McColley decision is a powerful reminder that workplace sexual harassment claims can expose employers to significant financial liability, particularly where inappropriate conduct is perpetrated by senior leaders and there is little evidence of preventative measures. Just as importantly, the case demonstrates that ignoring tribunal directions or failing to meaningfully engage with litigation can turn into a costly loss.

For employers and HR practitioners, the message is clear: invest in prevention, respond quickly to complaints, and if proceedings are commenced, engage with the process from day one.