In a judgment published on Monday, the Industrial Court found the fried chicken franchise had failed to provide and maintain safe practices for cleaning its industrial-sized cooker.
Magistrate Stephen Lieschke said the teenager suffered severe burns after falling over backwards into a 51L vat of hot oil placed behind him, without his knowledge, by the other teenager.
"KFC's business model relies on child workers to use commercial volumes of dangerously hot oil and, in this case, relied on another legal child to train a new employee with insufficient safety guidance," he said.
"Such young workers are necessarily inexperienced, despite their intelligence and good work ethics, and so need greater protection than adults."
KFC, which has no prior convictions, pleaded guilty at the first court hearing and faced a maximum fine of $1.5 million.
It is the second fast food chain to be penalised over hot oil burns in the past two years - burger giant Hungry Jack's was fined $90,000 over a near-identical incident.
In his judgment, Magistrate Lieschke said the incident occurred at KFC's Eastwood outlet in May 2015, when the injured cook was 16 years old.
"He was one of five cooks working ... this was only his fifth three-hour shift as a cook," he said.
"While he was performing his duties ... a 17-year-old worker was showing a trainee how to clean an oil filter in one of the cookers.
"This involved draining the oil into a purpose-built tank ... (the cook) was not warned that the tank had been placed behind him."
Mr Lieschke said the trainer "left the area with the trainee" to turn off the power supply to the cooker.
"At that point (the cook) stepped backwards, tripped on the tank and fell backwards on to its cover, which dislodged," he said.
"(The cook) fell into the hot oil ... his estimate was of it being about half-full."
Mr Lieschke said that, when tested two hours later, the oil's temperature was 108 degrees but "it was obviously hotter" at the time the cook fell into it.
He said that, despite having suffered burns to 9 per cent of his body and an "adverse affect" upon his school studies, the cook had "to his great credit" returned to work at KFC.
The company, he said, had supported the cook throughout his recovery and made a voluntary compensation payment of $15,000.
He noted KFC had identified the risks posed by hot surfaces but had failed to specifically address "the hazard of hot oil".
"As a result, the 17-year-old trainer - a necessarily inexperienced youth - was left to work out a system for performing the task and instructing new employees," he said.
"The trainer ... had never been required to demonstrate the process ... the system was clearly deficient, as KFC admitted."
Mr Lieschke said KFC had since changed its cleaning process not only at Eastwood, but "company-wide", so as to "eliminate the risk of contact with hot oil".
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