A recent decision by the Full Federal Court has reinforced the Fair Work Ombudsman’s authority to pursue franchisors for workplace breaches committed by their franchisees.
The case confirms that franchisors can be presumed liable for certain breaches under the Fair Work Act — even if the franchisor did not directly employ the affected workers. This development significantly heightens the legal risks for franchisors and underscores the importance of implementing strong compliance systems across franchise networks.
The case at a glance
In Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144, the Court dismissed an appeal by Bakers Delight, confirming that the “reverse onus” provisions in the Fair Work Act 2009 (Cth) apply when the Fair Work Ombudsman (FWO) seeks to hold a franchisor responsible for a franchisee’s contraventions.
In simple terms, this means that if a franchisee fails to keep proper employment records, the law presumes that breaches — such as underpayments — occurred. The burden then shifts to the franchisor to disprove those breaches, even though the franchisor may not have been directly involved.
What happened
The case arose after the FWO launched proceedings against a Tasmanian franchisee of Bakers Delight, Make Dough Enterprises Pty Ltd, alleging underpayments of more than $640,000 to 88 employees, as well as record-keeping breaches. The franchisee has since gone into liquidation.
The FWO also pursued Bakers Delight Holdings Ltd as the “responsible franchisor” under the extended liability provisions of the Fair Work Act.
These provisions — introduced by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 — make franchisors liable where they knew or ought reasonably to have known that a franchisee was likely to breach workplace laws, but failed to take reasonable steps to prevent it.
The question before the Court was whether the reverse onus in section 557C of the Act (which presumes contraventions where proper records are not kept) can also be used in a case against a franchisor.
The Full Court held that it can.
What the Court said
The Full Court ruled that section 557C is not limited to proceedings directly against an employer. It can also apply in derivative liability proceedings against a franchisor.
The judges made clear that the intent of the law is to ensure franchisors — who have the power to supervise or influence franchisees — bear responsibility if they fail to ensure compliance.
In the Court’s words, it is “appropriate to sheet home to a franchisor legal responsibility” for a franchisee’s failures where the franchisor could have prevented them through proper systems and oversight.
As a result, even where a franchisee is insolvent or cannot defend the allegations, the franchisor may still face the burden of disproving wage-related breaches.
Why this matters for franchisors
This decision confirms that franchisors can be presumed liable for franchisee underpayments or record-keeping breaches — a significant expansion of potential liability.
Combined with recent increases to Fair Work penalties, this means non-compliance within a network can have substantial financial and reputational consequences.
Key implications include:
1. Record-keeping failures by franchisees can directly impact franchisors
If a franchisee fails to keep compliant employee records, the franchisor may be assumed to have broken the law unless they can prove otherwise. This becomes particularly problematic if the franchisee has gone into liquidation or cannot produce the records.
2. The FWO is likely to take a tougher stance
This ruling enhances the FWO’s capacity to pursue franchisors and is likely to boost enforcement efforts across the franchising sector.
3. “Reasonable steps” are now more critical than ever
A franchisor can avoid liability only if it demonstrates it took reasonable steps to prevent breaches. The scope of what qualifies as reasonable will likely be examined in future cases, but it generally includes proactive oversight, audits, training, and documentation.
4. Penalties for serious breaches are substantial
Under the current penalty regime, franchisors can be fined up to $4.95 million or three times the amount of the underpayment — whichever is greater. Additionally, they are often required to compensate affected workers.
Practical steps franchisors should take
To minimise exposure and safeguard both the brand and the network, franchisors should act now to bolster compliance systems. Key actions include:
- Audit and monitor regularly: Establish systems to track franchisee compliance with award obligations, pay rates, and record-keeping. Conduct regular payroll and timesheet audits.
- Strengthen franchise agreements: Include clear clauses requiring compliance with workplace laws, mandatory record-keeping, audit rights, and consequences for non-compliance.
- Provide training and support: Offer compulsory training for franchisees and managers, supply checklists and payroll templates, and ensure franchisees understand their obligations.
- Consider centralised systems: Where feasible, implement approved payroll or rostering systems with built-in compliance checks.
- Document everything: Maintain comprehensive records of training, audits, findings, and remediation steps. This evidence is vital to show that the franchisor took reasonable measures to prevent breaches.
The takeaway
This decision reinforces that franchisor responsibility doesn’t stop at the contract boundary.
Regulators expect franchisors to take an active role in ensuring compliance across their networks — particularly where franchisees employ staff.
Franchisors should treat workplace compliance as a core part of brand protection, not merely a franchisee issue.
Need help reviewing your franchise documentation or compliance framework?
Aventus Legal assists franchisors with legal reviews, compliance audits, and system updates to ensure your network is both compliant and resilient.
📞 Contact us today to discuss your obligations under the Fair Work Act and the Franchising Code of Conduct.
