Recent landmark court ruling sends a clear message to franchisors: you can be held responsible for wage underpayments and record-keeping failures committed by your franchisees.
In Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144, the Full Court of the Federal Court confirmed that franchisors may inherit liability for breaches of the Fair Work Act 2009 (the Act) by their franchisees—particularly when they exercise a degree of control or should reasonably have known about the misconduct.
What Happened?
The case arose when a Bakers Delight franchisee failed to:
- Keep adequate employee records,
- Issue compliant pay slips, and
- Pay correct wages and entitlements.
The Fair Work Ombudsman (FWO) pursued the franchisor directly, relying on the reverse onus of proof provisions in the Act. These provisions shift the burden of proof from the party claiming underpayment of wages to the employer when records are missing—meaning they must prove that no underpayments occurred in order to succeed in their defence.
Bakers Delight argued that the reverse onus should not apply to it since it was not the direct employer. The Court disagreed, confirming that a franchisor can be held liable if it had control or influence over its franchisee’s operations and did not take reasonable steps to prevent contraventions by its franchisee.
Why This Matters
This ruling has significant implications for franchisors across Australia. It highlights that:
- Ignorance is not a defence—constructive knowledge of breaches is enough.
- Significant degree of control or influence over franchisee operations increases legal exposure.
- Record-keeping failures can trigger a reverse onus on the franchisors to prove that contravention did not occur.
What Should Franchisors Do?
To mitigate risk, franchisors should:
- Conduct regular audits of franchisee employment practices.
- Provide training and resources on employment law compliance.
- Maintain clear documentation showing proactive steps to prevent breaches.
- Include compliance obligations in franchise agreements.
Final Thoughts
The Bakers Delight case demonstrates that franchisors can be held liable for franchisee contraventions of workplace laws if they knew or could reasonably have been expected to know that a contravention was likely to occur – unless they can satisfy the court that they took reasonable steps to prevent contravention. With the FWO actively pursuing franchisors for franchisee breaches, we recommend that franchisors proactively take steps to support their franchisees in following best workplace practices and maintaining clear and timely documentation.
Our Employer & Employee Relations Team can assist with reviewing your current contracts and policies and providing legal advice tailored to your business model.
Please contact us for more information on 03 9614 7111 or by email at melbourne@nevettford.com.au.