Liability of Franchisors for Underpayments by Franchisees

In the recent decision of Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 (the Decision), the Federal Court of Australia (the Court) has held that the Fair Work Ombudsman (the FWO) has the power to hold franchisors to account for the conduct of their franchisees, namely, breaches of the underpayment provisions of the Fair Work Act 2009 (Cth) (the FW Act).

Overview

Proceedings were brought by the FWO against Make Dough Enterprises Pty Limited (Make Dough), a retail bakery operating under the franchised brand “Baker’s Delight” in three locations across Tasmania. Accordingly, the FWO brought proceedings on the basis of alleged underpayment of workers amounting to approximately $1.2 million, a civil remedy provision of the FW Act. Proceedings were originally brought against the directors of Make Dough, being the franchisee.

However, the FWO also listed the franchisor, being Bakers Delight Holdings Limited (Bakers Delight), as a respondent, alleging a contravention of section 558B of the FW Act. Section 558B of the FW Act is a form of accessional liability, which makes a ‘responsible franchisor entity’ liable for a franchisee’s contravention of workplace law or civil remedy provision, and the franchisor was aware or should have been reasonably aware of the contravention.

Making a finding against Make Dough and Bakers Delight, Bakers Delight sought to challenge the decision with respect to the operation of section 558B, in particular, what the FWO was required to prove about Make Dough’s contraventions of the civil penalty provisions.

Holding

The appeal put forward by Bakers Delight was dismissed. It was determined that the FWO’s has the power to hold franchisors to account for franchisees’ underpayments.

The Full Court in its ruling stated that s 558B of the FW Act “should be approached no differently to the accessorial liability provision in s 550”, which describes that “a person involved in a contravention is treated in the same way as an actual contravention”. Therefore, the FWO can rely on the “reverse onus of proof” where there is a presumption the employer has contravened the workplace law if it fails to keep proper records and disprove the allegation, in accordance with s 557C of the FW Act.

In total, the FWO alleged that Bakers Delight is liable as the responsible franchisor for the sum of $642,162.66.

Key Takeaways

Franchisees should be aware of their obligations owed to their employees, and franchisors should be aware of the actions taken by their franchisees.

If you have any questions about this matter and what it could mean for you as an employee or a franchisee, please do not hesitate to contact Nick Stevens, Josh Hoggett, Evelyn Rivera or Ayla Hutchison.