In a recent ruling that should galvanise franchisors across Australia to pursue greater oversight of their franchisees’ payroll practices and to intervene more actively as necessary, the Federal Court has dismissed an appeal by a major franchise network against a finding of liability for underpayments by one of its outlets by the Fair Work Ombudsman (FWO).

In Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 (16 October 2025), the Court confirmed that the Ombudsman can use the reverse-onus rule in section 557C of the Fair Work Act 2009 (Cth) (FWA) when pursuing franchisors under section 558B.

Simply stated, the decision means that if a franchisor knows or (ought to know) a franchisee is breaching employment laws by underpaying staff, and fails to take reasonable steps to stop the breaches, the franchisor may be liable under the FWA. This shifts the onus squarely onto the franchisor as the party ultimately responsible for the employment practices and behaviour of franchisees’ staff – not the franchisee.

The matter amounts to a test case on the interaction between the ‘reverse onus’ and franchisor liability mechanisms in the FWA, and the FWO decision – upheld by the Federal Court – continues a recent series of activist interpretations of the Act by Fair Work Australia.

In the Bakers Delight case, the FWO alleged Bakers Delight Holdings was liable for $642,162 in underpayments at three Hobart stores that occurred after February 2019 because it became aware the franchisee operating the stores had been underpaying staff, but failed to take preventative action. It also alleged the franchisee of the three stores, Make Dough Enterprises Pty Ltd, allegedly directly employed and underpaid the affected workers. Make Dough Enterprises was liquidated in 2023, and the three stores closed.

Central to the case was the allegation that Bakers Delight Holdings knew or should have reasonably known that workers at the three stores would be underpaid because an audit it commissioned identified underpayments and other non-compliance issues at the stores. Bakers Delight provided the audit findings to Make Dough Enterprises, and sought its commitment to a range of measures to address these issues.

However, after Make Dough Enterprises allegedly refused to take any action, Bakers Delight took no further action to address non-compliance issues and the underpayments continued.

The Full Court of the Federal Court found that awareness without substantive intervention is no defence; the reverse onus provision applies even to a franchisor. Hence, the franchisor may face joint liability for the franchisee’s breaches.

In light of the Federal Court’s ruling in the matter, franchisors should review their franchise agreements to ensure audit, access, and enforcement rights are clear:

  • Audit their networks for payroll and record-keeping compliance;
  • Train and monitor franchisees – compliance programs should be documented and recurring;
  • Act promptly on any red flags, staff complaints, or adverse audit findings;
  • Keep evidence of all steps taken to prevent (and remedy) contraventions of the FWA.

Rankin Business Lawyers is a commercial law firm specialising in franchising, employment law, and the rights and obligations of parties to franchising agreements and their responsibilities under the FWA, the Franchising Code of Conduct, and other applicable instruments. Any franchise-based business requiring assistance with workplace relations matters should contact us for practical, on-point legal guidance.