The Full Court of the Federal Court’s decision in Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 provides insight into the interaction between franchisor liability and ‘reverse onus’ mechanisms in the Fair Work Act 2009 (Cth) (Fair Work Act).

Specifically, the Federal Court confirmed that franchisors can be held legally responsible for workplace contraventions by franchisees, even where the case against the franchisee relies on a ‘reverse onus of proof’. Franchisors are recommended to implement proactive compliance systems across their networks to avoid liability.

Background

In 2023, the Fair Work Ombudsman (FWO) commenced proceedings against Make Dough Enterprises Pty Ltd (Make Dough) – a now-liquidated franchisee operating three Bakers Delight bakeries in Hobart – for underpaying its employees by a total of $1.25 million. The FWO also joined Bakers Delight Holdings (Bakers Delight) as a respondent, seeking to hold the franchisor jointly liable under derivative liability provisions of the Fair Work Act.

Issues

The FWO sought to invoke derivative liability provisions under the Fair Work Act 2009 (Cth) (Fair Work Act) to pursue Bakers Delight as a 'responsible franchisor'.

Section 588B establishes that franchisor liability requires proof of the following elements:

an employer / franchisee has contravened a relevant civil remedy provision of the Fair Work Act;
the franchisor is a “responsible franchisor entity” for that franchisee – usually meaning they have a significant degree of influence or control over the franchisee’s affairs;
the contravention occurred in the franchisee’s capacity as a franchisee;
the franchisor (or one of its officers) knew or could reasonably be expected to have known that the contravention would occur, or that a contravention of the same or a similar character was likely to occur; and
the franchisor did not take reasonable steps to prevent the contravention.

The FWO alleged that Bakers Delight was aware of the underpayments because its own commissioned audit identified the violations and was shared with Make Dough, yet no subsequent remedial action was pursued.

Notably, FWO sought to prove the franchisee’s contraventions by relying on a ‘reverse onus’ provision contained in section 557C of the Fair Work Act. This provision states that where proper records are not kept by the employer, the burden of proof shifts from the claimant to the employer. BDH argued that because it was the franchisor, and not the employer or the franchisee, the FWO could not rely on the provision.

In December 2024, Justice McElwaine determined that the FWO could rely on the reverse onus provision in s 557C of the Fair Work Act.

Bakers Delight appealed on this legal question, arguing that the FWO must independently establish franchisee contraventions without the benefit of the reverse onus provision.

Court of Appeal Findings

The Full Court unanimously rejected the appeal, ruling that the reverse onus provision in section 557C can apply when establishing the franchisee’s contravention under section 558B.

According to the Court:

this interpretation reflects Parliament’s clear policy objective: holding franchisors responsible when they possess sufficient influence over their franchise networks yet fail to prevent workplace violations;
the legislative scheme recognises that franchisors typically exercise substantial control over franchisee operations and therefore should bear accountability when systematic non-compliance occurs on their watch; particularly regarding record-keeping and payment obligations.

The Court characterised section 558B as a specialised form of accessorial liability, specifically designed to address the unique dynamics of franchise relationships.

Unlike the general accessorial liability provision in section 550, which requires proof that an accessory knowingly participated in contraventions, section 558B creates a tailored framework that captures franchisor responsibility based on their degree of control and their actual or constructive knowledge of breaches.

The Court emphasized that Parliament enacted this provision to strengthen workplace law enforcement in franchise arrangements, closing a gap where franchisors could avoid legal consequences despite having the capacity to prevent or remedy violations by their franchisees.

Importantly, the Court rejected BDH's contention that it would be unjust to impose liability on a “blameless franchisor”, reasoning that if all statutory preconditions in section 558B are satisfied, franchisor liability arises precisely because the franchisor failed to exercise appropriate oversight and control; thereby enabling the civil remedy contraventions to occur.

Implications for Franchisors

This decision reinforces that franchisors must exercise appropriate oversight and control in ensuring their franchisees comply with workplace laws.

The Court's ruling means that franchisors face severe consequences when employment record-keeping fails anywhere in their network. If franchisees do not maintain payroll records – or if franchisors fail to audit and verify this record-keeping – the reverse onus shifts the entire burden of proof onto the franchisor. Franchisors must then affirmatively disprove worker underpayment claims, which becomes increasingly difficult without comprehensive documentation. This risk multiplies when franchisees become insolvent or disengage from proceedings; leaving franchisors to defend allegations without access to crucial evidence.

Even where a franchisor exercises limited day-to-day control of the franchisee, liability can still attach to the franchisor if:

it is deemed to have the capacity to influence the franchisee’s compliance; and
knew or reasonably could be expected to have known that the contravention would occur.

Accordingly, franchisors must not assume that an arms-length contractual arrangement is sufficient to avoid exposure under section 558B.

Key Takeaways

To mitigate liability, it is recommended that franchisors consider the following measures:

Audit and Monitor: conduct systematic audits of franchisee payroll systems, focusing specifically on record-keeping compliance. Regular reviews must be documented and followed by corrective action.
Deliver Training and Resources: provide franchisees with accessible, practical guidance on Fair Work Act obligations, applicable awards, and enterprise agreements. Training should be continuous and include easy-to-use tools such as pay calculators and compliance checklists. The FWO has readily accessible free resources that can be provided to franchisees.
Create Accessible Complaint Channels: establish clear mechanisms for franchisee employees to report potential underpayments or workplace violations. These systems should be transparent, easily accessible, and coupled with documented protocols for investigating and resolving complaints promptly.
Enforce Through Franchise Agreements: ensure franchise agreements contain explicit workplace compliance obligations, grant comprehensive audit rights, and establish meaningful consequences for non-compliance and that these are then actioned.
Document Everything: maintain records of all compliance activities—training sessions delivered, audits conducted, issues identified, remedial actions taken, and franchisee responses. This documentation becomes essential evidence when defending against franchisor liability claims.

This decision highlights franchisor exposure when workplace violations occur within their franchise systems.

If wish to discuss the above or any other legal matters pertaining to franchising further, please contact:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Madison Goldsmith
Law Clerk
E: mgoldsmith@sladen.com.au