Half-baked compliance: The evidentiary burden for establishing franchisor liability for franchisees’ contraventions

Responsible franchisor duty

Franchisors have obligations pursuant to section 558B of the Fair Work Act 2009 (Cth) (FW Act), which provides that a “responsible franchisor entity” can be held liable if they could reasonably have known of the breaches by their franchisees (the responsible franchisor duty).

Our previous article considered the responsible franchisor duty with respect to the Federal Court of Australia’s decision in Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576, in which a franchisor was held liable to pay $1.44 million in penalties for a “systematic failure to ensure [industrial] compliance within its franchise network” following underpayments at various franchisee outlets in New South Wales. In that case, the Court found that the franchisor contravened its responsible franchisor duty owing to (1) its awareness of franchisees contravening their obligations and engaging in underpayment of employees’ entitlements and (2) its failure to take reasonable steps to prevent those contraventions.

More recently, the Full Court of the Federal Court dismissed an appeal in Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144, affirming the decision at first instance which broadened the Fair Work Ombudsman’s (FWO) power to pursue franchisors in matters relating to its franchisees' contraventions by reducing the evidentiary burden required to establish franchisor liability. 

Background

Three outlets operated by Make Dough Enterprises Pty Ltd (in liq) (Make Dough), a former franchisee of Bakers Delight Holdings Ltd (BDH), underpaid 88 employees a collective total of $642,162.66 and also committed associated record keeping contraventions, between 2017 and 2020. BDH was made aware of these underpayments in 2019 and failed to take reasonable steps to prevent further underpayments from occurring.

The FWO sought to attribute liability to BDH for underpayments made from February 2019 to October 2020, pursuant to the responsible franchisor duty, in conjunction with the reverse onus provision (section 557C) of the FW Act. The reverse onus provision provides that in proceedings relating to a contravention by an employer of a civil remedy provision (such as an underpayment), the employer has the burden of disproving the allegation, unless there is a reasonable excuse for that non-compliance.

At first instance, the Court held that the reverse onus provision applied to both the employer (franchisee) and the responsible franchisor. Therefore, even though the franchisee had failed to keep the required records to comply with their record-keeping obligations, the Court found BDH liable for the underpayments which occurred. The effect of this decision is that the Court effectively reduced the evidentiary burden required for the FWO to pursue franchisors for its franchisees’ contraventions.

The Full Court’s decision

BDH sought to appeal this decision to the Full Federal Court, arguing that the reverse onus provision should not apply to franchisors, and instead, the usual evidentiary requirements should apply, with the onus of proof remaining on the FWO when pursuing franchisors for franchisee contraventions. 

On 16 October 2025, the Full Federal Court unanimously dismissed this appeal, finding there was no reason not to apply the reverse onus provision to franchisors. Instead, the Court determined this approach was consistent with that adopted with respect to other accessorial liability provisions in the FW Act. The Court held that the purpose of the responsible franchisor duty is to impose liability on franchisors who have “the capacity to supervise and affect the performance of their franchisees in terms of their [FW Act] obligations”, including their record keeping obligations. Furthermore, it found that: 

“There is no reason to apply [the reverse onus provision] any differently when the employer is also a franchisee, and the franchisor liability provisions of the FWA are also in issue in a proceeding. Nor is there any objective basis in the legislative scheme to distinguish between solvent and insolvent employers/franchisees, or participating or non-participating employers/franchisees, bearing in mind active participation as a respondent party will be a forensic choice.”

Takeaways 

This decision helpfully reminds franchisors of the importance of taking reasonable steps to prevent breaches of workplace laws by their franchisees, as otherwise they can be held liable for a franchisees’ underpayment of workers or other contraventions of the FW Act (including their record keeping obligations), if they know, or should reasonably have known, about the contraventions. 

Franchisors should therefore be proactive in taking steps to try and prevent their franchisees from contravening applicable workplace legislation. Franchisors should implement comprehensive compliance programs, designed to oversee their franchisees’ operations, which may include:

• Conducting regular compliance audits of franchisee payroll systems and practices, including ensuring compliance with the franchisee’s record keeping obligations. This decision provides a clear example of the difficulty for franchisors in rebutting the presumption that employees have not received all of their entitlements, in circumstances where franchisees have not kept compliant records;
• Implementing effective training and support to prevent contraventions from occurring, as well as remedial action protocols when/if contraventions are identified; and
• Maintaining adequate records of the oversight that is maintained in relation to their franchisees’ practices.

If you would like to discuss the implications that this decision may have for your business, or how we can help you to strengthen the risk management controls within your business, please do not hesitate to contact us.

This article was written with the assistance of Alexander Chau.