What the Bakers Delight Case Means for Franchisor Liability
A recent decision of the Full Federal Court in Bakers Delight Holdings Ltd v Fair Work Ombudsman has reinforced the legal responsibility franchisors may bear for workplace breaches committed by their franchisees.
Case Background
In this case, the Court considered whether a franchisor could be held liable for a franchisee’s underpayment of wages. The judgment confirmed that franchisors may be found liable where they either knew, or reasonably should have known, about the contraventions and failed to take reasonable steps to prevent them. This finding highlights a shift away from passive oversight toward more active compliance monitoring within franchise networks.
Importantly, the burden of proof may rest with the franchisor to demonstrate that they took appropriate preventative action. This ‘reverse burden’ significantly increases the legal exposure of franchisors, especially in circumstances where franchisees are financially distressed or insolvent.
What This Means for Franchisors
The decision clarifies that franchisors can no longer treat franchise arrangements as purely arm’s-length commercial relationships. Modern franchising often involves the use of sophisticated systems to track financial performance, staffing levels, and other operational data. While these tools can support business growth, they also make it harder for franchisors to remain unaware of non-compliance.
Critically, failing to act on red flags may be viewed as tacit approval or neglect, potentially exposing the franchisor to liability under section 558B of the Fair Work Act.
In short, franchisors face heightened obligations to ensure franchisee compliance with workplace laws.
Practical Compliance Steps
To mitigate risk, franchisors should consider the following strategies:
Due Diligence
Implement robust due diligence during franchisee recruitment, including an assessment of the franchisee’s employment law knowledge and history.
Workplace Compliance Training
Provide mandatory workplace compliance training for new and existing franchisees.
Labour-Related Metrics
Monitor labour-related metrics (e.g. staff hours, wage costs, and efficiency ratios) to detect potential breaches early.
Contractual Protections
Incorporate proactive contractual protections, such as step-in rights or early intervention mechanisms.
Compliance
Foster a culture of compliance by offering resources like legal hotlines or HR advisory services to support franchisees.
Adopting a compliance-first mindset reduces legal risk and helps maintain brand reputation and franchisee trust.
Disclosure Obligations Under the Franchising Code
The Franchising Code of Conduct imposes specific disclosure requirements on franchisors relating to Fair Work contraventions. These include:
- Disclosing any proceedings or judgments under sections 558B(1) or (2) of the Fair Work Act in the disclosure document.
- Notifying franchisees of materially relevant facts, including civil penalties or enforcement actions, even outside formal disclosure updates.
While the Code permits termination of franchise agreements in cases of serious contraventions, a reactive approach risks reputational damage and may trigger broader compliance scrutiny.
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The Bakers Delight decision is a reminder that franchisors must maintain active oversight of workplace compliance throughout their networks. Accessorial liability is a legal reality that requires proactive systems, regular reviews, and a well-documented compliance program.
For legal advice on managing franchisor obligations or reviewing your current franchise agreements, contact us today. We provide a free 30-minute consultation for all new enquiries.
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Related Blog – Is It Illegal Not to Have a Work Contract?