A Federal Court decision has dismissed an appeal by Bakers Delight against a finding that it was liable for its share of a franchisee’s alleged $1.2 million underpayment of 140 workers.
In appealing the original finding, Bakers Delight claimed it was not responsible for the underpayments as it was neither the employer, nor did it have record-keeping responsibilities. However, the court found the reasoning was contrary to the intent of the law.
Two years ago the Fair Work Ombudsman took legal action against the franchisee, Make Dough Enterprises, alleging staff in three stores were underpaid their minimum wages.
The FWO claimed the franchisor uncovered the underpayment issue through an audit in 2019 and that neither the franchisee nor Bakers Delight took any preventative action.
The full court of the Federal Court maintains Bakers Delight bears reverse onus of proof for the alleged franchisees’ underpayments – even though the franchisee has since gone into liquidation.
It said, “If ‘blame’ be a relevant concept (which we doubt) and if all statutory conditions in s558B are met, then a franchisor is liable because the franchisor has failed to exercise appropriate supervision and control over the franchisee’s affairs, leading to the civil remedy contraventions.”
Bakers Delight issued a statement on the result: “While we are disappointed with the finding, we fully respect the Court’s decision and will now take some time to consider our next steps.”
The Fair Work Ombudsman has welcomed the decision.
In a statement, an FWO spokesperson said, “The Full Federal Court decision confirms the Fair Work Ombudsman’s position that the Fair Work Act’s reverse onus provision, section 557C, applies to franchisors (and holding companies) in the same way that it applies to employers and accessories.
“This confirms that, to establish liability against a franchisor under the Act’s responsible franchisor provisions, it is not necessary for the FWO to separately prove a contravention by the employer/franchisee without the assistance of s 557C, where their franchisee has failed to keep required records and/or pay slips.”
The matter will now return to the Federal Court for consideration of liability, with a next court date of 21 November 2025.
