The court's decision has established a significant precedent that could hold franchisors accountable for workplace breaches committed by their franchisees. This follows the introduction of 2017 laws designed to ensure parent companies are increasingly responsible, particularly when wage underpayment claims arise and records are not properly kept.
In this case, the court found a major national bakery chain could be presumed responsible for more than half of an alleged $1.2 million in underpaid wages owed to 140 workers in Tasmania. The ruling focused on the franchisor’s lack of action following a 2019 audit that revealed ongoing wage breaches. Despite knowing about the issues, the franchisor failed to take effective steps to prevent the underpayments.
This marks the first time a full Federal Court has examined how “reverse onus” provisions, usually applied to employers who fail to keep accurate payment records, can be extended to franchisors. If no reliable records exist, it becomes the franchisor’s responsibility to demonstrate that underpayments did not occur. Legal experts say this raises compliance expectations and will make it harder for franchisors to avoid responsibility when franchisees breach workplace laws.
According to the 2017 laws, franchisors can be held liable if they knew about breaches but did not take reasonable action to prevent them. The court's decision highlights the supervisory role franchisors have over their franchisees, where inaction can result in significant legal consequences under workplace law. It also strengthens the authority of the Fair Work Ombudsman to investigate parent companies for widespread issues such as wage theft.
Although the matter is scheduled to return to court in November for further proceedings, the judgment is already changing how franchises operate in Australia. Franchisors may now need to take a more active role in ensuring wage compliance within their networks, especially when record-keeping is inadequate or not in place.
