Half-baked compliance won’t rise: Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 turns up the proof on franchisors The Full Court has handed franchisors a very clear message in

Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 (16 October 2025). If a franchisee underpays staff and keeps shoddy records, head office can’t assume that mess stays at store level. The Court confirmed that the Fair Work Ombudsman (FWO) can use the Fair Work Act’s “reverse onus” to prove the franchisee’s underpayments, and then rely on those presumed contraventions to chase the franchisor as a “responsible franchisor”.

What happened and what’s at stake

This appeal sits inside a bigger underpayment case about three Bakers Delight stores in Hobart. The franchisee company is now in liquidation. The FWO alleges the franchisee underpaid around 142 mostly young employees between 2017 and 2020. Total alleged underpayments are about $1.25 million.

The FWO is seeking orders that those underpayments be repaid to staff in the first instance, along with interest and any superannuation shortfalls. It is also seeking civil penalties. For Bakers Delight as franchisor, the alleged exposure is essentially the portion of the underpayments said to have occurred after head office knew (or should have known) there were likely contraventions. Reporting to date suggests that figure is roughly half the total — around $640,000 — but the final number will be determined at trial.

So the appeal wasn’t about whether workers were underpaid. It was about how the FWO can prove those underpayments when the franchisee’s records are missing or unreliable.

The reverse onus, in plain terms

Section 557C of the Fair Work Act is the “reverse onus” tool. If an employer fails to keep proper wage records, the Court can presume the employee’s claims about hours and pay are correct. The employer then has to disprove them. The point is obvious: you can’t fairly expect workers to reconstruct years of rosters and payslips when the employer didn’t keep the required records.

Until this case, franchisors had a plausible argument that s 557C only applied in cases directly against employers, not in derivative cases against franchisors. Bakers Delight ran that argument. The Full Court said no.

What the Full Court decided

The Court’s reasoning is simple and pragmatic:

1. The reverse onus isn’t limited to claims against employers. The FWO can use it to establish the franchisee’s breaches even when those breaches are only a stepping stone to a responsible franchisor claim.

2. That result fits the purpose of the franchisor liability regime. Those provisions were introduced after the 7-Eleven scandals to make sure franchisors who can influence compliance actually do so. If the reverse onus couldn’t be used, the regime would be weakest exactly where Parliament meant it to be strongest — when franchisee records are bad or the franchisee is insolvent.

3. The law already protects franchisors in the right place. The safeguard is the “reasonable steps” defence in s 558B. If a franchisor took reasonable steps to prevent likely contraventions, it can avoid liability. The Court was not persuaded that blocking s 557C was needed to “balance the scales”.

The appeal was dismissed. The case now goes back for the real fight: whether Bakers Delight was a responsible franchisor on the evidence, and if so, what penalties and compensation orders follow.

Why franchise lawyers should care

If you’re a franchise lawyer, this shifts the risk landscape. Bad franchisee records are no longer just a franchisee problem. They can create a presumption of underpayment that the franchisor then has to live with, explain, or disprove. That’s especially painful when the franchisee is in liquidation and can’t (or won’t) run the factual defence.

It also means responsible franchisor cases will turn even more on “reasonable steps”. In other words, the courtroom spotlight moves to head office systems and behaviour.

What “reasonable steps” now needs to look like

The Full Court didn’t decide this part, but it strongly hinted at the standard. For franchisors — and for the franchise lawyer advising them — a few themes are now hard to ignore:

• Audit early and audit properly. Don’t just collect self-certifications. Review payroll, rosters, classifications, and record-keeping. Then re-audit after fixes.

• Treat complaints as triggers, not noise. If staff complain, investigate and document what you found and what you did about it.

• Build system controls. Standard payroll platforms, mandated time-and-attendance tools, and reporting lines that head office can actually interrogate matter.

• Use your levers. Training is good, but enforcement is better. If franchisees don’t comply, escalate. Warnings, remediation directions, or termination pathways need to be real, not theoretical.

• Keep a paper trail. When the FWO comes knocking, “we had a program” won’t cut it unless you can show how it worked in practice.

Takeaways

Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 confirms a tougher evidentiary world for franchisors. The FWO can presume franchisee underpayments when records are deficient and then lean on that presumption to pursue head office. The workers’ backpay claim is about $1.25 million, and the franchisor’s potential share is around $640,000, before penalties. Those numbers will be tested at trial, but the direction of travel is set.

For franchisors, and for any franchise lawyer giving risk advice, the message is blunt: you need active compliance that you can prove. Half-baked systems won’t rise anymore