Thursday, 10 August 2023

Franchisor prosecuted for alleged underpayments of franchisee

The Fair Work Ombudsman (FWO) has recently commenced proceedings for wage underpayments against Make Dough Enterprises Pty Ltd (Make Dough), as well as Make Dough’s owners personally who operated three Bakers Delight stores in Tasmania.

The FWO alleges that Make Dough underpaid 142 workers a total of $1.25 million between July
2017 and October 2020.

Additionally, the FWO is also seeking to hold Bakers Delight Holdings Ltd (Bakers Delight)
liable for Make Dough’s non-compliance with workplace laws, as the franchisor.

This is only the second time since the introduction of the vulnerable worker legislation in 2017
that the FWO is seeking to hold a franchisor responsible for the actions of a franchisee.

The FWO has claimed that the underpayments arose due to Make Dough’s failure to pay
minimum wages, weekend and public holiday penalty rates, overtimes rates and leave
entitlements. Further, the FWO alleges that Make Dough, and its owners committed a range of
other contraventions of the Fair Work Act 2009 (Cth) (Act), including providing false records to
the FWO and failing to comply with notices to produce documents.

The FWO has claimed that a portion of the underpayments amount to ‘serious contraventions’
under the Act, attracting 10 times the maximum penalty which can be awarded under the Act.

The current maximum penalties under the Act are $93,900 per contravention for companies
($939,000 for serious contraventions), and $18,780 per contravention for individuals ($187,800
for serious contraventions).

Franchisor Liability

In 2017, the Act was amended to hold franchisors responsible for contraventions of the Act by
their franchisees. This includes when franchisees breach the National Employment Standards,
modern awards and/or enterprise agreements.

Franchisors may be liable for their franchisee’s conduct if they:

  • knew, or could reasonably be expected to have known, that a relevant contravention
    would happen; or
  • at the time the contravention happened, knew, or could reasonably be expected to have
    known, that a contravention of the same or similar kind was likely to happen; and
  • have not taken reasonable steps to prevent the contravention or a contravention of the
    same or similar character.

In this case, the FWO alleges Bakers Delight head office became aware of the underpayments
from at least February 2019 when it conducted an internal audit, but failed to prevent future

When Bakers Delight presented the audit findings to Make Dough, it asked them to commit to a
range of measures to address the non-compliance issues. However, Make Dough refused, and
Bakers Delight allegedly took no further action to prevent further underpayments. On this basis,
the FWO has limited its claims against Bakers Delight to underpayments which occurred after
February 2019.

As an aside, we note that wage theft is prohibited at both a State and Federal level. In Victoria,
the Wage Theft Act 2020 (Vic) came into effect on 1 July 2021 which has criminalised
underpayments in certain circumstances.

Key Takeaways for Franchisors

While this matter is yet to be determined by the Federal Court, it is a timely reminder to
franchisors that they can be held liable for the contraventions of the Act by their franchisees.

As such, Franchisors should take pro-active steps to ensure reduce their risk. These may

  • Setting expectations with their franchisees about compliance.
  • Educating franchisees about their obligations under the Act and other industrial
  • Ensuring franchisees provide staff with compliant employment contracts and policies.
  • Providing annual updates and training to franchisees on minimum wages and conditions.
  • Providing assistance for both franchisees and their staff to address concerns.
  • Requiring regular reporting from franchisees.
  • Monitoring compliance through audits, and requiring that any issues be addressed promptly and appropriately by franchisees.

If you require assistance with implementing any of the above steps or have further questionsabout franchisor liability, please contact HR Legal.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.