The Bakers Delight decision is a wake-up call for franchisors. When wage underpayments occur at the store level, head office can no longer assume it’s someone else’s problem.
In July 2023, the Fair Work Ombudsman (FWO) hauled in Bakers Delight Holdings Pty Ltd (the franchisor) into Federal Court.
The allegation? That it’s legally liable for $1.25 million in underpayments to mostly young staff at three Hobart stores between mid-2017 and late 2020. Crucially, the FWO says Bakers Delight became aware (in early 2019) of underpayment issues via an audit, alerted the franchisee, but then failed to take adequate follow-through. So, the underpayments allegedly continued.
The result? The FWO is seeking penalties, orders requiring back-payments, interest, super, and more, not just against the franchisee operators, but also against the franchisor and its executives. This isn’t the first time the FWO has tried to pin liability on a franchisor under the Fair Work Act. But it’s one of the clearest signals yet: franchisors can no longer take a back seat.
Why is this important for Franchisors and HQ Teams?
- Knowledge is dangerous if you don’t act. If a franchisor knows or should know that a franchisee is underpaying staff, and fails to intervene, liability may follow.
- Audits are not “nice to have.” The audit report in 2019 reportedly flagged underpayment issues. But without follow-through, it may have merely provided evidence of what the franchisor “knew.”
- Reputational & financial risk at the system level. It’s not just isolated stores under threat, the liability is system-wide.
- Operational oversight is no longer optional. Franchisors must build real compliance systems, not just legal disclaimers.
- Smaller franchises, bigger impact. Many affected employees were very young (some as young as 14), or visa holders which are considered “vulnerable workers” and are prioritized by the FWO.
I’m a Franchisor, what should I do to limit my liability?
- Don’t just audit, ACT. If issues are flagged, follow through with corrective measures.
- Embed early warning systems. Payroll audits, wage reviews, spot checks, hotline for staff.
- Communicate expectations clearly with franchisees, require compliance certifications, and have escalation paths.
- Document your chase. Make sure you keep records of your interventions (correspondence, warnings, remediation).
- Think of liability as system risk. One rogue underpaying franchisee can become a systemic liability.
- Educate your network. Franchisors must train franchisees (and support them) about wage law, award compliance, overtime, penalty rates.
The Bakers Delight case may still be litigated, but the message is already loud and clear. Franchisors can be held accountable for what happens on the ground. The era of hands-off oversight is fading fast. If your network has not already reeled in compliance, this is your wake-up call.
If you’d like guidance on your franchisor compliance obligations or risk exposure under the Fair Work Act, our team can help. Get in touch with our Franchising Team to discuss how these changes may affect your network and your compliance obligations.