When franchisors inherit liability for underpayments and inadequate pay records of franchisees

Where an employer is also in a franchisee arrangement, the franchisor can bear legal responsibility for the failure of the employer franchisee to meet its obligations under the Fair Work Act 2009 (FW Act) in relation to record keeping, and payment of wages and provision of entitlements. This legal responsibility applies where the franchisor has control or supervision of the franchisee’s affairs (including its compliance with FW Act requirements), and at least constructive knowledge of the employer/franchisee contraventions.

In Bakers Delight Holdings Ltd v Fair Work Ombudsman (2025), the Fair Work Ombudsman (FWO) prosecuted a franchisor for contraventions by its franchisee. To succeed in prosecuting the franchisor, the FWO needed to prove the contraventions by the franchisor employer. The FWO argued it could rely on the reverse onus of proof given the franchisee had not complied with record-keeping requirements.

Reverse onus of proof

Where an employer has not met requirements to keep pay records or issue pay slips, the employer has the burden of proving the underlying facts alleged to constitute a contravention from an employee to an employer. This means if a proceeding is commenced under the FW Act for underpayment of wages, the party bringing the proceeding (whether that be the affected employees, the FWO or a union on their behalf) does not need to prove the underpayment – instead the employer must disprove the underpayment claim by satisfying the court that the employees were in fact paid the correct amounts.

This reverse onus of proof does not apply if the employer had a reasonable excuse for not complying with the record-keeping or pay slip requirements of the FW Act.

The franchisor in the BDH case argued that the reverse onus should not apply in cases where the franchisor is prosecuted because it will not be a party to the earlier proceedings establishing the contravention against the employer and would not then be able to access the reasonable excuse defence.

The Court disagreed and ruled that the reverse onus was available in the prosecution of the franchisor.

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