Fair Work Ombudsman v Make Dough Enterprises (in liquidation)

This proceeding arose from Fair Work Ombudsman allegations about workplace contraventions in a Bakers Delight franchise operation in Tasmania. Make Dough Enterprises Pty Ltd operated three bakery stores under the Bakers Delight brand under franchise agreements with Bakers Delight Holdings Ltd. The Ombudsman sued Make Dough, its directors, and Bakers Delight Holdings as an alleged responsible franchisor.

The allegations against Make Dough were wide-ranging. They included failures to keep and maintain employee records, giving false information to a Fair Work Inspector, hindering or obstructing an inspector, contraventions of the Bakers Delight (TAS) Enterprise Agreement 2012, failures relating to annual leave and carers' leave under the National Employment Standards, failures to pay employees in full, requiring employees to pay a bond for uniforms, and failing to comply with notices to produce records or documents.

The commercial setting mattered. Make Dough had gone into liquidation on 22 February 2023. The Court granted leave for the Ombudsman to proceed against it, but the liquidators did not engage with the case and there was no prospect the company would actively participate at trial. That created a practical problem. The Ombudsman wanted to rely on s 557C of the Fair Work Act, which can shift the burden to an employer to disprove allegations where required records were not kept. But the employer was effectively absent. The Court therefore had to decide how that provision works when the Ombudsman is also pursuing a franchisor under the responsible franchisor regime.

The decision sits at the intersection of two Fair Work Act mechanisms.

The first is s 557C. In broad terms, if proceedings relate to certain civil remedy contraventions and the employer was required to make or keep a record, or provide a pay slip, but failed to do so, the employer has the burden of disproving the allegation. The judgment notes that the listed civil remedy provisions include contraventions of the National Employment Standards, modern awards and enterprise agreements.

The second is the responsible franchisor regime in ss 558A to 558C. Section 558A defines a franchisee entity and a responsible franchisor. A person is a responsible franchisor if it is a franchisor in relation to the franchise and has a significant degree of influence or control over the franchisee entity's affairs. Section 558B then sets out when a responsible franchisor can be liable for certain contraventions by a franchisee employer.

The judgment records that responsible franchisor liability depends on several elements. Relevantly, the franchisee employer must have contravened a listed civil remedy provision, the respondent must be a responsible franchisor for that franchisee, the contravention must occur in the franchisee's capacity as franchisee, and the knowledge element in s 558B must be met. There is also an exception if, at the relevant time, the person had taken reasonable steps to prevent a contravention of the same or a similar character.

The Court also noted that a finding of contravention by the franchisee can matter for franchisor liability whether or not an order has been sought or made against the franchisee itself. That point was important because Make Dough was in liquidation and not expected to defend the case in any meaningful way.

The Court was asked to answer a separate question ordered earlier in the proceeding. In substance, the question was whether s 557C(1) applies as against Bakers Delight Holdings in the pleaded circumstances and, if so, how.

That raised two linked issues. First, can the Ombudsman rely on s 557C to establish the underlying franchisee contravention that is required by s 558B(1)(a) in a case against a responsible franchisor? Second, if s 557C does apply in that setting, can the responsible franchisor itself adduce evidence to discharge the burden of disproving the relevant allegations?

The dispute was not academic. The judgment says the issue fundamentally affected how the parties would prepare for trial. If the Ombudsman could rely on s 557C in the franchisor case, then missing records could materially alter the evidentiary position on the underlying contraventions. If the franchisor could not answer that burden with its own evidence, the result could be severe. Bakers Delight Holdings argued against that construction and also disputed whether it had the required significant degree of influence or control over Make Dough's affairs.

The Court also recorded that Bakers Delight Holdings made limited admissions about record-keeping allegations concerning two employees, Tanika Koning and Ashton Burk, so the separate question would not be hypothetical. Those admissions related to failures to keep certain records about remuneration, hours worked, employment status and overtime matters.

The Court answered the separate question yes. It ordered that s 557C applies to establish the contravention referred to in s 558B(1)(a) and that it is open to a responsible franchisor to discharge the burden of disproving the relevant allegations.

The reasoning, as set out in the judgment, was that the first element of responsible franchisor liability is derivative of the franchisee's contravention. The Court rejected an approach that would require the same contravention to be proved twice under different evidentiary rules, once for the employer and again for the franchisor. In the Court's view, the statutory text does not require different modes of proof for the same contravention. An employer either contravened the relevant civil remedy provision or did not.

The Court accepted the Ombudsman's construction of the statutory scheme. It said s 557C should not be compartmentalised and confined only to allegations made in a proceeding against the employer. That would ignore the fact that responsible franchisor liability depends on establishing the franchisee's contravention.

At the same time, the Court was concerned not to deny the franchisor an adequate opportunity to be heard. The judgment referred to the principle that a person should not be prejudiced in person or property by judicial proceedings without an adequate opportunity to be heard, unless legislation clearly says otherwise. The Court found no clear legislative intention to prevent a responsible franchisor from assuming and discharging the burden that s 557C casts on the employer. Section 557C speaks to the burden of proof on the employer, but does not say who may adduce evidence in a proceeding against a responsible franchisor. Because the franchisor is a party to the proceeding, the Court held it can put on evidence to disprove the relevant allegations.

For employers, the message is direct. Record keeping is not just an administrative task. If required records are missing, the Fair Work Act can shift the evidentiary burden in relation to allegations about matters those records should have covered. The judgment specifically refers to records about employment status, remuneration, hours worked, overtime and leave entitlements. Those are common pressure points in payroll disputes.

For franchisors, the decision is significant because it confirms that a franchisee's liquidation or non-participation does not necessarily stop the Ombudsman from pressing the case against the franchisor. If the underlying franchisee contravention is a required element of the responsible franchisor claim, the Ombudsman may still rely on s 557C where the record-keeping conditions are met.

But the decision is not one-sided. The Court also made clear that the franchisor can defend itself by adducing evidence to disprove the relevant allegations. That matters in practice. A franchisor facing this kind of claim will want evidence about what happened at the franchisee level, evidence relevant to whether it had a significant degree of influence or control, and evidence about what it knew or could reasonably be expected to have known. It may also need evidence of the reasonable steps it took to prevent contraventions of the same or a similar character.

The judgment also highlights a broader commercial point. In franchise systems, workplace compliance risk can move beyond the employing entity. If the network structure, contractual arrangements or operational controls create a significant degree of influence or control, the franchisor may face direct exposure under the responsible franchisor provisions.

The judgment itself was about statutory interpretation, but it points to the kinds of documents and conduct that can become decisive in a later trial.

At the employer level, records about whether staff were full-time or part-time, rates of remuneration, actual hours worked, overtime hours, overtime loadings or penalty rates, and leave entitlements can all become central. If those records are missing, the employer may face the burden of disproving allegations under s 557C.

At the franchisor level, the focus is different. The Court recorded that Bakers Delight Holdings disputed whether it had a significant degree of influence or control over Make Dough's affairs. That means franchise agreements, operational manuals, reporting requirements, audit rights, payroll oversight practices, complaint handling systems and communications about workplace compliance may all matter in a responsible franchisor case.

The reasonable steps exception also makes prevention evidence important. The statutory factors referred to in the judgment include the size and resources of the franchise, the extent of the person's ability to influence or control the contravening employer's conduct, action taken to ensure the franchisee had a reasonable knowledge and understanding of workplace requirements, arrangements for assessing compliance, arrangements for receiving and addressing complaints, and whether the franchisor's arrangements encourage or require compliance with workplace law.

For business owners, the practical point is simple. If you may later need to prove compliance, prevention or lack of control, you need contemporaneous documents. Policies that are not implemented, audits that are not followed up, or complaint channels that are not used effectively may carry less weight than a documented and active compliance system.

One point that can easily be missed is procedural posture. This judgment did not decide whether Bakers Delight Holdings was ultimately liable as a responsible franchisor. It decided a separate legal question that affects how the trial can be run and what evidentiary tools are available.

Another important point is that the Court did not say a franchisor becomes liable merely because a franchisee failed to keep records. The Ombudsman still has to prove the statutory elements of responsible franchisor liability, including that the respondent was a responsible franchisor and that the knowledge requirements are met, unless an exception applies.

The decision is also important because it preserves the franchisor's ability to defend itself. The Court did not accept a reading of the legislation that would let the reverse onus operate against the franchisor while denying it a fair opportunity to answer the allegations. Instead, the Court held that the franchisor can adduce evidence to discharge the burden.

For business readers, that means this case is not simply about underpayments. It is also about litigation risk, evidence, and the way franchise structures can affect who ends up defending workplace claims when the employing entity is insolvent or absent.

The judgment was delivered by McElwaine J on 12 December 2024 in the Federal Court of Australia. The hearing of the separate question took place on 23 August 2024. The Court ordered that the separate question be answered in the affirmative and adjourned case management of the proceeding to a date to be fixed.

That means the decision should be read as an important procedural and interpretive ruling within the broader proceeding. It does not, on its own, tell readers whether the Ombudsman ultimately succeeded on all pleaded contraventions, whether Bakers Delight Holdings was ultimately found liable as a responsible franchisor, or what final relief or penalties were ordered.