Bakers Delight Holdings Ltd v Fair Work Ombudsman

Bakers Delight Holdings Ltd v Fair Work Ombudsman [2025] FCAFC 144 is a Full Federal Court appeal about franchisor liability under the Fair Work Act 2009 (Cth). The appeal did not finally decide all alleged underpayments or penalties in the broader proceeding. Instead, it answered a separate legal question about proof.

The question was whether, when the Fair Work Ombudsman sues a franchisor under s 558B, it can rely on the reverse onus in s 557C against the employer franchisee to establish the first element of the franchisor case. The Full Court said yes. Leave to appeal was granted, but the appeal was dismissed.

The underlying proceeding was brought by the Fair Work Ombudsman against several parties. The employer was Make Dough Enterprises Pty Ltd, which operated three Bakers Delight branded bakery stores in Tasmania. The regulator also sued two directors personally under s 550 and sued Bakers Delight Holdings Ltd as franchisor under s 558B.

The Court recorded that Make Dough was in liquidation and that its liquidators had not engaged with the proceeding. The directors had also not actively participated in the separate question. It was not disputed that Make Dough operated under a franchise agreement with Bakers Delight Holdings, although Bakers Delight Holdings disputed that it was a responsible franchisor entity for the purposes of Div 4A.

The allegations against Make Dough were extensive. They included record-keeping breaches, providing false information to a Fair Work Inspector, hindering or obstructing an inspector, breaches of the Bakers Delight (TAS) Enterprise Agreement 2012, annual leave and carers' leave issues, failures to pay employees in full, a uniform bond issue, and failures to comply with notices to produce records or documents. For the franchisor claim, the regulator relied on alleged breaches of s 50 through contraventions of the enterprise agreement.

The Court gave one example from the statement of claim. The regulator alleged that workers aged 21 and over, or apprentices of any age, should have been paid a total of $901,521.62 but were paid only $817,564.93, producing a collective underpayment of $83,956.74 in that category. The Court also recorded an allegation that total employee underpayments during the nominated period for the franchisor claim were $642,162.66, and that the proceeding related to 88 employees.

That commercial background matters because it shows the practical setting for the appeal. This was not an abstract statutory interpretation exercise. It arose in a large underpayment case where payroll records and proof of employee entitlements were central.

Section 558B can make a responsible franchisor entity liable where, among other things, an employer who is a franchisee entity contravenes one of the listed civil remedy provisions. That underlying employer contravention is the first building block in the franchisor case.

Section 557C is different. It is a reverse onus provision. If, in proceedings relating to a contravention by an employer of certain civil remedy provisions, the applicant makes an allegation about a matter, and the employer was required to keep a record or give a pay slip about that matter but failed to do so, the employer has the burden of disproving the allegation, unless there is a reasonable excuse.

The dispute was about how those two sections work together. Bakers Delight Holdings argued that s 557C is confined to the employer case. On that argument, even if the regulator could use s 557C against Make Dough, it still had to prove the employer contraventions afresh against the franchisor without the benefit of the reverse onus. The Fair Work Ombudsman argued that this was the wrong way to read s 558B. If the employer contravention is established, including through the operation of s 557C, that should be enough to satisfy s 558B(1)(a).

The Full Court said the real issue was the operation of s 558B(1)(a): in a proceeding against a franchisor, how can the applicant establish that the employer franchisee contravened a listed civil remedy provision? That framing is important because it shows the case was really about the first element of derivative franchisor liability.

The Full Court granted leave to appeal because the issue had significance beyond this proceeding and was not an easy one. But it dismissed the appeal on the merits.

The Court held that s 558B should be approached no differently to the accessorial liability provision in s 550 for this purpose. It said an applicant such as the Fair Work Ombudsman can rely on s 557C against the employer, and if the contravention is established by that process, it is capable of satisfying s 558B(1)(a).

In practical terms, the Court rejected the franchisor's argument that the regulator had to prove the franchisee employer's contraventions again, separately and without the benefit of s 557C, when pursuing the franchisor. The Court agreed with the primary judge that it was wrong to compartmentalise s 557C and confine it only to allegations made in a proceeding against the employer, because the first element of franchisor liability is derivative on establishing a contravention by the franchisee employer.

The Court also accepted contextual and purposive considerations. It noted that both s 557C and s 558B were introduced in 2017 as part of reforms dealing with vulnerable workers, especially in franchise settings where poor records can make underpayments hard to prove. The Court referred to authority emphasising the importance of proper records and pay slips in allowing employees to understand their pay and challenge underpayments.

The Court also noted a practical point made by the primary judge: this construction avoids inconsistent findings on the same factual question. If the same underlying employer contravention had to be assessed under one proof regime for the employer and another for the franchisor, the proceeding could become fragmented and incoherent.

Business owners often hear the phrase reverse onus and assume it just means the court may look unfavourably on missing records. This case shows it is more serious than that.

The Court referred to earlier authority explaining that s 557C is not merely an evidentiary nudge. It is not just a rule that deems something proved unless some evidence is produced. The provision says the defaulting employer bears the burden of disproving the allegation. The Court also referred to authority stating that, to displace s 557C, an employer must affirmatively prove that the worker did not work the hours claimed.

That matters commercially. If your business has not kept the records it was legally required to keep, the dispute may no longer be fought on the ordinary footing that the regulator or employee must prove every detail from scratch. The employer may need to prove the allegation is wrong. In a franchise setting, this decision says that mechanism can still be used when the regulator is trying to establish the employer contravention that underpins the franchisor claim.

So the practical message is simple. Records are not just administrative housekeeping. They can shape the burden of proof in litigation.

The case does not make franchisors automatically liable whenever a franchisee underpays staff. Section 558B still contains multiple elements, and s 558B(3) provides a defence where the person had taken reasonable steps to prevent a contravention of the same or a similar character.

The Court set out the statutory factors a court may consider when assessing reasonable steps. These include the size and resources of the franchise, the extent to which the franchisor had the ability to influence or control the franchisee's conduct, action taken to ensure the franchisee had a reasonable knowledge and understanding of workplace obligations, arrangements for assessing compliance, arrangements for receiving and addressing complaints about underpayments or other contraventions, and whether the franchise arrangements encourage or require compliance with workplace law.

For franchisors, that points to practical compliance architecture rather than slogans. Training materials, payroll guidance, audit programs, complaint channels, escalation pathways, franchise agreement settings and documented responses to known risks may all matter. The defence is not summarised by one magic phrase. It is about whether the franchisor can show concrete steps directed to preventing similar contraventions.

For franchisees, the same section is a reminder that network oversight is not a substitute for local compliance. The employing entity still carries direct obligations for pay, leave, records and pay slips.

If you are a franchisee employer, this case is a warning that payroll and record-keeping failures can make a claim harder to defend. The allegations in the underlying proceeding covered ordinary operational areas that many businesses manage every week: hourly rates, enterprise agreement compliance, annual leave, carers' leave, deductions, uniforms, records and responses to inspectors. Those are not side issues. They are the core documents and systems that determine whether you can explain and justify what staff were paid.

If you are a franchisor, the decision shows that the regulator may be able to use the employer's record-keeping failures to establish the first step in a franchisor claim. That does not answer every element of s 558B, but it narrows one line of resistance that franchisors might otherwise have argued for. It increases the practical importance of prevention, monitoring and complaint handling across the network.

Businesses should also read the case carefully for what it does not decide. The Full Court was not deciding all liability issues in the broader proceeding. It was deciding a separate legal question about proof. So the case is important for litigation structure and compliance planning, but it is not a final merits ruling on every alleged underpayment in the dispute.

The Full Court judgment was delivered on 16 October 2025. It was an appeal from orders made on 12 December 2024 in Fair Work Ombudsman v Make Dough Enterprises (in liquidation) [2024] FCA 1432. The hearing date recorded by the Court was 5 August 2025.

The Court's orders were that leave to appeal be granted, the draft notice of appeal stand as the notice of appeal, and the appeal be dismissed. The judgment records that the issue had ramifications beyond the immediate proceeding, which helps explain why leave was granted even though the appeal ultimately failed.

Because the material reviewed is truncated and the appeal dealt with a separate question, readers should not treat this page as a final procedural history of the whole enforcement case.