Franchising: A Complex Business Landscape with Legal Responsibilities

Franchising has evolved into a dynamic and multifaceted business model, fostering entrepreneurial endeavours, and contributing to growth across diverse sectors. Nonetheless, the intricate nature of this business model comes with a set of legal obligations, particularly in relation to employment practices. Franchisors must gain a comprehensive understanding of their roles and responsibilities to navigate potential legal pitfalls effectively.

An Examination of Franchisor-Franchisee Dynamics

In recent years, the intricate interplay between franchisors and franchisees has come under heightened scrutiny, with a specific focus on issues related to underpayment of franchisee employees.

Franchisors may find themselves entangled in potential legal liabilities arising from the underpayment of employees by their franchisees. This legal responsibility is rooted in the recognition that franchisors often wield significant control and influence over various aspects of franchisee operations, including matters pertaining to employment and workforce management.

Critical Factors Shaping Franchisor Liability Assessment

Several pivotal factors contribute to the determination of franchisor liability for underpayment issues within franchisee establishments:

1. Extent of Control and Influence

The degree to which franchisors exert control and influence over franchisee operations stands as a central determinant. This encompasses a wide spectrum of operational elements, encompassing employment contracts, wage structuring, and overarching workforce management strategies. Franchisors exhibiting an extensive involvement may find themselves at a higher risk of being held liable.

2. Awareness and Knowledge

The awareness and knowledge possessed by franchisors regarding potential underpayment practices within their franchise network carry substantial weight. In cases where franchisors possess information about potential underpayment concerns but fail to undertake adequate measures to rectify the situation, they may be deemed liable.

3. Provisions within Contractual Agreements

The provisions outlined in franchise agreements play a pivotal role in shaping the landscape of franchisor liability. Clauses addressing employment practices, wage determination mechanisms, and adherence to labour regulations significantly impact the extent of franchisor liability. Clearly defined contractual provisions pertaining to equitable and lawful employment practices are of paramount importance.

Precedents and Legal Ramifications

Recent proceedings brought by the Fair Work Ombudsman exemplify the gravity of franchisor liability with respect to franchisees underpaying workers. Cases such as those of Baker’s Delight and 85 Degrees Cafe accentuate the necessity for franchisors to exercise vigilance and proactively implement measures to prevent and redress underpayment occurrences within their franchise network. In light of these legal precedents, it becomes evident that franchisors must adopt an actively participatory role in ensuring franchisees adhere to employment laws.

Mitigating Franchisor Liability Exposure

To minimise the potential risk of franchisor liability concerning franchisee underpayment, franchisors are strongly advised to adopt a comprehensive and strategic approach, including:

• Education and Training Endeavours: Educate and provide comprehensive training resources to franchisees regarding compliance with employment laws and nuanced wage determination methodologies.

• Routine Compliance Audits: Implement regular and thorough audits designed to assess franchisee adherence to specified employment standards, wage frameworks, and precise record-keeping procedures. In cases of non-compliance, take prompt and effective measures to address these issues with the franchisee.

• Establishment of Robust Reporting Mechanisms: Create transparent and accessible channels through which franchisees can report potential underpayment concerns, fostering a culture of accountability and openness.

• Comprehensive Provisions in Agreements: Franchisors should ensure that the Franchise Agreement makes clear that non-compliance with employment laws would also be a breach of the franchise agreement, reinforcing the importance of adherence to legal standards.


The realm of franchisor liability concerning franchisee underpayment constitutes a multifaceted and evolving domain within employment and franchising law. Franchisors bear the responsibility of recognising and embracing their obligations, actively engaging in proactive measures to preclude and address underpayment incidents within their franchise network. By nurturing a culture characterised by compliance, transparency, and accountability, franchisors can effectively mitigate the risk of liability and uphold the principles underpinning equitable and lawful employment practices.

It is important for franchisors to remain abreast of legal developments and accord priority to strategic initiatives aimed at ensuring franchisee adherence to legal obligations and review their agreements regularly to ensure they address legislative and commercial risks to the franchisor.

Franchisor’s seeking a thorough review of their Franchise Agreement can contact Ardor Legal on (07) 3161 2847 or