tyson brennan. 4 June 2026.
Australia’s franchise sector has once again found itself under intense scrutiny for employee conditions. Recent Federal Court proceedings involving allegations that hundreds of thousands of fast-food workers in franchised restaurants were denied paid rest breaks over an extended period have raised the question about the liability of franchisors in such failures. The case serves as a timely reminder that workplace compliance is no longer an issue that franchisors can leave entirely in the hands of individual franchisees.
For franchisors operating in the food and beverage sector, the legal, financial and reputational risks associated with non-compliance under the Fair Work Act 2009 (Cth), modern awards and enterprise agreements are significant. Importantly, those risks may extend beyond the franchisee employer and directly to the franchisor itself.
the expanding scope of franchisor responsibility
The Fair Work Act contains provisions that allow a “responsible franchisor entity” to be held liable for certain workplace law breaches committed by its franchisees. These provisions were introduced in response to widespread concerns regarding systemic underpayments and exploitation within franchise networks, particularly in industries employing young and vulnerable workers.
A franchisor may face liability where it knew, or could reasonably be expected to have known, that workplace contraventions were occurring or were likely to occur, and failed to take reasonable steps to prevent them.
The recent proceedings involving McDonald’s have brought particular attention to compliance with employee break entitlements under both enterprise agreements and the Fast Food Industry Award. While the allegations remain before the Court, the proceedings highlight how seemingly operational workplace practices can evolve into significant litigation affecting an entire franchise network.
the franchising code is not just about disclosure
Many franchisors understandably focus on their obligations under the Franchising Code of Conduct, including disclosure requirements, dispute resolution procedures and franchise agreement compliance.
However, the Code exists within a broader regulatory framework. The ACCC’s recent updates to the Franchising Code reinforce expectations of transparency, accountability and responsible franchise network management. Increasingly, regulators are examining whether franchisors have implemented systems that support sustainable and compliant business operations across their networks.
what are “reasonable steps”?
One of the most important questions for franchisors is whether they have taken reasonable steps to prevent workplace contraventions. Common measures that can be implemented by franchisors to enhance compliance include:
Importantly, courts will assess what is reasonable having regard to the size, resources and level of influence exercised by the franchisor over the franchisee’s operations. Franchisors with significant operational control or oversight are likely to face greater scrutiny if systemic compliance failures emerge.
the cost of getting it wrong
Recent enforcement activity demonstrates that regulators are increasingly prepared to pursue franchisors directly where compliance failures occur across a network.
The Fair Work Ombudsman has successfully prosecuted franchisors where inadequate systems, insufficient monitoring and a failure to respond to known risks contributed to employee underpayments. Courts have emphasised that franchisors cannot turn a blind eye to compliance issues within their networks, particularly where warning signs are evident.
Beyond financial penalties and compensation orders, workplace contraventions can result in significant reputational damage, adverse media attention, franchisee disputes and reduced confidence from prospective franchise investors.
get proactive
For modern franchisors, workplace compliance should be viewed as a governance issue rather than merely an employment issue.
Regular reviews of franchise agreements, operational manuals, payroll systems, award classifications, enterprise agreement obligations and audit procedures can assist in reducing exposure. Equally important is fostering a culture where franchisees understand that compliance is a fundamental business requirement rather than an administrative burden.
Franchisors who invest in robust compliance frameworks now will be far better positioned to protect their brand, their franchisees and their long-term commercial interests in the future.
At Brennan Law Partners, we love supporting franchisors. We integrate into their business to develop and maintain highly effective franchise systems and processes. With this support, franchisors can focus on business operations and brand growth without the stress of potential liability for failing to meet franchising requirements.
