Franchise leave compliance in Australia changed fundamentally with the closing loopholes amendments to the Fair Work Act 2009 — franchisors can now be held responsible for leave underpayments by their franchisees, even when the franchisee is the direct employer.
This is one of the most significant shifts in Australian employment law in a decade. Prior to the amendments, franchisors could distance themselves from the employment practices of individual franchisees. Now, if a franchisor knows or reasonably should know that a franchisee is contravening workplace laws — including leave entitlements — the franchisor can be held jointly liable.
Key takeaways
- Under the closing loopholes amendments, franchisors face accessorial liability for franchisee leave underpayments if they knew or ought to have known about the contravention.
- Each franchisee is typically a separate employer, but the franchisor’s head office obligations extend to ensuring compliance across the network.
- Award coverage in franchises varies by industry — a food franchise may fall under the Fast Food Industry Award 2020 or the Restaurant Industry Award 2020, while a retail franchise falls under the General Retail Industry Award 2020.
- Systematic underpayment across a franchise network can trigger wage theft penalties of up to AUD $1.65 million for individuals and AUD $4.95 million for corporations.
- Franchisors must implement compliance monitoring systems — ignorance of franchisee non-compliance is no longer a defence.
The franchisor liability framework
The Fair Work Act’s accessorial liability provisions (section 558 and related provisions) now extend to franchisors who:
- Knew a franchisee was contravening workplace laws, or
- Ought reasonably to have known about the contravention, and
- Failed to take reasonable steps to prevent or address it
This creates a positive obligation on franchisors to monitor franchisee compliance with leave entitlements, pay rates, and other NES requirements.
What triggers franchisor liability
| Trigger | Example |
|---|---|
| Knowledge of underpayment | Franchisor receives complaint from franchisee employee |
| Reasonable constructiveness | Franchisor’s financial reporting shows franchisee paying below award rates |
| Systemic pattern | Multiple franchisees in network have similar underpayment issues |
| Failure to act | Franchisor is notified but takes no corrective action |
What does not trigger liability (alone)
| Scenario | Why it may not trigger liability |
|---|---|
| Isolated incident at one franchisee | Single, promptly addressed contravention |
| Franchisor has robust compliance systems | Demonstrates reasonable steps were taken |
| Franchisee actively conceals non-compliance | Franchisor cannot be expected to detect concealed conduct |
Award coverage across franchise networks
Different franchise brands operate in different industries, each with its own modern award. A franchise system may have franchisees operating under multiple awards simultaneously.
| Franchise type | Likely award | Key leave distinction |
|---|---|---|
| Fast food | Fast Food Industry Award 2020 | 5 weeks for shift workers |
| Restaurant/café | Restaurant Industry Award 2020 | Different classification structure |
| Retail (general) | General Retail Industry Award 2020 | 5 weeks for shift workers |
| Fitness/gym | Fitness Industry Award 2020 | Specific part-time provisions |
| Cleaning | Cleaning Services Award 2018 | Higher leave loading provisions |
| Childcare | Children’s Services Award 2010 | Specific educator entitlements |
A franchisor must understand which award applies to each franchisee’s operation. A fast food franchisee incorrectly applying the Restaurant Award may be paying incorrect leave loading and shift worker entitlements.
Leave entitlements in franchise contexts
| Leave type | Full-time franchisee employee | Part-time | Casual |
|---|---|---|---|
| Annual leave | 4 weeks (5 for shift workers) | Pro-rata | None — loading compensates |
| Personal/carer’s leave | 10 days/year | Pro-rata | 2 days unpaid per occasion |
| Compassionate leave | 2 days per occasion | 2 days per occasion | 2 days unpaid |
| Family & domestic violence leave | 10 days paid/year | 10 days pro-rata | 10 days paid/year |
Franchise employees are entitled to the same NES minimums as any other employee. The franchise structure does not reduce, modify, or eliminate these entitlements.
The closing loopholes impact on franchises
The closing loopholes amendments specifically target the franchisor-franchisee relationship in the context of workplace law compliance. Key changes include:
Expanded accessorial liability
Franchisors are now explicitly within scope of the accessorial liability provisions. If a franchisor provides operational systems, training, and branding to franchisees, it is expected to also provide systems for workplace law compliance.
Wage theft criminalisation
Under the wage theft laws effective 1 January 2025, intentional underpayment of leave entitlements carries criminal penalties. For franchise networks, this means:
- Individual franchisees face up to 10 years imprisonment for intentional underpayment
- Franchisors who knowingly facilitate or fail to prevent systematic underpayment face similar exposure
- Corporate penalties of up to AUD $4.95 million for serious contraventions
Record-keeping obligations
Both franchisors and franchisees must maintain leave records for 7 years. For franchisors, this extends to maintaining records of compliance monitoring activities — evidence that they took reasonable steps to ensure franchisee compliance.
Building a franchise compliance framework
Essential elements for franchisor compliance systems:
- Audit franchisee payroll regularly — at least quarterly, comparing actual pay against award rates
- Provide leave management tools — franchisees should use systems that automatically calculate correct leave entitlements
- Train franchisees on leave obligations — include leave compliance in initial and ongoing training programs
- Monitor employee complaints — establish channels for franchisee employees to raise concerns directly with the franchisor
- Document corrective actions — when non-compliance is identified, record the steps taken to address it
- Include compliance in franchise agreements — make workplace law compliance a condition of the franchise agreement
- Conduct annual compliance audits — independent review of franchisee leave practices
Franchise compliance monitoring checklist
| Monitoring activity | Frequency | Responsible |
|---|---|---|
| Payroll audit against award rates | Quarterly | Franchisor compliance team |
| Leave balance reconciliation | Monthly | Franchisee (with franchisor oversight) |
| Casual conversion obligation review | Every 12 months per casual | Franchisee |
| Long service leave accrual verification | Annually | Franchisor compliance team |
| Employee complaint review | Ongoing | Franchisor HR |
| Training completion tracking | Ongoing | Franchisor training team |
Common franchise compliance mistakes
- Assuming franchisee employment is separate from franchisor liability — the closing loopholes amendments now create joint liability
- Not providing leave management tools — franchisors must equip franchisees with systems for correct leave calculations
- Ignoring employee complaints about leave — complaints trigger the franchisor’s obligation to investigate
- Applying the wrong award across the franchise network — different franchise brands may operate under different awards
- Failing to document compliance activities — without records, the franchisor cannot demonstrate reasonable steps
For more, see our guides to annual leave entitlements, Fair Work compliance, and leave management best practices.
Frequently asked questions
Can a franchisor be held liable for a franchisee’s leave underpayments?
Yes. Under the closing loopholes amendments to the Fair Work Act, franchisors face accessorial liability if they knew or reasonably should have known about a franchisee’s leave underpayments and failed to take reasonable steps to prevent or address them.
What awards apply to franchise employees?
The applicable award depends on the franchise’s industry — fast food franchisees fall under the Fast Food Industry Award, retail franchisees under the General Retail Industry Award, and so on. The franchisor must understand which award applies to each franchisee’s operation.
What are the penalties for franchise leave underpayments?
Under the wage theft laws effective 1 January 2025, intentional underpayment carries penalties of up to AUD $1.65 million for individuals and up to 10 years imprisonment. Corporate penalties of up to AUD $4.95 million apply to serious contraventions.
Do franchise employees get different leave entitlements than other employees?
No. Franchise employees receive the same NES minimums as any other employee. The franchise structure does not reduce, modify, or eliminate statutory leave entitlements.
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