Background
This class action was brought by a former Domino’s delivery driver, Riley Gall, on behalf of thousands of current and former employees of Domino’s franchisees in Australia. The lawsuit alleged that the franchisor, Domino’s Pizza Enterprises Limited, engaged in misleading or deceptive conduct in breach of the Australian Consumer Law (ACL).
The central claim was that Domino’s represented to its franchisees that they were entitled to pay their employees according to the terms of several old enterprise agreements, principally a 2005 agreement. These agreements provided for lower pay rates and omitted certain entitlements (like weekend penalty rates and some allowances) compared to the modern award that should have applied, the Fast Food Industry Award 2010.
These representations were made through various channels, including franchisee training manuals, information documents, policy documents, and by providing payroll systems (like TANDA and DBS) that were pre-configured with the incorrect, lower pay rates. The applicant argued that this conduct caused franchisees to underpay their staff, and that Domino’s, as the franchisor, was liable for the loss suffered by the employees.
The Court’s Holding
Justice Murphy of the Federal Court found in favour of the applicant, holding that Domino’s had engaged in misleading or deceptive conduct. The Court determined that Domino’s had made false representations to its franchisees about their lawful payment obligations. These representations were conveyed not only through express statements in training and compliance documents but were also implied by the conduct of providing payroll systems and other services that were based on the inapplicable, lower pay rates.
A key issue was Domino’s reliance on an “Extended Coverage Clause” in a 2005 enterprise agreement, which it argued bound new franchisees who joined the system after the agreement was made. The Court rejected this, finding the clause was inconsistent with the empowering legislation (the *Workplace Relations Act 1996*) and was therefore invalid. Consequently, the modern Fast Food Award should have applied to franchisee employees, not the less-generous old agreements.
The Court also rejected Domino’s argument that the *Fair Work Act 2009* provides an exclusive code for the recovery of unpaid wages, which would preclude a claim for damages under the ACL. Justice Murphy found that the loss suffered by the workers—the difference between what they were paid and their lawful entitlements under the Award—was recoverable as damages flowing from the franchisor’s misleading conduct.
Key Takeaways
- A franchisor can be held directly liable for losses suffered by its franchisees’ employees if the franchisor’s misleading conduct causes the franchisees to underpay their staff.
- Providing franchisees with incorrect information, training materials, or payroll systems regarding employee pay rates and entitlements can constitute misleading or deceptive conduct under the Australian Consumer Law.
- Clauses in enterprise agreements that attempt to bind future, unknown employers (such as new franchisees entering a system) are liable to be found invalid if not expressly permitted by the underlying industrial legislation.
- The wage recovery mechanisms in the *Fair Work Act* do not prevent employees from seeking damages under the Australian Consumer Law where underpayment is caused by a third party’s misleading conduct.
Why It Matters
This landmark decision significantly increases the legal risk for franchisors regarding the employment practices within their networks. It establishes that a franchisor cannot hide behind the separate legal status of its franchisees to avoid liability for systemic wage theft if the franchisor’s own advice and systems are the cause of the problem. It confirms that the corporate head of a franchise system has a responsibility to provide accurate industrial relations information and tools to its franchisees.
The ruling opens a new avenue for holding franchisors accountable for underpayments across their network, allowing workers to sue the franchisor for damages even when their direct employer was a franchisee. The case serves as a powerful warning to all franchise systems to ensure their compliance frameworks, training, and operational systems are based on correct, up-to-date legal advice regarding employee wages and entitlements.