In a recent case the Fair Work Ombudsman has found that a Daiso Australia franchisee has underpaid workers on more than one occasion.
This kind of behaviour can tarnish the reputation of a franchise system. Especially, as in this case, where the franchisee has been required to place an advertisement in the Melbourne Herald Sun newspaper explaining what it has done and promising not to do it again.
The franchise agreement should require the franchisee to, amongst other things, comply with all applicable laws, pay their staff as required by law and not do anything which will damage the reputation of the franchisor. If the franchise agreement does state this then the franchisor can issue a breach notice to the franchisee.
If the franchisee fails to remedy the breach within a reasonable time allowed by the franchisor then the franchisor may be able to terminate the franchise agreement.
Termination should always be a last resort though and in these circumstances it may be best for all parties if the franhcisee is required to undergo further training (at the cost of the franchisee) in relation to its legal obligations to its employees.