7-Eleven: Wage abuse claims puts scrutiny on Fair Work response

(Source: Financial Review)

 

The country's largest convenience store chain, 7-Eleven, would have to be one of the worst – and biggest – cases of systemic wage abuse in corporate history.

 

What is particularly disturbing about the franchise chain is that the exploitation of workers has been going on for years, under everyone's nose.

 

The overwhelming feedback from an expose by ABC's Four Corners and Fairfax Media is that 7-Eleven is the tip of the iceberg and Australia has a dark side to its labour market that is spiralling out of control.

 

With 1.3 million workers in Australia on a visa, equivalent to one in 10 of the workforce, it is a big issue that has wider economic implications. Besides undermining the award system it is potentially robbing the Australian Taxation Office of hundred of millions of dollars a year in tax.

 

At 7-Eleven alone, wage fraud could be tens of millions of dollars a year. In 7-Eleven's case many of the thousands of workers are students on visas, who are only allowed to work 20 hours a week without breaching their visa conditions. It makes them vulnerable to abuse.

 

The Fair Work Ombudsman has conducted three separate raids in the past six years and its findings are getting worse – yet the abuse goes on.

 

Issues Double Since Previous Raid

 

Fair Work's latest raid in September 2014 found 60 per cent of the 20 stores raided had payroll issues. This is double the findings of a previous raid in 2011.

 

Given the persistent and systemic nature of the underpayment of wages, Fair Work will need to come down hard.

 

Fair Work and its effectiveness as a regulator is under scrutiny from a senate inquiry into wage abuse and visas. Senator Deborah O'Neill made it clear at a recent Senate hearing that more was needed to be done. This could include reviewing the structure of the regulator, beefing up its powers and increasing its budget.

 

Fair Work is mid-way into an investigation into 7-Eleven. Most crucially, it is now looking at where the responsibility lies: with the franchisees or head office.

 

An internal review of 225 stores by 7-Eleven head office between July and August found more than two-thirds of stores had payroll compliance issues. Some were repeat findings.

 

The explosive documents obtained in a joint media investigation by Four Corners and Fairfax Media reveals that the reviews of payroll compliance date back to last September. Each month reviewed exposes massive payroll problems.

 

Underpayment, Falsification

 

For instance, between October 13, 2014 and November 9, head office reviewed 83 stores and found that 47 had payroll compliance issues such as underpayment of wages and falsification of payroll sheets, which is fraudulent. Between April 6 and May 3, 97 stores were reviewed with 55 per cent showing payroll compliance issues. The best month was over the Christmas season when 75 stores were reviewed with only 17 stores, or 23 per cent, flagging compliance issues.

 

A database of recorded meetings between 7-Eleven head office and franchisees paints a damning picture of what is really going on. For instance, on the Gold Coast one franchisee is told on August 5, 2015: "Last week's roster and timesheets match, however the pay summary only shows payment to four people. You have 7 people on your roster … You admit to not paying staff, for not paying penalty rates and for not keeping payment records for staff you claim are on your accountant's payroll system … You are required to back pay all staff that have worked in your store."

 

7-Eleven in a statement on Saturday said it is "extremely disappointed" that a number of franchisees are not meeting their obligations. It said it was "deeply concerned" at the personal impact on those who had been ripped off and "the damage such actions cause to franchisees who are trusted and reliable and responsible small business owners meeting their obligations as employers".

 

It says it doesn't condone such actions and will take appropriate action. The problem with this is that 7-Eleven head office's "appropriate action" to date hasn't been good enough.

 

Another problem with this statement is it doesn't acknowledge that underpayment of wages and falsifying payroll has become institutionalised and head office is well aware of it. The repercussions have not been enough to stop it going on. Why?

 

Egregious Cases get Breach Notice

 

If head office catches a franchisee not paying proper wages, they are told to pay them back. In the more egregious cases head office slaps them with a breach notice.

 

7-Eleven hasn't been reporting this illegal behaviour to the regulator – or the police – but has been dealing with it internally, effectively covering it up.

 

7-Eleven is a big corporation, generating earnings before interest and tax of $143 million in 2015, according to its latest financial statement obtained in this investigation. It makes more money than a lot of companies on the Australian Securities Exchange.

 

The business model is unlike most other franchise models.

 

Under the 7-Eleven franchise agreement, head office takes 57 per cent of gross profit and the franchisee takes the rest. Out of its cut, head office pays the rent (some of the properties are owned by 7-Eleven), supplies all the equipment and fittings, utilities and back office services including payroll.

 

From their 43 per cent takings, the franchisee pays a raft of other running costs including all staff wages. A 7-Eleven franchise can fetch anywhere between $300,000 and $1.7 million, depending on its size, location and whether a petrol station is attached.

 

One store for sale in a busy Melbourne suburb is being sold for almost $1 million. The sale document estimates that payroll for the period was about $171,000. After this is deducted from gross profit, it leaves the franchisee with a net income of $90,000. However, if all wages are included and properly paid for, the income would be close to $40,000. After interest repayments are deducted, the figure would be even less. It leaves little room for paying full freight salaries.

 

Some Would Go Broke

 

Some stores earn less than this, which raises the question: what would happen to some of these stores if they were forced to pay the correct wages? Some would go broke.

 

Put simply, the model goes to the heart of underpayment of wages.

 

There are 4000 workers across the 7-Eleven network, most of them students on visas.

 

Fair Work set up a specialist Overseas Workers Team in mid 2012 to help combat the exploitation of overseas workers in Australia. Earlier this month it announced a new program to "foster" relationships with international student bodies and multicultural communities.

 

In a statement it said it was working closely with the Australian Border Force targeting visa fraud, illegal work and the exploitation of foreign workers.

 

Some businesses make the excuse they don't know the employment system. Fair Work recently busted an Asian takeaway food shop in Melbourne for underpaying a student worker $12,000. The business operator told Fair Work he thought it was okay to pay a mutually agreed flat rate as the student from Taiwan had posted on a social media site she would work for $12 an hour cash in hand.

 

This shadowy labour market needs to come into the light. To do that requires commitment from the regulators and politicians before it gets further out of control.

 

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