7-Eleven blames franchisees for underpaying staff, franchisees insist otherwise

By Sarah Stowe | 29 Oct 2015 View comments

UPDATE: 7-Eleven has announced that it will establish an independent panel chaired by a qualified person(s) to receive and examine claims, including underpayment of staff by franchisees and franchise agreement terms.
“The key factor here is that the panel will receive, review, and process any claim of underpayment, and authorise repayment where this is appropriate,” said Chief Executive Officer Warren Wilmot.

The owners of the convenience store franchise 7-Eleven have blamed franchisees for underpaying workers, as the company faces accusations of a systematic cover-up.

Franchising experts have noted that these kinds of accusations aren't entirely new in the convenience sector, and may be widespread issues across a number of brands, not just 7-Eleven.

Former consumer watchdog Allan Fels spoke out against the 7-Eleven franchise model and says the only way franchisees can make a living is by ripping off their workers, according to an ABC report.

Fels’s assessment comes amid allegations of widespread underpayment of wages and adjusting payroll records within the country’s biggest convenience store franchise.

"My impression, my strong impression, is that the only way a franchisee can make a go of it in most cases is by underpaying workers, by illegal behaviour," Professor Fels, the former chairman of the Australian Competition and Consumer Commission (ACCC) told the ABC.

Professor Fels said that while franchisees were at fault for underpaying staff, they were being put into a difficult situation by the franchise agreement imposed by the alleged “powerful franchisor”, 7-Eleven’s head office.

The Fair Work Ombudsman (FWO) is investigating 7-Eleven following findings of three raids of more than 80 stores in the past six years.

The latest raids of 20 stores in September 2014, found that 60 percent were underpaying staff and doctoring their payroll.

In an exclusive interview with Four Corners and Fairfax Media FWO Natalie James said the investigation was looking into the whether head office was – at all – complicit in the fraud.

"That is something that we're looking at, at the moment," she told the ABC.

"The question that I would put to 7-Eleven is, 'What's your contribution to this problem, to this conduct? What steps are you not taking that you might take to ensure that your franchisees are doing the right thing?'"

7-Eleven released a statement on August 29 outlining that it does not condone the actions of franchisees that don't meet their obligations as an employer:

"7-Eleven Stores Pty Ltd (7-Eleven) is Australia’s largest petrol and convenience retailer, managing a successful franchise model across approximately 620 stores for 38 years. We are an industry leader in franchising and retailing, providing operational, administrative and business support to more than 450 franchisees. 

"We take our responsibility as a franchisor seriously. We ensure we provide education and support to assist our franchisees to meet all their legal obligations, including their obligations as the employers of store staff.  7-Eleven is extremely disappointed that a number of franchisees have chosen not to meet their obligations as employers.
"We are deeply concerned about the personal impact on affected employees or former employees, and the damage such actions cause to franchisees who are trusted, reliable and responsible small business owners, meeting their obligations as employers. 
"Our business does not condone the action of any franchisee who does not meet their employer obligations, and we do not and will not hesitate to take any appropriate action, under law and within the franchise agreement, where a franchisee is found to be in contravention of the law."
Principal of The Franchise & Business Lawyers Elizabeth Gore-Jones told SmartCompany that while the responsibility is on franchisees to comply with the law, when it comes to running their business 7-Eleven is in a position where they need to take matters into their own hands and sort out the situation.
“Sometimes common sense needs to prevail over the legal rights and obligations outlined in the franchise agreement and in this instance the franchisor has been given a pretty clear indication that something is awry in the franchise system and action is required,” Gore-Jones says.
FWO has released a statement on its website outlining that legal proceedings are set to commence against a 7-Eleven retail store in Sydney, which allegedly underpaid two migrant workers almost $50,000.
According to the franchise agreement head office takes 57 percent of gross profits with the franchisee receiving the remainder.
7-Eleven stores are open 24 hours a day, seven days a week, which equates to an estimated wage bill of $230,000 a year for a store with one employee working each shift.