7-Eleven class action hits snag

By Nick Hall | 12 Dec 2019 View comments

A proposed class action suit against franchise chain 7-Eleven and the ANZ Bank has copped a blow, with the court accepting an undertaking from the franchisor. The 7-Eleven class action dispute concerns representations made around profitability, wages and rebates.

It’s been a lengthy process just to get to this point. Levitt Robinson Solicitors, on behalf of Davaria Pty Limited, commenced the 7-Eleven class action back in 2018, alleging the chain misled franchisees before they entered into agreements.

7-Eleven class action claims

According to court documents, group members claim that 7-Eleven misrepresented the business opportunity afforded by operating a 7-Eleven store, the profitability of stores, the accuracy of the labour costs in financial records supplied and the average wages that a franchisee would have to pay to comply with employment awards.

Additionally, concerns were raised over the need for franchisees and their family members to work for below employment award rates for an unreasonable number of hours per week.

The claims date back as far as February 2012, and come from either nominated directors of a franchisee or from those who provided indemnities, guarantees, mortgages or other securities in relation to the purchase.

According to a 7-Eleven spokesperson, members involved in the class action had sought to restrict interaction between the company and its franchisees, a move that Hon Justice Middleton rejected.

“The applicants in the proceedings had applied to the court to restrict 7-Eleven’s right to communicate with franchisees,” the 7-Eleven spokesperson told Inside Franchise Business.

“We welcome the decision of Justice Middleton to dismiss the application.”

Outcome of hearing

At a Federal Court hearing on Wednesday, Justice Middleton accepted an undertaking from 7-Eleven that effectively dealt a blow to the action.

Under the terms of the undertaking, 7-Eleven will provide a letter to all franchisees from whom it wishes to obtain a release, before entering into a deed. Effectively, signing the deed would mean agreeing to give up any claims against the franchisor made in the class action, as well as agreeing to not take action or participate in claims against ANZ.

Throughout the class action proceedings, ANZ had been accused of breaching its contract with group members by agreeing to loan to franchisees without considering the amount of hours, wages and payroll expenses needed to accurately operate a 7-Eleven business.

The class action alleged that ANZ engaged in unconscionable conduct, by lending money to franchisees and by procuring guarantees from group members when it knew that the franchises could only be profitable if the franchisees underpaid staff or worked unreasonable hours.

Wage theft and underpayment at 7-Eleven franchised outlets has been widely documented, but since reports first broke, the chain has worked hard to address the issue.

The latest undertaking also sees the franchisor agree to not seek any release, relating to the class action or otherwise, as a condition of a transfer approval.

It was a particularly poignant stipulation. Reports had suggested that some 7-Eleven franchisees involved in the action were concerned they may not have their agreements renewed.

The 7-Eleven spokesperson said that while the order provided validation, ensuring franchisees understood their rights with regard to the releases was critical to the ongoing negotiations.

“While successful, 7-Eleven volunteered some limited undertakings to ensure franchisees understand their rights when it comes to providing releases which involve the class action,” they said. “Importantly, the court acknowledged that 7-Eleven did not engage in any unfair conduct.”

The initial win for the iconic franchisor did little to boost confidence for those franchisees involved in the class action, however.

Stewart Levitt, the senior partner leading the class action revealed that the undertaking was in the same terms of one put forward on December 9, which it had previously resisted.

“It was given in the face of very strong evidence from both current and former franchisees. We acknowledge their courage in coming forward,” he said.

Moving forward

With the deed letter expected to franchisee inboxes in the near future, franchisees involved in the 7-Eleven class action face an interesting predicament.

Aside from giving up claims, those who sign the deed would also fail to qualify for any financial proceeds should a judgement be handed down or settlement reached.

Levitt said that while he would have liked to see a more positive outcome, the result did not place 7-Eleven above the law.

“Although the applicants would have liked stronger orders or a more powerful undertaking, the Hon Justice Middleton said that if 7-Eleven says anything to franchisees that is misleading or deceptive, they could always go back to court,” he said.

As part of the undertaking, 7-Eleven has strongly recommended franchisees obtain independent legal advice regarding the deed before entering. Members have 14 days to consider the deed, however, more time can be requested.