“My company recognises that there is a problem and is doing everything possible to fix it.” So said the chairman of 7-Eleven Stores Pty Ltd, Russell Withers in an address to a Senate Committee. Withers has also apologised to any store workers in the chain who have been incorrectly paid and reiterated that there is no head office cover up.

In an opening statement addressed to the Senate Education and Employment References Committee’s public hearing, he said:

“It is clear that a number of 7-Eleven franchisees have underpaid their staff. 7-Eleven Stores Pty Ltd does not in any way condone this practice.

“It is a breach of the franchise agreement not to comply with any law, including labour laws. Underpayment of staff by franchisees in no way benefits 7-Eleven Stores Pty Ltd and the reputational damage to the brand and the company by this practice has been considerable.

“I want to stress that this has been highly embarrassing, and I apologise unreservedly to any worker that has worked in a 7-Eleven store who has not been paid correctly.

“Australia has a wage system that 7-Eleven and its franchisees must and will honour.”

Withers went on to say the company has recognised that there is a problem.

“My company will fix it, and we will do everything in our power to make sure this never happens again,” Withers said.

In 1976 Withers signed a licence agreement with 7-Eleven in the US to bring the convenience chain to Australia. The first store opened in 1977 and there are now 620 7-Eleven stores in Australia, and 458 franchisees, all operating under their own a company structure.

“The franchise agreements operates on a split of merchandise gross profit, giving both the franchisor and franchisee a common goal of gross profit dollars in the store.”

Who pays for what?

Withers explained that 7-Eleven Stores Pty Ltd’s 57 percent share of the gross profit goes pay for:

• Rent or provision of the store
• All equipment in the store
• Maintenance of buildings, premises and equipment
• Cost of utilities
• Advertising

“We provide a bookkeeping service, and an optional payroll service that relies on information provided by the franchisee.

“Financial statements are provided monthly, right down to balance sheet for the franchisee.

“The franchise agreement establishes the franchisee as an independent contractor.

“From the franchisee share of gross profit, the franchisee is responsible for hiring and remunerating all staff in the store.”

Expenses such as telephone, minor janitorial costs and supply items such as paper bags are met by the franchisee. The balance is the franchisees’ net income.

“The extent of the practice of underpayment has been very difficult to determine, as the offending franchisees have falsified records and underpaid staff have failed to come forward.

“However, we have been open, honest and collaborative with the Fair Work Ombudsman in its investigations of franchisees.”

Fair Work investigations

Withers noted that the Fair Work Ombudsman investigates individual businesses who are the employers, not 7-Eleven Stores Pty Ltd.

In September 2014 the Ombudsman began 20 audits of 7-Eleven Stores in Melbourne, Sydney and Brisbane.

One year on and one franchisee has entered an enforceable undertaking and one is defending a prosecution, he said.

“These audits did trigger our company to take further action,” said Withers.

“In the absence of results from the Fair Work audit, in May this year 7-Eleven increased its own audit of franchisee pay records.

“With our findings we immediately and significantly improved our systems, monitoring and detection.

“The Four Corners program claimed massive wage fraud being covered up by 7-Eleven head office.

“I assure you there is no such cover up.

“We believe any underpayment of workers whether at 7-Eleven or any other place is wrong and cannot be condoned.

“My company recognises that there is a problem and is doing everything possible to fix it.”

What is 7-Eleven doing to fix the problem?

“We have established an independent panel chaired by Prof. Allan Fels with Dr David Cousins, supported by a Secretariat staffed by Deloitte to receive, process and adjudicate on any claims of short payment of franchisee staff.

“7-Eleven Stores Pty Ltd will settle these claims promptly without further investigation. There is no time limit or statute of limitation on claims.”

Withers highlighted that the Panel’s work is confidential; there is a Hotline and website in place, advertising has begun..

The company has also directly contacted nearly 5000 people employed by franchisees and provided details about the Panel.

“In addition to the Panel, we have commissioned our internal auditors EY to design a system to bring in measures including:

• All franchisee employees must be paid through the 7-Eleven payroll service
• Biometric sign on and sign off for all store staff
• Weekly signed acknowledgement by the employee that the pay is correct for the number of hours worked
• Whistle blower hotline details will be included
• Weekly monitoring of payroll compliance by 7-Eleven district managers
• Random external store audits by EY

“Where proven, immediate termination of the franchise for any intentional underpayment of franchisee staff will occur.

“It would be easy for us to say that this is the responsibility of offending franchisees.

“But the reality is that, whatever the extent of the problem, this has happened on our watch and we want to make it right.

“The 7-Eleven system does not rely on the underpayment of franchisee staff in order to be viable. Thirty eight years of successful operation in the convenience store business reinforces this.”

• What you need to know about employment law as a franchisee.