Underpayments scandal: 7-Eleven offers fee refund and help to franchisees who want out

7-Eleven Australia has offered to refund franchising fees and help facilitate store sales for any franchisee that wishes to leave the chain.

The offer comes as the convenience store chain has been left reeling by a joint investigation by Fairfax and the ABC that has exposed widespread underpayment of 7-Eleven workers, many of whom are international students.

According to the investigation, which was detailed in an episode of Four Corners on Monday night and reported on by Fairfax, there is evidence that some 7-Eleven franchises have deliberately falsified payslips to hide the underpayments.

The report also aired allegations that 7-Eleven franchisees have an incentive to underpay workers as the company’s head office takes the majority (57%) of the franchisees’ gross profit.

As a consequence, work is reportedly underway on a class action against 7-Eleven and has been so far be joined by several former 7-Eleven franchisees.

7-Eleven made the offer to dissatisfied franchisees on Monday afternoon, alongside an announcement it will seek to appoint an independent panel to investigate underpayment claims from employees, as well as franchise agreement terms.

The panel will be chaired by an as-yet-unnamed “eminent and qualified Australian” and 7-Eleven chief executive Warren Wilmot said in a statement the company has approached the Fair Work Ombudsman for help to establish the panel.

In the same statement, Wilmot said 7-Eleven will work with existing franchisees who no longer want to be part of the chain.

“While we dispute there is insufficient financial viability in a system that delivers on average net profit of $165,000 per store, and year-on-year growth of more than 9%, the company has committed that any existing franchisee, who no longer wants to participate in the system, 7-Eleven Stores Pty Ltd will refund the franchisee fee paid, and help to sell any store where a goodwill payment has been made,” Wilmot said.

“What has happened, has happened on our watch, and we are a company with a proud heritage and a strong reputation, we cannot allow the few to taint the achievements of many.”

Jason Gehrke, director of the Franchise Advisory Centre, told SmartCompany this morning the offer from 7-Eleven is not a “buyback” of 7-Eleven stores by head office, but rather an offer to help sell franchisees sell their stores.

“In the resale of existing franchises, the franchisee fee component is usually a relatively small amount of the total purchase price,” Gehrke says.

Gehrke says he doesn’t believe there is a precedent for an Australian franchisor establishing an independent panel to review its operations.

Coinciding with the Fairfax and ABC investigation, the Fair Work Ombudsman yesterday revealed it has launched legal action against one 7-Eleven franchisee in Sydney over allegations two migrant workers have been underpaid almost $50,000.

The Ombudsman said today another 7-Eleven franchisee, this time in Melbourne, has admitted to deliberately underpaying workers and altering employment records in a bid to cut costs.

The franchisee, Kumar Sandarakumar, and his company, PSP International Trading, have entered into an enforceable undertaking with the Ombudsman to avoid litigation and have agreed to repay 12 of the store’s 15 employees more than $30,000.

The franchisee has also agreed to establish processes and systems to ensure future compliance with workplace laws.

Speaking more generally about compliance with workplace laws by franchise systems, Gehrke told SmartCompany “the risk of franchisees and independent small business operators incorrectly paying international students is significantly greater where the franchisees themselves are from a business migrant background”.

“There is a cultural issue as the frames of reference from home cultures in terms of staff pay are not relevant frames in a regulated Australian context,” Gehrke says.

Gehrke says the support offered to business migrants is an issue all franchise systems must address.

“As business migrants are becoming more common in franchising, it is an issue that franchisors won’t be able to ignore and will ultimately have to address through better screening at the recruitment phase, better training at the induction phase and better ongoing monitoring during the operational stage,” he says.

SmartCompany contacted 7-Eleven but did not receive a response prior to publication.