Home - 7-Eleven in crisis: why the problem is bigger than it looks

UpdatesSep 07, 2015

7-Eleven in crisis: why the problem is bigger than it looks

I’ve long thought that many of the employees in the innumerable 7-Eleven’s in town seemed pretty glum.

By Joseph Nunweek

I’ve long thought that many of the employees in the innumerable 7-Eleven’s in town seemed pretty glum.

At the time, I chalked it up to late nights, loneliness by yourself in the shop, and the seemingly endless succession of drunks getting flakes of pie everywhere as they search for their bank card and berate you.

It turns out the problems are much deeper than that, as a joint investigation by Fairfax and ABC’s Four Corners revealed last week.

We’re looking at drastic underpayment of wages, exploitation of migrant workers, and franchise arrangements so onerous that it’s hard to think why anyone would get into them in the first place.

Now, the Australian (via America) empire is in turmoil, and no one comes out smelling of roses. Not the franchisee, and certainly not the franchisor.

So I thought I’d unpack some of the issues it presents. I’m aware that I’ll be preaching to many of the converted with the wages issue – unless you really like to live dangerously. But some of the other aspects of the case are more complex, and worth considering.

Not the brightest scam

Fairfax and ABC reported on the “half pay scam” that multiple 7/11 franchisees had shared and relied on to underpay employees.

It’s not an elaborate scam. Employees were paid at the award rate – for half the hours they actually worked.

Another way to look at this is that employees (some of whom were being paid as little as $10 an hour) were receiving half the wage they were legally owed for hours worked.

There’s no real way of characterising this as a loophole. It’s illegal, plain and simple. And each contravention of a modern award (or indeed, the national minimum wage) can result in penalties of up to $10,800 for an individual or $54,000 for a corporation.

The expose established that there was an extensive culture of doctoring time and wage records to cover up exactly when employees worked and what they received. Obviously, this is a serious breach of the Fair Work Act as well.

The maximum penalties for a failure on this scale to adhere to record-keeping standards per contravention are up to $5,100 for an individual or $25,500 for an employer.

It’s true that the investigation and enforcement depends significantly on the Fair Work Ombudsman’s resources – but when they do come across serious wage breaches, they come down hard. Enough to put plenty of small businesses out of business.

There’s one more element to the scam, though – and it’s a pretty nasty one.

A migrant’s breach can be a business’s breach

7-Eleven often tends to be staffed by young lads from overseas. Many have travelled to Australia to study on student visas, and the late nights and weekend shifts that come with the job tend to suit their uni and study hours.

But student visa holders can only work a maximum of 20 hours a week during semester. And these franchisees were offering their employees much longer hours (and as I’ve noted, much lower pay).

According to the Fairfax/ABC report, when some employees came forward to complain about their illegal conditions, they were threatened with being reported to the Department of Immigration and being deported.

Nice try – but under the Migration Act, an employer can face civil liability for knowingly or recklessly allowing a migrant employee to work in breach of work-related conditions on their visa, to the tune of $102,000 per contravention.

In serious cases, this could become a criminal prosecution, with a maximum penalty of two years’ imprisonment. It’s not hard to think of which kind of liability an employer that blackmailed vulnerable employees would likely face.

To avoid either form of liability, an employer needs to establish that they took “reasonable steps at reasonable times” to verify that a worker was not in breach of their work-related conditions.

To be clear, that means more than asking an employee what kind of visa they have and just taking them at their word.

The most effective step is to use the free Visa Entitlement Verification Online (VEVO) service, and then keep your records of doing so.

Accessorial liability – what you do know can hurt you

We’ve talked a lot about franchisee wrongdoing so far. After all, it was the 7-Eleven franchisees who were responsible for wages and hiring decisions.

But one of the most serious allegations in the Fairfax/ABC report is of 7-Eleven state managers (franchisor employees) telling an undercover employment advocate that “there are ways around paying award wages”.

Section 550 of the Fair Work Act states that a person will be involved in another party’s contravention of the Act if they:

If we were to go by the accounts in the expose, they look bad for 7-Eleven’s head office.

Obviously, an employee of the franchisor offering advice or counsel about to breach a modern award could be seen as ‘aiding and abetting’ a contravention.

And a whistleblower from head office told reporters that 7-Eleven was “deliberately ignoring systemic wage fraud throughout the franchise system”.

The penalties for accessorial liability are the same for each count as for a direct employer. $10,800 for an individual, $54,000 for a corporation.

That’s why any business should be careful about when they contract for services – for example, cleaners for their offices, or painters for refurbishments.

If what you’re paying couldn’t possibly be covering the lawful wages of the contractor’s employees, you need to stop and think about your possible liability.

It’s a far cry from being a national company with 620 franchise stores like 7-Eleven, though.

So how will they get out of it? Even if the Fair Work Ombudsman were to co-operate and give them time to work things through with some sort of enforceable undertaking, they have a mammoth compliance task ahead of them.

As I said, you’re unlikely to find yourself in a bind on par with 7-Eleven’s anytime soon – but many of the lessons here can be applied to businesses of almost any size.

Until next time,

Joseph Nunweek

Editor, Workplace Bulletin


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