What are the legal implications for 7-Eleven corporate?

by Chloe Taylor02 Sep 2015
On Monday, ABC’s Four Corners broadcasted the findings of its investigation into 7-Eleven franchises.

Between July and August, a review of 225 stores found payroll compliance issues in over two thirds of the company’s stores.

“I ask [franchisees] why there [sic] not paying correct rates for this trading period. The reply was to save money,” one review of a store in outer-east Melbourne read.

“[Franchisee] has admitted not paying the correct wages,” read another.

A company insider claimed that exploiting workers was fundamental to the business plan of 7-Eleven franchisees, going as far as to compare the system to “slavery”.

The source – who remains anonymous – told Four Corners that paying the correct wage rates would spell financial ruin for many franchise operators.

He also alleged that 7-Eleven’s head office was aware of the strategic underpayments.

"[Head office] can't run 7-Eleven as profitably, as successfully, as they have without letting this happen,” the source told Four Corners.

“The business is very proud of itself and the achievements and the money it's made and the success it's had, but the reality is it's built on something not much different from slavery.

“At lower levels it's discussed all the time ... everyone knows about it. No-one likes it, but people want to keep their jobs so they stay quiet.”

HC spoke to Veronica Siow and Andrew Wiseman, partners at Allens, about the potential consequences should legal action be taken against 7-Eleven.

“Under Fair Work legislation, employers have to comply with National Employment Standards (NES) and the relevant Modern Awards,” Siow said. “A breach of the NES or awards is a civil breach, and can attract a penalty of up to $54,000 per Course of Conduct.”

“There is also provision in Fair Work legislation that imposes a penalty on a person – which can be an individual or a corporation – who is complicit in, aides, abets, or in any way is knowingly concerned with or party to that particular breach.”

This could lead to a costly legal battle for 7-Eleven, should they be found to have been involved in their franchisees’ misconduct.

“The employers, as I understand, are the franchisees,” Siow said. “Each franchisee is the employing entity of their staff; they will clearly be on the hook for any breaches and can be sued for separate breaches.

“There is also the chance that the head franchisee – the corporate Australian entity – may also be found to have breached legislation.

“It’s also possible, depending on the extent to which they were involved or aware of what was going on – that the directors or senior executives of any company (including head office) could be on the hook.”

According to Siow, there is a $10,800 maximum penalty for individual breaches of the NES or awards system.

“It doesn’t seem much of a sting, but the company will also have to make restitution to employees which would be substantial if the breaches are as big as reported,” she explained.

The maximum penalty for individuals is also applied as per their course of conduct. So, if the head office is found to be complicit in all of its franchisees’ offences, there is the potential for a penalty to be imposed on the parent company for each individual franchisee who is found guilty of breaching the law.

“There are around 660 stores,” Siow said. “If all of them are held by different franchisees, and thus employers, and each of those has contravened the NES and awards, the potential outcome for head office is the maximum penalty multiplied by 660 if it is found to have been complicit in every breach.”

“While franchisees are on the hook for one course of conduct, if head office was involved or aware of what was going on and did nothing, there’s the potential multiplier.”
Wiseman told HC that the issues are “clearly based on the franchise model”, although it is unclear precisely who is accountable for the alleged breaches.

“There’s a specific code of conduct for franchisees, but because the facts around the case remain uncertain it’s difficult to tell whether there’s anything in particular under that code that has been breached by the company itself.”

He added that the alleged behaviour of the franchisees is “certainly an express obligation of good faith”, which may be brought to bear if legal action is taken.

“There are also opportunities for termination in circumstances where there’s been fraud, but we can’t assume too much at this stage,” he said.

Wiseman also expressed interest in the reasons – and individuals – responsible for instigating underpaid wages.

“What’s unique about this case is that there appears to be very clear pressure from above to put a squeeze on costs, and wages in particular – that’s where the rub is,” Wiseman told HC.

“It would be very rare to find, in express terms of the franchise agreement, something that would require unlawful actions. I suspect that any instructions like this don’t refer to underpayments explicitly.”

He also noted that it was unlikely franchisees would be able to have their stores open for the hours they need to be open, have staff in, and expect to make money.

“It will be interesting to see who is complicit in the practice that puts real pressure on wages,” Wiseman said.

In a media statement released on Monday, 7-Eleven said it would be establishing an independent panel to address the alleged compliance issues.

“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 franchise fee paid, and help to sell any store where a goodwill payment has been made,” said Warren Wilmot, CEO of 7-Eleven.

“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 the many.”

Picture: 7-eleven careers

Veronica Siow will be speaking at the Employment Law for HR Managers masterclass in Sydney on November 12.

For more information or to register, click here.

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