Recommendations made to 7-Eleven following underpayments

The Fair Work Ombudsman has made a number of statements over the last 6 months relating to the prosecution of 7-Eleven franchisees. 

October 2015 Statement

In a statement made in October 2015, the Fair Work Ombudsman noted that in the past 6 years, the FWO had recovered more than $600,000 in unpaid entitlements on behalf of 7-Eleven employees.

The October 2015 statement by the FWO announced the prosecution of a Melbourne 7-Eleven franchise where allegations were made that 12 casual employees were underpaid nearly $85,000 in the 12 months prior to September 2014.  These employees were allegedly paid as little as $11 per hour, when the minimum hourly rate applicable to them was more than $22 per hour and up to $37 an hour for some penalty shifts.

The FWO alleged that the operators of the store were aware of their obligations but chose to cover up their actions.  It was alleged that the operators had made false entries in their payroll system to give the impression of compliance with legal requirements.  The store operators are now facing penalties, despite the fact that they had back paid most of the entitlements owing to the employees.  Fair Work Ombudsman Natalie James noted that although the rectification of underpaid wages was pleasing, ‘legal action was initiated because of the alleged deliberate exploitation of vulnerable overseas workers’.

12 January 2016 Statement

On 12 January 2016, two Brisbane based franchises were announced as the subject of prosecution by the FWO with allegations that the two outlets ‘short-changed 21 employees more than $31,000’.

25 January 2016 Statement

On 25 January 2016, the FWO announced that it was taking legal action against Brisbane-based franchisee.  The allegations in this instance related to the underpayment of 12 staff, again including international students and visa holders.  The allegations consisted of underpayment of wages where workers were paid flat rates of as little as $13 per hour, and that the franchise operators were attempting to hide these underpayments through false employment records. The Fair Work Ombudsman again emphasised the serious nature of the breaches noting the involvement of ‘vulnerable overseas workers’.

7 April 2016 Statement

A further franchisee is now being targeted by the FWO for prosecution as announced by the FWO in a statement made on 7 April 2016.  Again, the allegations relate to flat rates of $13 per hour being paid with one employee allegedly subjected to underpayments of $13,963 over a 13 month period.  The FWO alleges that the store operator had falsified pay records and provided these falsified records to the FWO during the investigation.

Inquiry into 7-Eleven franchise network

An inquiry was commenced into the 7-Eleven franchise network in June 2014.  The Report relating to the Inquiry was has recently been released.

As part of its Report, the FWO noted the difficulties it faced in conducting the Inquiry:

“Our investigations into 7-Eleven stores posed significant challenges.

…

This Inquiry encountered a widespread lack of co-operation from the range of parties involved.

Not only did some franchisees fail to keep proper records of what had been worked and paid, a number produced and relied on false records.

Where franchisees failed to co-operate with us or give us accurate records, co-operation from employees was vital for us to understand what was occurring in any given store.

However, lack of employee participation impeded our efforts to investigate a number of matters.

In one store, for example, where we had significant concerns about wage rates and the accuracy of records, only one of 12 employees was willing to be interviewed.

…

Employees often changed their responses to questions when contacted a second time.

The Fair Work Ombudsman has identified a wholesale disregard for minimum wages in some stores.“

The Report alleges that there is a ‘culture of acceptance’ in relation to the underpayment of wages and entitlements in 7-Eleven franchises.  It notes the fact that the 7-Eleven workforce is predominantly comprised of employees from non-English speaking backgrounds and that these workers are quite often student visa holders.  In her statement regarding the report, the Fair Work Ombudsman sent a blunt message to employers in relation to the exploitation of overseas workers:

“… Frankly, I’m sick and tired of seeing matters come before us where people are being paid $10 and $12 an hour, well below the minimum wage.

We have minimum pay rates in Australia, they apply to everyone, and they are not negotiable.

Employers cannot undercut minimum wages, even if their employees offer to accept lower rates – and they must keep accurate time-and-wages records at all times.

It is not acceptable for an employer to take advantage of any worker, especially overseas workers who speak limited English and have limited understanding of their workplace rights.

So far this financial year, more than 70 per cent of the matters we have placed before the courts involve alleged underpayment of visa-holders….”

Ultimately, the Report from the FWO set out a number of recommendations for 7-Eleven.  In the lead-up to those recommendations, the Fair Work Ombudsman noted that 7-Eleven Head Office had undertaken some planned changes to the payroll system and had taken ‘real steps to rectify the situation’.

The FWO acknowledged 7-Eleven Head Office was not directly responsible for the actions of its franchisees, however the FWO stated ‘it is our view that 7-Eleven has a moral and ethical responsibility for what has occurred within its network…’.

The Inquiry went on to recommend that 7-Eleven take the following steps:

• Enters into a compliance partnership with the Fair Work Ombudsman, accepting that it has moral and ethical responsibility to ensure its stores meet community and social expectations for equal, safe and fair work opportunities for all employees,
• Implements effective governance arrangements that ensure compliance with all federal workplace laws,
• Review its operating model to ensure regular review of the financial viability and legal exposure of franchise agreements and engage an external, independent party to self-audit its compliance, and
• Set up a staff consultative forum with employee representatives from across the network that is separate from franchisees.

Lessons for Employers

The number of prosecutions of 7-Eleven franchisees reflects the FWO’s strong and targeted stance against systematic underpayment of entitlements, particularly when dealing with the alleged exploitation of overseas workers.  The increasing number of complaints to the Fair Work Ombudsman indicates that employees are more aware than ever of their workplace rights and are becoming more pro-active in asserting those rights.

Where employers are in doubt as to their obligations in terms of paying wages and entitlements, then they should seek legal advice so as to avoid finding themselves the subject of an FWO investigation/prosecution.