7-Eleven in fresh wages scandal

7-elevenThe 7-Eleven convenience store franchise has restructured its board of directors and appointed new senior management, but has as yet been unable to extricate itself from the staff exploitation scandal.

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While 7-Eleven has tried to limit criticism by asserting it is not the only culprit in the underpayment of staff wages and has attempted to argue that its compensation scheme for its dudded employees is on track, the franchise chain is facing fresh allegations of continuing breaches of workplace laws.

The systematic under-payment of students on limited work permit visas ignited a firestorm around 7-Eleven last year, forcing the resignations of the retailer’s chairman and senior staff, including the CEO.

The Fair Work Ombudsman has prosecuted a number of 7-Eleven franchisees and is continuing investigations into allegations from 2015, but incredibly has now begun examining recent claims that indicate the underpayment of workers is still occurring.

In the case of 7-Eleven, there could be no excuse of not understanding the award wages and entitlements that are due to employees and it would be expected the franchisor would have put in place the most robust systems to ensure its franchisees were meeting all legal requirements.

Yet the Fair Work Ombudsman has confirmed that it is now investigating evidence of further underpayment allegations from last month.

The regulator has said the new investigation is into, “serious allegations of breaches of workplace laws” and has indicated that further legal action may be initiated.

The new development comes at a crucial time for 7-Eleven as it tries to repair the reputational and financial damage of the scandal and to try to persuade directly and through industry associations the federal government not to enact tougher laws.

The re-elected federal government has a comprehensive report from a Senate Committee Inquiry that examined the 7-Eleven employee exploitation and is now mulling over possible new legislation that would require franchisors to monitor the compliance of franchisees with workplace laws.

7-Eleven-11 copyMichaela Cash, the federal employment minister, has met with Professor Alan Fels, the former chair of the Australian Competition and Consumer Commission that oversees the franchising code of conduct and who headed a panel appointed by 7-Eleven to examine compensation claims by employees who had been underpaid by the convenience chain’s franchisees.

Cash said the 7-Eleven scandal had revealed that the retailer’s business model had, “encouraged systemic underpayment of workers” and had  involved abuse of the student visa work entitlements and forcing many employees to work for wages below award rates.

Cash said the Coalition is working on legislative changes in response to the Senate Inquiry that would include “meaningful penalties” that would provide a deterrent to employers that were exploiting employees.

Fels and the compensation panel he headed were effectively sacked by 7-Eleven last May, apparently because the panel was arguing for a lower threshold of proof on claims by employees of underpayment of wages.

7-Eleven set up its own in-house compensation review process that required employees to provide evidence of under-payment, a somewhat difficult, if not impossible, task for many of the affected employees given the fraudulent manipulation of wages records by at least some of the retailer’s franchisees.

Fels has sharply criticised the 7-Eleven in-house process, but also argues that the reimbursement of employees is taking too long.

7-Eleven is understood to have paid out more than $26.8 million in compensation to underpaid employees and has also incurred further costs in buying out some franchisees who claimed they had been disadvantaged under the business model profit distribution that the franchisor revised last year in a concession that a large number of franchise stores were under financial stress.

7-Eleven slow to comply
7-Eleven certainly has taken its time in addressing the recommendations of the Senate Inquiry and in working to address concerns of the Fairwork Ombudsman.

When the latest allegations of continuing underpayment of workers emerged last month, Natalie James, the Fairwork Ombudsman, said 7-Eleven had not yet entered into a compliance partnership with the agency despite receiving a draft of an agreement in April.

While agreements can obviously take time to conclude, you would expect that 7-Eleven would have given the issue a very high priority with the senate and new government breathing down the retailer’s neck and further legal action still in prospect if the integrity of the in-house repayment program is not accepted by regulators and former employees whose claims for reimbursement are rejected.

While a formal agreement has not been finalised, 7-Eleven claims it is working with the Fairwork Ombudsman and is update the regulator on its progress in dealing with the compensation program and the implementation of other initiatives to improve the monitoring , prevention, investigation and risk management capabilities of the company to ensure compliance with workplace standard by its franchisees.

7-Eleven has defended its tougher evidentiary stance on compensation claims by arguing that some of the claimants have lodged false claims.

The company the 7-Eleven’s Wage Repayment Program is, “delivering in line with commitments, continuing to finalise claims quickly and appropriately with a robust process that puts the interests of franchisees’ employees at its centre”.

As at August 12, 2016, two and a half months since its launch, the Wage Repayment Program had approved 227 claims, adding to the 421 approved under the previous Fels panel process.

7-Eleven said the majority of claims yet to be assessed are waiting on claimants providing basic threshold information, including certified proof of identity and a breakdown of the claimed hours and days for time worked at a 7-Eleven store.

7-Eleven said the secretariat for the scheme, which is overseen by Deloitte, has contacted claimants multiple times over the past 10 months in an effort to ensure that all legitimate claims are brought forward and finalised as quickly as possible.

Fels argues the in-house process is taking too long and says there were indications that as many as 15,000 of the 20,000 employees in 7-Eleven franchisees may have been underpaid and that 3000 claims had been lodged by former and current employees before he was told his services were no longer required by the retailer in May.

While 7-Eleven may dispute Fels’ views, the retailer faces a tougher job in dismissing the Senate Inquiry report that found one of, if not the, most decorated franchise system in Australia had serious systemic flaws and was not fairly recruiting franchisees or employees in franchised stores.

The Senate Inquiry said recommended 7-Eleven should provided information on wages, specific store income and expenditure data for a period of two years and detailed and verified wage modelling that outlined the minimum wage costs required to operate a store.

The Senate committee also recommended that 7-Eleven should require each franchisee to enter into a compliance commitment document that would obligate franchisees to report every six months on the terms and conditions on which each employee was engaged and to provide undertakings that no store owner would seek to recoup any wages or payments from employees.

Further recommendation sought the appointment of an external party to conduct an annual audit of compliance with the Fair Work Act 2009 and an investigation process for high risk stores as well as the provision of information in training materials for employees on how they could report concerns related to their employment and their wages and entitlements.

Reforms to herald new industry standards?
Arguing fairly that 7-Eleven is not the only company that has been involved in underpayment of award wages or entitlements, the franchisor has now proposed a range if industry reforms to underpin standards and entrench ethical behaviours in the franchise sector.

After 7-Eleven and the franchise sector have strenuously rebuffed stronger legislation and tried to contain obligations under the franchising code of conduct that is overseen by the ACCC, the company is now suggesting significant changes to the code.

7-Eleven’s reform proposals aim for greater protections for workers in the franchise industry, a reduced risk of workplace law compliance failures and more effective sanction options for such failures.

7-Eleven is advocating for modifications to the termination provisions in the Franchising Code of Conduct and the Oil Code to provide franchisors with a right to immediately terminate a franchise agreement in the case of, “serious non-compliance with Commonwealth workplace laws or Fair Work instruments”.

The retailer claims it was legally constrained in dealing with franchisees who underpaid employees because of protections to franchisees in their franchise agreements, a somewhat different position to its original ‘we had no idea’ claims when the wages scandal broke in August last year.

7-Eleven is also arguing for an expansion of franchisor responsibilities within the franchising code of conduct, effectively accepting the Senate Inquiry finding.

The retailer has also argued for, “a mature debate on potential reforms to the conditions attached to student visas to ensure students are able to legally work a sufficient number of hours in order to earn enough to cover average tuition and living expenses, beyond the first year of their course”.

In a statement, 7-Eleven chairman, Michael Smith, said it is important the company takes the lead in effecting positive change that will preserve and enhance the franchise industry’s reputation by setting standards that meet communication expectations.

Smith said the company’s proposals provide clarity of responsibilities, remedies and sanctions for everyone involved in the industry, and seek to significantly diminish the potential for companies and/or individuals to exploit workers.

“Our advocacy is based on the workplace challenges 7-Eleven has confronted and the actions we have taken to improve compliance, governance and transparency across our store network,” Smith said. “We are urging government and stakeholders in the franchise sector to support these reforms and I look forward to a positive and balanced debate that will lead to real and lasting solutions.

“While the fundamental structure of the franchise model both in Australia and overseas relies on the separation and independence of franchisor and franchisee businesses, community expectations and standards are such that all businesses that bear a brand must meet appropriate workplace standards.”

Smith said 7-Eleven accepts that to move forward all franchisors must do more to ensure that all standards, including Australian workplace laws, are fully upheld.

The retailer has obviously learned some lessons from its wages debacle but it has not yet closed the book on the costs, financial, legal, political and reputational of the rorting of visa requirements for overseas students and the exploitation of workers.

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