egulators. Other well-known franchises such as Pizza Hut, Red Rooster, Hungry Jacks, Super Amart, Bakers Delight and Grill’d have also prompted investigations for paying staff less than award wages, while a number of other franchisees in retail businesses are pursuing other illegal employment strategies. One Melbourne-based Jamaica Blue franchise store has been employing staff on extended “training” programs without any pay, and then refusing to offer them a job on the basis that the employees were “unsatisfactory”. Franchises are not the only retailers trying to avoid their staffing obligations, with the Unilever owned T2 recently sacking staff who had launched a new store in Melbourne, including an experienced manager headhunted from another chain. Limited resources have prevented the Fair Work Ombudsman from investigating many complaints from part-time employees terminated after short periods, but the agency is now taking a keen interest in reports of employers who are not meeting their obligations under awards. Franchises are particularly under a microscope with individual franchisees apparently often advising other operators within their systems to take shortcuts to shore up profits. Although franchisors monitor the results of their stores and know their expenditure profiles, including stock purchases and occupancy costs for premises, they appear to turn a blind eye when it comes to employee rosters, wages and conditions. Several companies have been forced to agree to audit and compliance agreements with the Fair Work Ombudsman after investigations have found underpayment of employees was endemic in their businesses. Investigations of major franchise systems and, in recent months, 7-Eleven’s Pontius Pilate response to the exploitation of students on visas permitting them to work only 20 hours per week has now provoked discussion in government agencies about legislation to clarify the responsibility of franchisors. Under payment and mistreatment of employees, particularly young part-time and casual employees, is a blight on the entire industry and will inevitably lead to more regulation if the industry can’t clean up the problem. Franchisors are likely to be pressed to sign compliance agreements that will be monitored by the Fair Work Ombudsman, and unions who have been quick to sign up young people as members, but slow to check that they are receiving their entitlements. Indeed, the interpretation of a 2009 agreement negotiated Quick Service Restaurants with the Shop, Distributive and Allied Employees Association on behalf of most, but not all, the Red Rooster franchise outlets was blamed for widespread underpayment of staff. In 2014, a report by the Fair Work Ombudsman found Red Rooster Foods had underpaid 3140 of its 7000 staff, effectively half the staff on its payroll were shortchanged more than $645,000 on wages. Another Perth-based fast food retailer, Hungry Jacks, was convicted in the Federal Court for underpaying 693 employees a total of $665,695 in its Tasmanian stores between 2006 and 2008, and further breaching workplace laws by failing to keep proper employment records. No small fry 7-Eleven, Hungry Jacks and Red Rooster are not corner store operations exploiting an employee or two and the underpayments are substantial. The amounts involved in underpayments to staff are hundreds of thousands of dollars, with furniture retailer Super Amart having to repay its workers $1.3 million back in 2011. The fast food franchises are major retail brands that boast about their business models and their success as retailers and pick up industry awards while breaching workplace laws and cheating on vulnerable new entrants to the workforce. As Fairwork Ombudsman, Natalie James, said in August last year in regard to the Red Rooster investigation, “many of the young people working in Red Rooster franchises would have had little, or no previous work experience, and limited knowledge of their lawful entitlements”. Where was their union? Where was the franchisor’s commitment to the staff working in franchises if for no other motivation than to avoid the type of reputational damage that has now engulfed 7-Eleven? In many other instances of exploited young workers, such as in the Jamaica Blue or T2 examples, both previously reported to Inside Retail Weekly, where is the regulator? Given the level of publicity for the Hungry Jacks case in 2011, or Red Rooster last year, you would expect that other employers would recognise the wake up call. Apparently not with Pizza Hut, a retail owned by the Kentucky-based Yum Brands subsidiary, Yum! Restaurants Australia, that is facing allegations that some franchisees are using sham contracts to peg delivery drivers to a wage of just $12 an hour. Australia’s second biggest pizza chain behind Dominos, Pizza Hut’s business model, like 7-Eleven’s franchise system, is being tested by a franchisee unconscionable conduct class action in the Federal Court. Franchisees argue they have had to resort to contracts for delivery drivers that do not provide workers compensation, superannuation, petrol, insurance or other leave benefits to survive. Under national awards, delivery drivers should be paid at least $18.98 per hour and 41 cents a kilometre if they are driving their own car. Asked about the deal, the SDA said the underpayment was a matter of concern but it didn’t indicate it would follow up the allegations, which are not exactly new news in the fast food industry. The SDA, which is keen to exercise the political muscle that its membership deals with major retailer employers provides, has never seemed all that interested in checking that its members are actually enjoying the pay and conditions included in union award agreements. SDA, Fair Work Commission found lacking Professor Andrew Stewart, of the University of Adelaide, is critical of the SDA, claiming that it has negotiated poor deals in some agreements in the first instance. Stewart points out that it is “not unusual” for the SDA to negotiate enterprise agreements that the Fair Work Commission finds to be below award standards and requires amendments or undertakings by employers. An agreement struck between the SDA and Coles Supermarkets was one deal the Commission found to cut the pay packets of employees. The Fair Work Commission were no more motivated than the union when they were contacted last year by two Pizza Hut delivery drivers complaining about the contracts being used by some franchisees to underpay employees and strip them of other entitlements. Mindful of the firestorm around 7-Eleven, Pizza Hut GM, Graeme Houston, quickly responded to media reports of the sham contracts for delivery drivers. “Pizza Hut is investigating claims that some franchisees are not acting in accordance with our existing enterprise agreement with the Shop, Distributive and Allied Employees Association (SDA),” Houston said. Simon Crowe, founder of the Grill’d franchised burger chain, has moved to negotiate a new modern retail award for staff in the chain’s 81 company-owned and franchised stores. In July, Crowe conceded that some stores were paying employees on old workplace agreements with wages below current award levels. The wages issue and the sacking of an employee who had raised the issue of the old agreements damaged a social awareness and community support positioning that Crowe had crafted. While the Grill’d outlets were arguably within the law using the old agreements, the chain recognised the need to improve pay and conditions in line with current retail awards. But the chain is still facing criticism about a lower wage rate that applies for a mandatory training period for new employees. The Grill’d training wage is at least upfront and does offer a recognised qualification, unlike the Jamaica Blue franchisee who is apparently using a churn strategy to employ young people without wages on the premise of training for a trial period. Where to for 7-Eleven? 7-Eleven remains in turmoil, with franchisees this week voting on a new carve up of gross profits that changes the ratio of 57 per cent for the franchisor and 43 per cent for the franchisee to a 50-50 split for stores with sales of up to $500,000. Most franchisees are understood to want a higher percentage and some may decide to take their chances on a class action rather than sign the new agreements that seek to indemnify the Australian franchisor and the United States parent company on payroll issues. Stewart Levitt, of the Sydney law firm, Levitt Robinson, is urging franchisees to reject the new 7-Eleven agreement and believes as many as 180 franchisees will instruct him to pursue a better deal than the one currently on the table. The 7-Eleven website currently has 96 locations for sale, with all but six being established outlets. But franchisees claim more would be keen to quit the system if they could find buyers. Banks and financiers are giving 7-Eleven franchise sales a wide berth, while compensation claims to underpaid staff have been estimated at anything up to $300 million. The franchisor is paying the compensation on wage claims in the first instance, but hopes to recoup most of its outlay from franchisees, hence the payroll indemnity in the new agreements. Demonstrating that the franchisor was well aware of the underpayment of staff, mostly students on 20-hour working visas, a former 7-Eleven payroll officer, Emmaline McKenna, told a Senate committee in Melbourne that management ignored concerns she raised about expired visas and payroll issues. The underpayments on wages at 7-Eleven is understood to have occurred in at least two-thirds of the stores based on around 600 wages claims received so far by an assessment panel appointed by the franchisor and headed by Professor Alan Fels. Want more Inside Retail? Subscribe to Inside Retail Weekly now and get our premium print publication delivered to your door every week.