A husband and wife have been penalised $150,000 for underpaying 12 overseas workers at a 7-Eleven store in Melbourne.

The couple Haiyao Xu and Yiran Gu were handed fines of $20,000 each, while their company Hiyi Pty Ltd was given a further $110,000 fine.

The Fair Work Ombudsman took legal action against the franchisees in relation to underpayment of workers at their former Parkville store in Melbourne (the business was sold last year), however, the couple still operate a store in Melbourne’s CBD.

Twelve employees at Parkville were underpaid a total of $84,047 between September 2013 and September 2014. These amounts have now been back-paid in full. The agency has also entered into an enforceable undertaking (EU) with Xu and Gu and their company in relation to underpayments at their city store.

The Fair Work Ombudsman’s investigation of the Parkville store  led to the discovery of the underpayments also at their Melbourne CBD store. Eleven employees at the CBD store were short-changed a total of $106,189 between June 2013 and August 2015, almost all overseas workers. They are currently in the process of being back-paid.

Fair Work Ombudsman Natalie James says an EU was implemented for the contraventions at the city store given the company’s willingness to back-pay employees and overhaul its workplace practices.

Employees paid flat rates of between $12 and $17
Xu, Gu and their company first came to the Fair Work Ombudsman’s attention when the Parkville store was targeted for a surprise night visit by Fair Work inspectors late in 2014. Inspectors discovered that employees were paid flat rates of between $12 and $17 an hour.

However, Gu and Xu made false entries into the 7-Eleven head office payroll system to make it appear the employees had been paid award rates and that they had worked fewer hours than was actually the case.

The employees were entitled to receive more than $22 for normal hours and up to $46 an hour for some weekend, public holiday, night and overtime shifts. Four of the employees were underpaid more than $10,000, with one short-changed $16,500. Laws requiring employers to issue accurate pay-slips to employees were also flouted.

As with the Parkville store, inspectors found employees had been paid flat rates that undercut lawful minimums and that Xu and Gu had made false entries into the 7-Eleven head office payroll system to try to cover it up.

Underpayments “deliberate” and “serious”, says judge
Judge Suzanne Jones found “deliberate” and “serious” underpayment of vulnerable employees and “contravention of fundamental minimum entitlements”.

“Absent the audit of 7-Eleven stores engaged in by the Fair Work Ombudsman, it is likely that the underpayments would have continued unabated,” Judge Jones said.

Judge Jones accepted Xu and Gu’s submission that their franchising agreement with 7-Eleven head office in relation to the Parkville store had placed significant restrictions on their ability to generate income from operating the store. However, Judge Jones found that did not excuse their conduct and noted that the couple did have access to money.

The couple declared a combined taxable income of $145,000 for the 2013-14 financial year and, with their parents’ assistance, purchased a $1.35 million home in 2014 and a $959,000 investment property in 2015. They also sold an additional property in 2016 for $540,000.

Judge Jones accepted that the couple paid one employee who was a family friend above award wages and Gu admitted in an interview with the Fair Work Ombudsman that they had underpaid employees so they could service their business loan.

Under the terms of the EU, Xu and Gu have agreed to commission a professional external audit of their Melbourne CBD store next year, promptly resolve future complaints from employees and display a notice at their store detailing employee entitlements.

They must also notify the Fair Work Ombudsman if they plan to sell their 7-Eleven store or if they engage workers through any other business.

The Fair Work Ombudsman has commenced legal action against eight 7-Eleven franchisees since July, 2009. Three are still to be finalised. Last month, record penalties of more than $400,000 were awarded against the operators of a Brisbane 7-Eleven store.

Ms James says her office is currently in discussions with 7-Eleven about a robust and transparent arrangement that will satisfy the agency that head office is taking the necessary steps to build a franchise operating model that ensures workers employed in its network are correctly paid into the future.

Last month 7-Eleven announced it had approved 21 claims, totalling $686,000, in the first round of payments under the company’s new in-house Wage Repayment Program.

7-Eleven said the total number of wage repayment claims submitted now stands at 4008, with 305 new claims lodged since 7-Eleven’s decision to takeover the repayment process. Over the same period, three claims have been withdrawn.

7-Eleven CEO Angus McKay said the company was focused on paying “legitimate claims as quickly as possible”.

“7-Eleven is happy to be judged on our actions, and will continue to publicly report our progress as we move forward,” Mr McKay said.

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