The Fair Work Ombudsman (FWO) says 7-Eleven “could have acted earlier and done more” after its Inquiry into the convenience store chain found head office had information some stores within its network had engaged in deliberate attempts to underpay workers.

The FWO released its report on the Inquiry’s findings earlier this week, prompted by allegations that significant underpayment of wages and falsification of employment records were occurring across much of the franchisee network.

Launched in June 2014, the Inquiry sought to test these allegations through coordinated site inspections, and subsequent record keeping analysis, of a sample of 20 7-Eleven stores across Victoria, New South Wales and Queensland. The Inquiry also undertook a number of in-depth investigations of 7-Eleven stores that were the subject of requests for assistance from employees.

Since 2009, the FWO has placed eight matters involving 7-Eleven franchisees before the courts and recovered $625,000 for underpaid employees. It has also conducted an enforceable undertaking, issued 20 letters of caution, 14 infringement notices and three compliance notices.

In January, the FWO accused a store operator in Brisbane of short-changing 12 staff a total of $82,661, while another store owner in Brisbane was found to have been underpaying 21 employees more than $31,000. Earlier this month, the regulator launched legal proceedings against a third Brisbane-based operator after allegedly underpaying eight staff $19,397.

“A number of employees reported having approached 7-Eleven with concerns before our Inquiry, but felt head office was disinterested in their grievances. Worse, some felt 7-Eleven was aware of high non-compliance throughout its network, but was either disinterested or ignored their concerns,” Fair Work Ombudsman, Natalie James, said of the report’s findings.

“What is clear is that since our auditing in 2009, 7-Eleven had information that some stores within its network had engaged in deliberate attempts to underpay workers, including relying on inaccurate records and/or inputting false information about working hours into the head office payroll system.”

Ms James said despite these signs, 7-Eleven did not appear to have made major changes to either its payroll system or store review process to target the risk of false record-keeping.

“Our Inquiry suggests that the payroll section of the store review process did not sufficiently interrogate store practices, or records, to uncover signs of non-compliance where a franchisee sought to hide it.”

The report found 7-Eleven “had a reasonable basis on which to inquire and to act”, and “had the resources and tools to inquire into and attempt to direct the behaviour of franchisees – but did not do so in any significant way until exposed to public scrutiny”.

“Recent changes to the 7-Eleven model and planned changes to the payroll system are welcome, however, it is the view of the Inquiry that 7-Eleven could have acted earlier and done more,” Ms James said.

The FWO said it acknowledges real and significant steps taken by 7-Eleven to begin to rectify the situation but there is still “much to do”.

“It will require a sustained effort throughout the organisation and a commitment to allocate resources over a long period of time. A sustained change in behaviour is most likely to be achieved if it is driven by 7-Eleven from the top down.

“The task of rebuilding a culture of compliance will require strong leadership and a maintained focus by 7-Eleven. False record-keeping appears to be ingrained within aspects of the network. And if some 7-Eleven franchisees have built the underpayment of employees, particularly vulnerable workers, into their business model, this culture will be difficult to address.

“While not legally responsible for the entitlements payable to employees of its franchisees, it is our view that 7-Eleven has a moral and ethical responsibility for what has occurred within its network and is capable of taking steps to prevent this occurring again.

“However, this conduct is not likely to be rectified quickly and comprehensively overnight. It can only be stamped out through persistent, resourced and ongoing accountability measures. 7-Eleven must work with us to root out and deal with non-compliance.”

The Inquiry
According to the FWO, the 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.

The FWO noted in one store, where it had significant concerns about wage rates and the accuracy of records, only one of 12 employees was willing to be interviewed. In other cases, staff gave information anonymously, requiring the agency to try to find alternative evidence to substantiate their claims.

“There appears to be a general acceptance of a ‘going rate’ for working at 7-Eleven – a rate well below the lawful minimum wage. Breaking that cycle of acceptance that ‘this is the way things are’ is a key challenge for 7-Eleven.

“There is a culture of acceptance that working at 7-Eleven means a lower rate of pay and conditions than is lawful. It also appears to be considered standard practice that long hours are worked, training is unpaid and leave is not taken.

“Employees are resigned to this being ‘the way it is’ if they want to work at 7-Eleven. There is also an understanding that visa-holders can work hours in excess of what is allowable, and this will not be reported – in fact, it will be disguised by the franchisee.”

Recommendations
Following the Inquiry, the FOW recommends 7-Eleven:

  • 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.

7-Eleven responds
7-Eleven said it accepted the report’s findings in full and over the coming months will seek to implement any additional changes deemed necessary to give effect to the recommendations, including entering into a compliance partnership with FWO.

Newly appointed CEO, Angus McKay, said: “7-Eleven and our franchisees acknowledge the contribution the FWO report will make to further inform and strengthen our Strategic Reform Program as we strive to be the best business we can be”.

“7-Eleven does not condone any failure to meet workplace rights and obligations, particularly the underpayment of franchisee employees. As part of the Strategic Reform Program we have made significant investments to implement an identification, investigative, deterrence and sanction regime across our business to eradicate any such failures.

“A special investigations unit, store audits, improved time and attendance processes, which will soon be replaced by a biometric system, and a compulsory centralised payroll system form the core of our approach to ensuring 7-Eleven is a business that exceeds customer, community and regulatory expectations,” Mr McKay said.

“7-Eleven and its franchisees having negotiated a new agreement are committed to ensuring stores are fair, effective, efficient and good places to work.

“There are no winners in circumstances where people are underpaid. Everybody is impacted, including those franchisees who are meeting their obligations and doing the right thing.

“Significant progress has been made in respect to governance and compliance across our network of stores. 7-Eleven is entrenching as a matter of principle a culture of continuous improvement, which recognises the ever changing nature of the industrial landscape and the need to be ever vigilant when it comes to upholding workplace rights and entitlements.”

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