Adele Ferguson and Sarah Danckert, 24 September 2015

7-Eleven’s payroll system up until a few years ago allowed franchisees to pay whatever rate they liked even if it was below the legal minimum, a Senate hearing has heard.

The explosive admission was made as 7-Eleven founder Russ Withers and other executives at the company admitted that wage exploitation at 7-Eleven’s stores was “widespread”.

The hearing, in Melbourne, follows revelations by a joint media investigation between Four Corners and Fairfax Media that exposed widespread wage fraud across the 7-Eleven franchise network with some staff working for as little as $5 per hour.

“I can certainly say that the level of underpayment has been, we’ve certainly been blindsided you can say. I was not aware it was so significant as it appears in the evidence,” Mr Withers told the Senate hearing.

Responding to questions from Senator Deborah O’Neill, 7-Eleven chief executive Warren Wilmot admitted that 7-Eleven previously used an ad hoc payment system  under which 7-Eleven would pay whatever pay rate the franchisee had nominated regardless of whether or not  it was below the legal minimum.

“Yes, I think that was a gap in the system,” said Mr Wilmot, who was head of operations between 1996 and 2002. It was no longer the case, he said.

Mr Wilmot’s admission came just minutes after Mr Withers said he would be surprised to hear 7-Eleven franchisees had been underpaying staff since at least the 1990s.

“I would be very, very surprised if that is the case. I think this is something that has happened relatively recently, but having said that, having worked in 7-Eleven stores and worked with 7-Eleven franchisees perhaps naively, when we have a penalty rate system in Australia to think that someone would not honour that is quite incredible.”

7-Eleven general manager operations Natalie Dalbo told the hearing that head office had issued 159 breach notices for payroll non-compliance in the past month following internal reviews conducted in the wake of the media investigation reports on the company.

Ms Dalbo said total cost of payroll across the 536 stores that use the company’s centralised payroll system had increased 16 per cent in recent weeks. Total wages paid per week for the 536 stores across Australia jumped to $2.248 million as of last week compared to $1.845m for a week in June.

“It was a validation for us that the audits we have done has led to change. It was I think we’ve admitted today that it’s more widespread  than we believed.”

Senator Sue Lines described the 16 per cent increase as “a massive increase” in the company’s total payroll and said it indicated 7-Eleven had a systemic issue.

Later in the hearing, Mr Wilmot was asked  if he had ever instructed senior franchisees to burn company records. “I certainly have not,”  he said.

The Fair Work Ombudsman Natalie James told the Senate that following discussions with 7-Eleven head office in May, management should have been in no doubt about the seriousness of the problems relating to wage exploitation.

“They were under no illusions,” she said.

She said a report would be released early next year that would look at how to fix the problem. She said they were seeking to identify how the 7-Eleven franchise model  impacted on franchisee behaviour and if there was a liability beyond the franchisees who employ the workers.

“A central focus is about the future and recommendations that achieve change and more accountability across the franchise operation,” Ms James said.

“7-Eleven should step up and take responsibility.”

She said she had met the panel’s head, Professor Allan Fels, and had questions about the panel. She said the panel would not be sharing information about which franchisees were underpaying wages.

Earlier in the hearing, a 7-Eleven worker who was ripped off by his former boss says the handling of his case by the Fair Work Ombudsman and the Department of Employment caused him incredible emotional stress.

Former worker Mohamed Ullat Thodi said he warned Fair Work that the 7-Eleven franchisees he was working for were allegedly hiding assets to avoid paying him and other workers compensation.

“I lost my job, I lost my pay and I lost my money – after nine years I still haven’t been paid,” Mr Thodi said.

Business and consumer relationships advocate Michael Fraser told the hearing he was confident head office was complicit in the mass underpayment of staff.

“This is a culture within head office. This is something that starts at the top and if the culture is bad all the way to the top then there’s nothing the top can do to change it. I think there needs to be a change in management and a change in ownership,” Mr Fraser said.

Extracted in full from the Sydney Morning Herald.