Adele Ferguson, 22 September 2015

The chairman and major shareholder of 7-Eleven Russ Withers will take the hot seat on Thursday when he fronts a senate hearing to explain systemic wage fraud, a head office cover-up and a franchise model that has been described as indentured slavery.

The senate hearing comes on the eve of a critical board meeting to discuss options that will radically change the franchise model in an attempt to stop the 620 franchise network imploding.

Since Four Corners and Fairfax Media jointly exposed the “half pay scam” last month all hell has broke loose with the franchisees. Many claim they will not be able to survive financially if they have to pay the correct wages.

They say unless the model is radically overhauled many will go to the wall. One franchisee who asked not to be named said: “In the past month our life as a franchisee has changed completely… we are living real slavery life,” he said.

He said for years 7-Eleven head office turned a blind eye to the underpayment of staff but since the scandal broke in the media it had clamped down on franchisees. It was now forcing them to pay full wages or else face termination.

“Some have had to pay the wages from their pocket because in business there is not much money to pay correct wages to the staff and if this system does not improve in next few weeks then you will find new news that franchisees are getting bankrupt and they are not able to pay their bank loans,” he said.

“Most of the franchisees are working more than 12 hours or putting their families to work for free every day to reduce their wages cost.”

The current model has helped Withers and his sister Bev Barlow build an empire that is worth an estimated $1.5 billion.

Profit split reviewed

In an attempt to get the scandal off the front pages and stop a rebellion happening among the franchisees, Withers agreed to review the 57/43 per cent gross profit split, which delivers most stores’ profits straight to head office.

He also agreed to develop an enterprise bargaining agreement for interested franchisees, almost triple the franchise income support lifeline from $120,000 to $310,000 and refund franchise fees to those who want to sell up.

Since the clampdown on the half pay scam by head office, some franchisees have opted to take part in a more insidious scam, known as the “cash scam”, where they pay employees the correct money then force them to pay half of it back in cash if they want to keep their job.

The 7-Eleven wage fraud scandal and franchise model came under heavy scrutiny when former ACCC chairman Allan Fels told Four Corners and Fairfax Media: “the only way a franchisee can make a go of it in most cases is by underpaying wages, by illegal behaviour”. Since those comments Professor Fels has agreed to head a 7-Eleven-funded panel to review claims of wage fraud.

Appeal to Prime Minister

Franchisees underpaying staff is an unconscionable act that should be punished accordingly.

As Maurice Blackburn principal Josh Borstein said in a letter to the Prime Minister Malcolm Turnbull: “The experience of the thousands of 7-Eleven employees is a national scandal and threatens to become an international scandal. The scale of the underpayment and the nature of the exploitative mistreatment of the employees is difficult to reconcile with a modern, prosperous Australian society.”

It goes without saying that a franchise model that encourages wage fraud also needs to be vehemently condemned.

When Withers, his chief executive Warren Wilmot and general manager of operations Natalie Dalbo front the senate on Thursday they should be prepared to answer some tough questions about how they allowed the underpayment of wages to get so out of hand.

There have been three separate raids by Fair Work over the past six years, all flagging serious payroll compliance issues. The company itself conducted an audit of 225 stores in July and August and found 69 per cent of stores had payroll compliance issues.

Withers has said publicly it is a relatively few stores that are engaging in wage fraud. The most obvious question is how many stores were found to be engaging in wage fraud or have payroll irregularities over the past three months?

Given the 12 weeks of thorough auditing, surely he would have an accurate idea? Indeed, have they been reported to Fair Work or the police or does the company continue to try and cover it up.


Extracted in full from the Sydney Morning Herald.