Adele Ferguson, 15 September 2015

Greens MP and spokesman for industrial relations Adam Bandt has put together a private members bill that would have a profound impact on the country’s burgeoning $170 billion franchise industry – if it gets up.

The bill aims to amend the Fair Work Act to make parent companies, or franchisors, more responsible for the behaviour of their franchisees, specifically when it comes to the underpayment of wages.

Put simply, the new legislation would enable any underpaid workers in a franchise arrangement to make a claim against head office instead of the current system where workers have to chase the franchisee, who can threaten them with the sack or even worse if they are foreign workers.

The proposed amendment would put the onus on the franchisor to make good on the repayment of wages to workers and then reclaim the money from the franchisee.

According to Bandt, allowing workers to claim any underpayments directly from head office would help bring about a culture shift.

“Instead of leaving it to vulnerable workers to uphold the law through expensive legal action, head offices would take more responsibility for what goes on in the stores that carry their name,” he said.

The amendment was inspired after the 7-Eleven wage fraud scandal, which found that thousands of workers had been subjected to the “half pay scam” where they work double the hours printed on their payroll slips for half the pay.

A joint media investigation between Fairfax Media and Four Corners revealed 69 per cent of the 225 stores surveyed during a four-week period between July and August this year had payroll compliance issues, including the underpayment of staff and falsification of payroll records.

A head office insider said that had a more thorough investigation been conducted the 69 per cent figure would be closer to 100 per cent.

In the aftermath of the scandal, 7-Eleven head office agreed to set up a company funded panel headed by former ACCC chairman Allan Fels to review worker complaints. It said it will pay any workers who can prove they were ripped off then go after the franchisee.

It is a similar principle that Bandt is advocating to be put into law. He will give notice of the private members bill on Wednesday before introducing it during the next sitting of parliament in October. It would need the support of the Opposition and cross benchers.

It is hard to understand why it wouldn’t be accepted given what has gone on at 7-Eleven, where those franchisees who have been caught in the past have found a way to wriggle out of it.

For instance, in two of the three legal cases Fair Work has taken against 7-Eleven franchisees over wage fraud and payroll falsification, the victims have received virtually none of the money owed to them because the franchisees wound up their business.

In another example where the 7-Eleven franchisee was raided by Fair Work last September and ordered to pay the money back to the workers and then the franchisee said to the workers, okay, you’ve got the money back that you were owed, now give it back in cash (so Fair Work doesn’t find out about the new scam) or you will lose your job.

That franchisee then sold the Parkville store but is still operating another store in Melbourne and continued to underpay staff. This suggests the culture needs to change.

With more than 1.3 million workers in Australia on visas, something needs to give. Since the 7-Eleven expose, emails have flooded in that suggest it is the tip of the iceberg. There are allegations of similar practices of underpayment taking place in stores at Bakers Delight, United Petroleum, Subway, Dominos and Nandos.

Fair Work is a year into its investigation into 7-Eleven, including whether head office is somehow complicit and has therefore been an accessory to the misconduct.

To do this it would need to draw on section 550 of the Fair Work Act, which is a difficult section to prove and the penalties are light on, particularly given many of the franchise operations in this country are big enterprises.

It is why the Fair Work Act needs to be beefed up. The senate inquiry into temporary working visas and the impact on the labour market is looking into ways to beef up the act, maybe this could be one way.

To put it into perspective, the current model has helped 7-Eleven founder Russ Withers and his sister build an empire worth an estimated $1.5 billion.

The profits have been built on the backs of franchisees paying wages that have been described as “slave labour” and some of the franchisees have been described as indentured slaves.

The franchise industry is a powerful sector in the economy but maybe it is time to revisit the code of conduct to change the culture and shift the power balance, even just a little.

Extracted in full from the Sydney Morning Herald.