Adele Ferguson, 26 September 2015

“I would say I am not buying my newspapers or water bottles from 7-Eleven at this point as I am not satisfied that the workers behind the counters are being paid the proper wages,” Fair Work Ombudsman Natalie James told a Senate inquiry this week.

Her highly emotive comments are in sympathy  with the way many Australians feel about the systemic wage exploitation and falsification of payroll records of thousands of workers across the 7-Eleven empire.

Since the scandal broke late last month, many Australians have boycotted their local 7-Eleven stores in protest. It has wreaked havoc on the brand and goodwill, prompting some to estimate the value has fallen as much as 50 per cent.

The public outrage has been made worse by the fact that the wage fraud has gone on for years yet the company’s chairman, Russ Withers, says the company was “blindsided” by it.

This is despite three separate raids by the regulator over the past six years, all of which found serious underpayment issues, despite their own internal audits and “recaps” between franchisees and district managers, and despite a constant stream of detailed letters from consumer advocate Michael Fraser since December 2012.

It prompted James to say that despite the various company engagements and discussions, “we are seeing systemic and deliberate falsification of records continuing over a number of years”.

The concern is the 7-Eleven fiasco is the tip of the wage fraud iceberg. Many small businesses, including nail parlours, restaurants, massage shops and cleaning operations have all been accused of exploiting workers. There are allegations of similar practices of underpayment taking place in the franchise industry in stores at Bakers Delight, United Petroleum, Subway, Dominos and Nandos.

It should be a call to arms to the $170 billion franchise industry to make sure its house is in order – pronto.

Put simply, franchisors with a network of franchisees who predominantly employ foreign workers should be conducting detailed audits to ensure their franchisees are not involved in wage fraud.

The brutal reality is there are 1.3 million workers in Australia – or one in 10 workers – on a visa, which makes worker exploitation potentially a very serious problem.

Besides undermining the award wage system, it is potentially robbing the Australian Taxation Office of hundreds of millions of dollars a year in tax.

At 7-Eleven alone, wage fraud could be millions of dollars a year.

Then there is the issue of the illegal practice of selling work visas, in some cases for up to $70,000 a pop.

In some of the more sophisticated cases, some student visa-holders are even enrolled in courses at colleges linked to 7-Eleven franchisees.

But it isn’t just 7-Eleven franchisees doing it. One small business operator from Brisbane said he recently had a young Indian student working in his busy takeaway shop. When the student’s studies finished he tried to get a business to sponsor him. One Indian business owner, who operates a string of takeaway shops in Brisbane, offered to sell him a working visa for $45,000 in cash and a salary of $11 an hour to work in the store.

After failing to get a sponsorship, he agreed to accept the offer to buy one. The price of the visa had jumped to $60,000 in cash.

It is how the business owner can operate multiple stores.

For the many small businesses and franchisee operators who try to do the right thing, such practices make it is hard to compete.

The massive publicity that 7-Eleven has attracted has shone a light on the dark side of the Australian labour market.

It raises questions about why it has become so prevalent, particularly in certain industries.

Besides a lack of adequate resources available to the regulators to expose wrongdoing, it seems workplace laws, visa settings, the corporation’s law and franchising regulation can be harnessed in such a way that vulnerable workers are exploited.

In the case of Fair Work, it has become obvious that its powers need to be beefed up, penalties lifted to act as a deterrent and more resources directed its way. It also needs to better use the powers it does have.

In terms of regulatory powers, Fair Work doesn’t have the power to compel persons of interest. It is also based on a civil remedy regime, which is not enough to deter wrongdoing. For instance the penalty for a corporation is $54,000, compared with $1.1 million if a corporation is pinged under the Competition and Consumer Act.

To put it into perspective, record keeping, low wages and falsification of records is at the heart of the 7-Eleven case, yet the maximum penalty for knowingly making false or misleading records under the Fair Work Act has a maximum of 20 penalty units, or a $3600 fine for an individual.

Under the Migration Act, providing false or misleading information relating to a non-citizen carries a maximum penalty of 1000 penalty points, equivalent to $180,000 for an individual or up to 10 years imprisonment.

While penalties remain low, resources allocated to the regulator continually scrimped on and the franchise code of conduct allows franchisors to hide behind it, worker exploitation will continue.

In 7-Eleven’s case some of the low-income yielding franchisees have also been victim to a model that is unfairly tilted towards the franchisor, who has managed to create an empire worth at least $1.5 billion.

Until things change, victims like Mohamed Rashid Ulat Thodi will continue to be exploited.

Thodi worked in a 7-Eleven shop for $11 an hour, working long shifts that resulted in him failing his studies and suffering a nervous breakdown. He reported the abuse to Fair Work but he didn’t receive most of the money owed to him because the franchisee wound up the company.

After the Senate hearing on Thursday, Thodi posed the following questions to 7-Eleven: “You mentioned that the matter has affected the reputation of 7-Eleven … Are you actually blaming your franchisees who you hand-picked for this or the employees who stood up against the big fish for justice?”

Extracted in full from the Sydney Morning Herald.