Adele Ferguson & Sarah Danckert, 09 October 2015

Scandal-ridden convenience store giant 7-Eleven has begun terminating franchises for payroll breaches following revelations that worker exploitation was rife across the 620 stores.

It comes as franchisees met in Brisbane on Friday to hear details on the “new deal” being offered by 7-Eleven head office, which includes plans to increase the profit share.

It is understood franchisees have nominated a leading franchisee, who Fairfax Media has chosen not to name, as their “national leader” to represent their wishes at meetings with head office.

The termination of franchises has sent shockwaves through the 7-Eleven system. Head office representatives have previously said in several forums, including during an on-the-record interview with Fairfax Media and at a Senate hearing, that terminating franchises was nearly impossible under the Franchising Code of Conduct.

“We do not have the ability to terminate under the franchising code if a breach is rectified,” the company’s former general manager operations Natalie Dalbo told a Senate hearing in September.

Fairfax Media can reveal that a franchisee in Perth was kicked out of the 7-Eleven system for systematically underpaying staff. The Perth franchisee in question is thought to own at least one other store on the east coast of Australia.

It is also believed 7-Eleven has terminated its agreement with three other franchisees around Australia.

A spokesman for 7-Eleven confirmed on Thursday the company had terminated an agreement with a franchisee in Perth.

“Action has been taken in relation to non-payment of staff in circumstances that warranted termination. We’re now moving to resolve issues around arrears of payment with those staff.”

The spokesman declined to comment on whether the Perth franchisee would be responsible for selling the store or if head office would handle the sale, or on what would happen to the goodwill in the store or whether the franchise fee would be refunded.

It is understood franchisees are angry at the termination of agreements when they are trying to nut out a new profit share deal with head office and repair trust.

On Thursday evening franchisees were messaging one another to rally support.

“Could you [sic] all franchisees please stand up and protest against this unfair termination of franchisee. You should have everyone protest to get the franchisee his store back.” In another message it says he invested $250,000 from his home towards the Perth store.

The meeting in Brisbane comes a day after franchisees met in Sydney, with many telling Fairfax Media they were unhappy with the deal.

7-Eleven has offered to radically change its business model in an attempt to improve the financial position of its franchisees following the worker exploitation scandal.

The proposed changes could strip more than $30 million from the $143 million gross profit reaped by 7-Eleven shareholders the Withers and Barlow families, which together have built an empire worth $1.5 billion.

Franchisee sources said the proposed changes would deliver an average 4.5 per cent increase in income to the chain’s 620 store operators, which is not enough to cover legal wages for many franchises.

The new business model is no longer a one-size-fits-all profit split of 57 per cent to head office and 43 per cent to franchisees.

For those 138 stores that deliver income to franchisees of $300,000 (before wages are paid), the profit split will be 50-50.

A further 360-plus stores that produce gross income of  $300,000 to $500,000 a year have been offered 48 per cent of the gross profit of sales at their stores while head office takes 52 per cent.

The remaining 100-plus stores will have their gross profit share lowered 1 per cent for every additional $100,000 their store earns.

Extracted in full from the Sydney Morning Herald.