Adele Ferguson, 25 January 2016

A Senate inquiry into wage fraud, temporary foreign visas and the 7-Eleven scandal will hold its final hearing on February 5, with a series of recommendations scheduled to be handed to the federal government three weeks later.

Given the scale of wage fraud throughout the $170 billion franchisee sector, agriculture, retail and entertainment industries, it should be a call to arms to the government to address the recommendations before the next election.

These include the need to beef up the powers of the Fair Work Ombudsman, lift the size of penalties and fines so they are big enough to become a deterrent, increase the size of the budget of the regulator, overhaul the temporary visa conditions and amend the Franchising Code of Conduct.

It also needs to bring consistency to workplace laws and amend the legislation to make it easier for the regulator to pierce the corporate veil when it comes to corporations who, until now, have been able to plead wilful ignorance when it comes to supply chain abuses, or franchises and their franchisees.

Wage fraud is a big issue in Australia given one in 10 workers – or 1.3 million people – are on a visa and many of them are vulnerable and being exploited. This, together with a focus on the bottom line and gaps in the law, has resulted in some companies underpaying workers. Besides robbing the ATO of taxes it is creating an unlevel playing field for those companies who are paying the correct wages.

Senator Deborah O’Neill, who is on the senate inquiry, told The Australian Financial Review that wage fraud has become a national embarrassment. “Gross underpayment of workers seems so widespread and so blatant it has to mean that great local businesses employing workers fairly are being sent out of business because they’re being undercut by unscrupulous operators,” she says.

Against this backdrop, the Fair Work Ombudsman has taken legal action against a Brisbane-based 7-Eleven franchisee who allegedly underpaid workers, “knowingly” falsified payroll records and engaged in a so-called cash scam.


The Financial Review can reveal the regulator has filed legal action against Sheng-Chieh Lo and his company Mai Pty Ltd, alleging he underpaid 12 workers more than $80,000 in just one year.

The Boundary Road store in West End was one of 20 7-Eleven stores raided by the regulator in September 2014. The action follows legal action against the operators of two other 7-Eleven outlets in the Brisbane CBD earlier this month. Since 2009, the Fair Work Ombudsman has taken seven franchisees to court.

Systemic underpayment of wages across 7-Eleven’s network of 620 stores came to light in a joint investigation by Fairfax Media and ABC’s Four Corners.

It revealed that some workers have been paid as little as $5 an hour and most don’t get paid for training. In one case, a worker in Brisbane hadn’t been paid for three months and stood outside a 7-Eleven store with a banner that said, “This store has not paid me for 3 months. Please Help.”

The February 5 Senate hearing to be held in Canberra will call 7-Eleven’s major shareholder and billionaire Russ Withers, chairman Michael Smith, Fair Work Ombudsman Natalie James and David Cousins from the [Allan] Fels Wage Fairness Panel.

Underpayment of wages is understood to be taking place by some franchisees in high-profile franchises including Bakers Delight, United Petroleum, Subway, Domino’s, Pizza Hut, Eagle Boys and Nando’s.

The entertainment industry has also been exposed, with five karaoke bars in Perth and Melbourne recently raided as part of Taskforce Cadena, a joint taskforce including the Fair Work Ombudsman and Border Force. The raids follow allegations of wage fraud, sham contracting and sexual slavery of female hosts at the karaoke bars.


Besides these practices making a mockery of the award wage system, the Australian Taxation Office is missing out on hundreds of millions of dollars a year in tax.

In the case of 7-Eleven, documents filed in the Federal Circuit Court by the Fair Work Ombudsman allege Sheng-Chieh Lo ripped off 12 staff to the tune of $82,000 by paying them as little as $13 an hour, which is well below the award rate.

Even more shockingly, Lo released bank records to Fair Work that showed he had back-paid the staff. Fair Work alleges the documents were misleading because they didn’t show that employees were then asked to give him back the money. In one case, the employee gave Lo the money in advance, which he then transferred into their account to create the illusion he had refunded the money owed.

The Fair Work Ombudsman is seeking injunctions to stop Lo and his company from short-changing staff and from “seeking or accepting any back payment of wages from current or former employees”.

This is known as the cash scam, which became widespread across the 7-Eleven network after wage fraud was exposed. It is where employees are paid the correct award rate in their nominated bank accounts for the hours they have worked. The catch is, they must then pay part of it back to the franchisee in cash, away from the surveillance cameras.

If they don’t agree to the terms, they lose their job and some are threatened with deportation.

In Sheng-Chieh Lo’s case, if found guilty he faces maximum penalties of up to $10,200 per breach and his company faces penalties of up to $51,000 per contravention. Lo, who was working in his Brisbane-based store on Friday, refuses to comment on the allegations.


To put the maximum penalties available to Fair Work into context, 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.

A company in breach of the Competition and Consumer Act would face penalties up to $1.1 million.

Shonky record keeping, wage fraud and falsification of payroll records is at the heart of the 7-Eleven scandal. While penalties and fines for wrongdoing remain low, resources allocated to the regulator slashed and the franchise code of conduct allows franchisors to hide behind it, worker exploitation will continue.

In terms of regulatory powers, the Fair Work Ombudsman 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.

Foreign workers play a vital role in the Australian economy. The Trans-Pacific Partnership Agreement and the China-Australia Free-Trade Agreement will make this increasingly the case.

Yet many foreign workers on temporary visas have found themselves in a position where they have become a target for wage exploitation. This is doing immeasurable damage to this country’s reputation and making companies that do the right thing less competitive. The scandal at 7-Eleven showed Australians that wage abuse can happen under our noses. If these behaviours aren’t reigned in, it will be a race to the bottom.

Extracted in full from the Australian Financial Review.