James Robertson, 28 March 2016

A Sydney lawyer has alleged 7-Eleven employed a de facto policy of ethnically screening its franchisees and, with ANZ, luring them with “easy” loans they could not repay.

Mass underpayment of employees and fabrication of payroll records within 7-Eleven franchises has been exposed by Fairfax Media and the ABC.

But in an unpublished submission to a Senate Inquiry, Sydney lawyer Stewart Levitt alleges the company practised at least a “de facto ethnic selection of franchisees” in order to select store owners less likely to blow the whistle on employment practices.

Mr Levitt is a partner at Levitt Robinson and represents about 30 7-Eleven franchisees and has announced an intended class action against the company and ANZ bank.

His submission says the company’s franchisees – and employees – are “overwhelmingly” migrants mainly from countries on the Indian sub-continent with weak labour laws.

“Having addressed rallies of around 100 franchisees at a time […] it is rare to see a white face, it is counter-intuitive to believe that this was not a deliberate policy,” Mr Levitt alleges.

The submission also alleges that “easy loans”, principally from ANZ, helped “lure” franchisees into agreements.

The submission claims that ANZ extended franchisees credit to the value of up to 70 per cent of a store’s cost when typically only 30 per cent would be offered to non-franchise businesses.

“Unsuitable loans were made to franchisees, of whom the vast majority had no relevant experience,” the submission reads.

The submission notes a “substantial number” of cases of women with young children and no work experiences co-securing loans of up to 100 per cent of a store’s value by providing personal guarantees against their homes.

“Franchisees and their families are each now ‘on the hook’ for hundreds of thousands of dollars having had no demonstrable capacity to repay,” the submission reads.

Franchisees were left struggling to service the debts, the submissions allege, because the projected profits of the businesses they bought were based on an understatement of wage costs.

Financial statements provided to prospective franchisees were based on an average profit and loss of 7-Eleven franchises. These figures were inflated, Mr Levitt alleges, because “few if any” stores were paying award wages.

Mr Levitt says 7-Eleven facilitated the loans and often entered into three-way agreements whereby the company guaranteed loans against default by its franchisees.

Potential franchisees must pay a $5000 application fee and are “screened, interviewed and approved” by the company’s head office.

A spokesman for 7-Eleven declined to comment on the allegations because the company had not seen the submission.

The inquiry’s full, 350-page report, titled “A National Disgrace”, was tabled to parliament this month.

The report said claims by company senior management that head office was unaware of underpayment “defy belief”.

Labor Senator Deborah O’Neill, who is on the Senate Education and Employment References Committee, said she had been contacted by confidential informants about ethnic selection practices.

“They’re coming from a culture where payment of wages is a different to what is expected in Australia,” Ms O’Neill said. Back-pay claims from employees are expected to reach as much as $50 million.

Ms O’Neill said she also believed some 7-Eleven franchisees had acted as brokers to encourage members of their ethnic communities into buying stores.

Ms O’Neill said at least one employee was told by a franchisee that complaining about underpayment would “bring shame upon the subcontinent”.

ANZ did not respond to written questions by deadline.

Extracted in full from the Sydney Morning Herald.