Industry stalwarts have urged franchisors to remain cautious in light of an alarming number of wage theft and migrant worker underpayment reports.

Speaking to delegates at the Franchise Council of Australia’s (FCA) National Franchise Convention (NFC), both 7-Eleven CEO Angus McKay and Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell suggested the issue could not go unregulated.

“We’re need to have better informed franchisees, better monitoring and compliance and better dispute resolution; so many of the issues that we see could have been solved earlier and better,” Carnell said.

The warning came just days before hospitality group Rockpool, backed by celebrity chef Neil Perry was accused of tampering with employee time sheets in an “audacious” wage theft scheme. The latest announcement comes after fellow celebrity chef George Calombaris’ was stung in a $7.8m underpayment rort earlier this year.

While underpayment reports are running rampant through the hospitality industry, the franchising sector faces its own set of culturally-charged challenges.

Carnell revealed that in many cases, the franchise model itself appealed to new Australians, who may not have the domestic business acumen and award knowledge to avoid non-compliance.

“Franchising gives lots of Australians the opportunity to grow and be part of our economy, but with that comes an almost inherent imbalance of power,” Carnell said.

“The franchisor owns the business, the processes, where the franchisee doesn’t.”

Migrant worker underpayment in franchising

Migrant worker underpayment has become a topic of much debate within the franchise sector, particularly over the last few years. In 2017, a 7-Eleven franchisee was caught underpaying workers on international student visas through an illegal cash-back scheme.

The manager, a Taiwanese national who was also in Australia on a student visa informed three Chinese workers that they would be paid through the payroll system. However, also required them to pay back a weekly sum, either to a drop-box in the 7-Eleven outlet or directly to her bank account.

The confusion caused by the makeshift payback scheme resulted in fluctuations of hourly rates from as little as $8.53, culminating in a Federal Court penalty of over $335,000.

The wage theft was consistent with other reports of migrant worker underpayment at 7-Eleven franchised stores, prompting the chain to take action. What followed was the largest wage repayment scheme ever conducted in Australia, but it was no mean feat for the franchise giant.

“Comprehensive change or reform requires focus, alignment and commitment from everyone in the business,” 7-Eleven CEO Angus McKay told delegates at the NFC on Monday.

7-Eleven shareholders promptly committed to repaying and restoring any underpaid individual, despite having no legal obligation to do so.

“This was our problem, we had to accept accountability to cure the situation,” McKay said.

“We might have taken a position that this was the issue for our franchisees, but we did not. This was our brand, our problem to solve.”

Since the Wages Repayment Program was implemented, more than 15,000 current and former 7-Eleven workers have been contacted, with wage claims handled by an independent secretary.

Current concerns

While 7-Eleven’s willingness to rectifying past mistakes has been commended by both and sector and government bodies alike, the issue remains as prevalent as ever, which Carnell suggests is due to a lack of sector-specific knowledge.

“When operator non-compliance arises in the franchising space, regulators will say those operators should have got better advice. It’s an absolutely true statement, but we need to understand that they aren’t lawyers, for many english isn’t their first language, there really are a whole range of issues at play,” Carnell said.

The ASBFEO went on to explain a recent example, where a refugee had chosen to enter into a franchise agreement, however lacked the comprehension to full assess the opportunity.

“The person involved wasn’t silly, but english was their third language; he could read but getting into legal specifics was difficult. It’s an interesting situation where we not only have an imbalance of power, but an imbalance of knowledge.”

International education

While franchising has copped a barrage of criticism for its role in migrant worker underpayment, the issue is not exclusive to the sector. In fact, McKay suggested the growing reliance on international education to bolster the domestic economy was having a flow-on effect.

McKay revealed that more than 40 per cent of 7-Eleven store team members are international students, highlighting just how massive a revenue stream education in Australia has become.

“But this revenue doesn’t come without risk,” he said.

“I now fear the revenue streams from educating international students are so strong that they are ignored. With a seemingly endless supply of labour, and with students working to pay off their studies, their rent, some employers think they can take advantage of these employees, especially the foreign students. It’s a bit like the elephant in the room.”

The 7-Eleven CEO suggested that the current visa rules do not allow students to work enough hours to cover their tuition or living costs. The result of which is an environment where workers are at risk of exploitation due to specific economic needs, or fear of deportation for breaching their visa conditions.

While the government has introduced some regulatory measures to combat migrant worker underpayment, McKay says the recommendations handed down by the migrant worker taskforce don’t go far enough.

“We were disappointed that the report and recommendations failed to address many of the deep-seated cultural issues and visa enforcement restriction issues that unfortunately contribute to the vulnerability of this migrant worker force,” he said.

While 7-Eleven has weathered the wage theft storm remarkably well, McKay’s points certainly ring true. A growing international student workforce must be monitored, and franchisors must ensure that staff at all levels understand their rights and responsibilities.

Widespread legislative change may take time, but with Carnell and the ASBFEO currently working on a Regulatory Impact Statement, franchisors are being urged to voice their concerns in numbers.

Extracted from Franchise Business