‘Slavery’: 7-Eleven accused of taking back franchisee stores without compensation

UNSW emeritus professor and franchise law expert Jenny Buchan told the ABC the practice was not fair, but it was legal.

“The problem is that terms come to an end, so the franchisor’s really got the upper hand, because they have got the right to do what they’ve done, which is take the site back,” she said.

But commercial lawyer Jem Punthakey from Black Letter Law disagrees.

Mr Punthakey, who worked on a landmark wage underpayment class action brought by franchisees against 7-Eleven resulting in a record $98 million settlement in 2021, believes what the company is now doing is unlawful.

“Broadly speaking, if you run a fuel store you’re covered by the Oil Code, if you run a non-fuel store you’re covered by the Franchising Code,” he told news.com.au.

“In both Codes it is unlawful to unreasonably refuse to consent to transfer the franchise.”

The Australian Competition and Consumer Commission (ACCC) administers both Codes.

“The ACCC does not generally comment on individual businesses or investigations we may undertake, as set out in our Media Code of Conduct,” a spokesman said in a statement.

“We encourage businesses to report their concerns about compliance with the Oil Code to the ACCC. The ACCC regulates the Oil Code of Conduct, but our role does not extend to investigating individual or contractual disputes. We do not act on behalf of consumers or businesses to resolve their individual disputes with businesses or organisations.

“Only a court can make determinations on whether a breach of the Oil Code has occurred. The ACCC cannot provide businesses or consumers with legal advice.”

7-Eleven’s Australian arm was formerly operated under licence to the Withers and Barlow families, who first brought the iconic American fuel and convenience brand to Australia in 1977 and who are not involved in any wrongdoing.

In 2023, 7-Eleven International acquired 7-Eleven Australia for $1.7 billion, bringing its 750 stores under a unified global umbrella.

“Now integrated, these stores stand to benefit from 7IN’s streamlined supply chains, enhanced product offerings and various social initiatives,” writes Jayson Cooke, industry analyst with market research firm IBISWorld.

“This consolidated approach may heighten competition in the Australian convenience landscape, likely entrenching 7-Eleven further as a market leader.”

Maddison Johnstone, director of franchisee advocacy organisation Operation Redress, said it appeared that “at each new chapter, they choose to be the villain”.

“Prior to 7-Eleven changing ownership, franchisees were contacting us claiming they had been, or were about to be, unfairly stripped of their stores,” she told news.com.au in an email.

“This conduct appears to have survived new ownership, showing that the concept of ‘profits over people’ is too often a pillar of franchising.”

Ms Johnstone said franchisees were often sold a dream, only to encounter challenges “that go well beyond those of typical small business”.

“One such challenge is at the end of a franchise term, where franchisees can become sitting ducks,” she said.

“There is not much stopping a franchisor taking a store back and running it as a corporate one. These mum and dad teams often have little recourse available to them, even after spending years building a business.”

She argued 7-Eleven was “yet to demonstrate the kind of change that would support a genuine redemption story” more than a decade after the company was exposed for systemic underpayment in 2015.

Mr Punthakey said the practice highlighted this week had been “really long standing” for around five or six years.

“They would say, ‘You’ve got a 10-year franchise agreement and if you’re a good franchisee and you do everything we ask, you’ll get your renewal,’” he said.

“The first 10 years costs a lot of money, but if you make it to the renewal, it will cost 20 per cent of the purchase price, so that’s where you make your [money].”

When a franchisee onsells to another buyer, the sale price represents the goodwill they’ve built up operating the location successfully.

But according to Mr Punthakey, many franchisees are told that their agreement will not be renewed. Sometimes they’re told a year out, sometimes they’re given less than six months, and other times they will be told at the 10-year mark and given an extension.

“Either way, they say you get six months to a year to sell your store,” he said.

The problem, he said, is 7-Eleven has full control of the sale process, with little transparency given to the seller.

“You list your store for sale on the 7-Eleven website, 7-Eleven takes inquiries from prospective buyers — they decide whether they want to accept that application or not,” he said. “It’s a multistage process. I’ve worked on cases where a prospective purchaser will have to jump through hoops for months [only to be rejected]. I’ve had a client who brought five purchasers to 7-Eleven [who were all rejected].”

The end result is 7-Eleven informing the franchisee that “you’re out of time, the store comes back to us, you get no compensation”.

“You get the value of the stock on the shelves, about $45,000 usually, and walk out with nothing,” Mr Punthakey said.

“It would be the equivalent of buying a home and being told after 10 years to leave and take the furniture. People are spending hundreds of thousands, sometimes millions, and walking away with nothing.”

Mr Punthakey said 7-Eleven’s motivations were unclear, but the company might be seeking to gradually shift away from franchised stores.

“When you grow up in Australia you kind of know franchising is a mug’s game,” he added.

“So the people that get targeted tend to be recent immigrants. They haven’t cottoned on to the fact it is a scam. When you’re paying $1 million, what you’re really getting is the right to operate for 10 years.”

That would imply the franchisee expects to make at least $100,000 a year in profit over that period just to break even on their investment.

“That’s what they would think, but what actually happens is they earn just enough to survive and [end up] effectively working in the store for a wage,” Mr Punthakey said.

“But you could have made about the same amount of money if you’d just worked as an employee. So at the end of it, if you’re not selling your store, it’s like you’ve worked as a wage slave for 10 years.”

7-Eleven said in a statement to news.com.au, “7-Eleven Australia has a clear strategic ambition — to be My Convenient Neighbourhood Store for all Australians. This depends on a healthy store network and great store operators.

“For us, this means having both franchisees and corporate store leaders operating our stores. This has not changed under new ownership. We have and continue to value this model.

“Our model provides franchisees with an opportunity to operate a 7-Eleven store for up to 10 years.

“We are governed by the relevant franchise agreement and applicable regulatory frameworks. We have many responsibilities under these Codes, and we take these seriously.

“We have and will continue to work with each franchisee on any questions or concerns they may have regarding their agreement and individual circumstances.

“Given each individual circumstance differs, we will not be providing comment on the cases that are being publicly discussed.”