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Fair Work Act

The wage fraud issue involving 7-Eleven Australia has been highly-publicised, with the spotlight turning to the culpability of 7-Eleven's head office.

The issue has highlighted that the upper management of corporations may face serious legal consequences when there has been a failure to adequately regulate the safety and/or employment procedures in operation at their franchisee or subsidiary workplace.

Timeline

  • 2008 - The Workplace Ombudsman investigates dozens of convenience stores, including 7-Eleven, recovering $162,000 for 168 staff.
  • June 2014 - The Fair Work Ombudsman (FWO) starts an inquiry into 7 -Eleven as a result of numerous complaints made by staff.
  • 1 August 2015 - Fairfax Media and the ABC's Four Corners program jointly report on systemic wage fraud and falsification of employee records in numerous 7 –Eleven Australia franchises.
  • 18 September 2015 - 7 –Eleven announces it will conduct an internal investigation into wage fraud allegations, hiring an independent auditor.
  • 30 September 2015 - Russ Withers, the Australian founder and chairman of 7 -Eleven stores, and chief executive Warren Wilmot resign.
  • 5 February 2016 - 7 -Eleven's internal wage fairness panel, led by former Australian Competition and Consumer Commission chair Allan Fels, reports to the Senate Employment Committee.
  • April 2016 - The FWO releases a report with a series of recommendations that 7 -Eleven ought to adopt.

What has 7-Eleven been accused of?

The complaints centred on wage underpayment. The allegations included employees being intimidated and coerced into working excessively long hours at less than half of the standard minimum wage. Many of the employees had to pay thousands of dollars to gain working visas and when payment discrepancies were raised with management, threats of either dismissal or a complaint to the Department of Immigration were threatened, implying the worker could face deportation for contravening the permissible maximum working hours of their visas.

The catalyst

A point of issue was whether 7-Eleven's head office was complicit in the wrongdoing. Whistle-blowers reported franchisors selected "experienced franchisees" to mentor new owners in wage manipulation and record falsification. Investigators from Fairfax and ABC reported on an endemic culture in which franchisor employers promoted ways to "get around" the award wage system.

Mr Fels came to the conclusion that much of the issue lay with the 7 -Eleven franchisee agreement, stipulating a strict 57/43 gross profit-sharing model. His conclusion was that, in most cases, a franchisee could only remain solvent by underpaying its workers and engaging in fraudulent behaviours. There were concerns franchisors either had knowledge of systemic failures or were wilfully blind to franchisees' practices.

FWO inquiry report on 7-Eleven

The April 2016 report by the FWO into 'Identifying and addressing the drivers of noncompliance in the 7 -Eleven network' issued the following key recommendations to 7 -Eleven:

  • that it enter into a compliance partnership with the FWO in which 7 -Eleven would publicly accept it had a moral and ethical responsibility to require standards of conduct from all franchisees and individuals involved in its enterprise
  • that it implemented effective governance arrangements that ensure compliance with all relevant Commonwealth laws, and
  • that it review its operating model.

The report findings placed an emphasis on the need to tackle systemic problems apparent within the 7 -Eleven business model. By encouraging the implementation of a biometric time-recording system for all employees and franchisees, the report highlighted that the starting point for prudent holistic management of any organisation begins with sound policies, procedures and practices.

Furthermore, through the recommendation for regular self-auditing to be adopted, the report reinforced that good corporate governance must incorporate proactive oversight to ensure these sound policies, procedures and practices are in practical operation.

Lessons learnt

When addressing concerns of corporate accessorial liability in employment and safety sectors, the best defence is a good offence. A good offence in this scenario is the improvement and implementation of proactive management strategies.

A sound corporate governance shell must include:

  • an adequate internal information-sharing system for communicating employment and/or safety issues that reaches all company employees
  • an internal, up-to-date knowledge gathering system to recognise the constant developments across both employment and safety sectors, and
  • regular internal auditory processes, ensuring policy and procedure methods are in practical operation.

This article was originally published in the June 2016 issue of Proctor and is republished here with their kind permission.  Click here to read the article.

We would like to acknowledge the contribution of Edwina Sully and Mason Fettell to this article.
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