7-Eleven responds to underpayment reports

In response to reports of widespread underpayment by franchisees, 7-Eleven Stores has established an independent panel, headed up by the inaugural chair of the ACCC, Professor Allan Fels AO, to receive and examine claims, including underpayment of staff by franchisees.

Professor Fels will convene the Independent Franchisee Review and Staff Claims Panel, with former Consumer Affairs Victoria Director, ACCC commissioner and Prices Surveillance Authority chair Professor David Cousins AM. The panel will receive, review and process claims of underpayment, and authorise repayment where appropriate.

The panel will commence its work in the next week, and will be supported by an independent secretariat with a team of forensic accountants from professional services firm Deloitte. The panel will meet and be staffed out of Deloitte’s Melbourne office and Deloitte will provide a hotline service and website for claims, which is expected to be available in the next week.

7-Eleven Chairman Russ Withers has committed the company to promptly “make good” any underpayment of staff by 7-Eleven franchisees.

“The bottom line is, what has happened with franchisees not meeting their employer obligations has happened on our watch, and we are going to make this right,” he said.

“There is no doubt that Allan Fels, whose position on this issue is well known, will fulfil this role without fear or favour. He is staunchly independent, and with the support of Deloitte’s forensic accountants, I am confident his involvement will help ensure 7-Eleven pays all approved claims promptly.”

When approached to accept the role of Panel Chair, Professor Fels said he insisted that the panel’s independence be protected.

“While Professor Cousins and I finalise the panel arrangements, we have broad investigative parameters, with the clear aim to rectify underpayment of staff, as quickly and efficiently as possible,” he said.

“We have insisted that extensive efforts, including advertising, be made to encourage those who believe they have been underpaid to contact the panel. The overall results of the panel’s work will be made public, but the names of individual claimants will not be made public by the panel.”

Professor Fels said the panel would seek the support of the Fair Work Ombudsman, which has regulatory oversight, but would act entirely with the intention of correcting any verified underpayment of past or present 7-Eleven franchisee staff members.

CEO Warren Wilmot said the viability of the 7-Eleven system is in no way, never has been and never will be, dependent on franchisees underpaying staff.

“This doesn’t let off the hook any franchisees doing the wrong thing, because we will pursue them to repay any money owed to former or present staff,” he said.

“We are seeking the cooperation of the Fair Work Ombudsman [FWO], and reached out to them, inviting them to assist in establishing the terms of reference of the independent panel and its mode of working.

“This is in addition to our continuing cooperation with FWO to weed out franchisees in our network who are not doing the right thing by their staff, and further tightening our audit and monitoring systems and processes in collaboration with FWO.”

The comments address reports of underpayments across 7-Eleven franchisees, including a Melbourne store owner admitting to deliberately short-changing staff by tens of thousands of dollars and doctoring employment records to cut costs.

The admissions follow the FWO making an unannounced site visit to the store last September. A team of Fair Work inspectors made spot checks of 20 7-Eleven stores across Melbourne, Sydney and Brisbane during the course of the night and interviewed staff, took photographs where appropriate, collected records and served a number of notices to produce on employers requiring them to produce records and documents for analysis.

Kumar Sandarakumar who runs the store at 237 Exhibition Street in the Melbourne CBD, confirmed he deliberately breached federal workplace laws in the face of increasing financial pressure.

Mr Sandarakumar knowingly short-changed most of his employees by paying them for fewer hours than they actually worked. One employee who worked 20 hours in one pay period was only paid for seven hours’ work, while another who worked 14 hours was only paid for eight.

Calculations by the FWO revealed 12 of the store’s 15 employees were underpaid more than $30,000 in the 12 months to October last year, with $7,981 the largest individual underpayment.

Additionally, Mr Sandarakumar admitted to producing false and misleading records by manipulating the data he entered into the 7-Eleven head office payroll system, something he said he learned from another store owner at a 7-Eleven conference.

Mr Sandarakumar and his company PSP International Trading have signed an enforceable undertaking (EU) with the FWO as an alternative to litigation. The EU has seen Mr Sandarakumar reimburse all employees and requires him to put processes and systems in place to ensure compliance with workplace laws in future.

The FWO has also commenced legal proceedings against a Sydney 7-Eleven which allegedly underpaid two migrant employees almost $50,000 and created erroneous records for the workers.

Facing the Federal Circuit Court is Harmandeep Singh Sarkaria, who owns and operates the site at 354 Flushcombe Road in Blacktown. Also facing court is Mr Sarkaria’s company, Amritsaria Four.

Mr Sarkaria and his company allegedly underpaid two console operators a total of $49,426.

Most of the alleged underpayment relates to a migrant employee from Pakistan aged in his late 30s, allegedly short-changed a total of $43,633 between March, 2012 and March, 2014.

The other employee, also from Pakistan and aged in his mid-20s, was on an international student visa when he started working at the store. Now a permanent resident, he was allegedly underpaid $5,793 between August, 2013 and March, 2014.

The FWO claims the alleged underpayments are the result of the workers often being paid rates equivalent to $10 an hour, but were entitled to receive normal hourly rates of more than $22 an hour and up to $29.27 an hour for some weekend, public holiday and overtime shifts.

Amritsaria Four allegedly made erroneous entries into the 7-Eleven head office payroll system that significantly understated the hours the employees had worked. The company also allegedly routinely made entries that the employees had worked only 10 hours a week, despite them working significantly more. It is claimed the entries gave the appearance that the employees were paid about $25 an hour.

Fair Work inspectors investigating the underpayments were allegedly provided with false time-and-wages sheets that understated the hours the employees had worked.

Mr Sarkaria faces maximum penalties of between $5,100 and $10,200 per breach and his company $25,500 to $51,000 per breach. He has been cooperating with the Fair Work Ombudsman in relation to rectifying the alleged underpayments.

Fair Work Ombudsman Natalie James said she is concerned about the contraventions being identified at the majority of 7-Eleven stores being investigated as part of the agency’s latest proactive compliance activity.

So far, nine 7-Eleven franchisees have received a letter of caution, one has been issued a compliance notice and seven have received on-the-spot fines.

“While we are not expert in the field of franchise models and financial viability, our inquiry has raised concerns about the 7-Eleven model,” she said.

“We are exploring whether the model places significant pressure on a franchisee’s ability to meet statutory obligations, predominantly through a lack of cashflow. In some cases, we suspect it is the reason franchisees have underpaid staff.

“We are concerned to see repeated cases of underpayments being facilitated through the falsification of pay information to head office occurring in the 7-Eleven network. Patterns of behaviour such as this do make us curious as to the role of head office.

Senior Fair Work Ombudsman officials met with 7-Eleven head office in October last year, and again in May this year, to present the agency’s preliminary findings.

When a final report is completed, it will be provided to the franchisor with recommendations on how it can improve compliance levels in its stores and take more responsibility for ensuring employees are not being exploited.

7-Eleven will be asked to report back to the agency on its actions within 12 months. The report will be made public.

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