HOW 7 ELEVEN IS RIPPING OFF ITS WORKERS

The lot of the average 7-Eleven worker in Australia is as simple as it is bleak: you get paid half the $24.50 an hour award rate - or less - and if you complain your boss threatens you with deportation.

It’s highly illegal and goes against the Australian tenet of giving people living in this country a “fair go”.

A joint investigation into 7-Eleven stores by Four Corners and Fairfax Media has found systemic underpayment of wages and the doctoring of payroll records within the country’s biggest convenience store chain.

Politicians, lawyers and regulators all say something should be done to help these exploited and intimidated workers who are often are international students.

Doctored time sheets and rosters, store financials with possibly understated wage bills, store reviews and explosive documents relating to payroll compliance from head office are further evidence that something is deeply rotten within the 7-Eleven Australia empire.

Within days of the scandal breaking, the company is in crisis and has announced a “independent review” of wages and offered to buy out franchisees.

It has sought to pin blame for wrongdoing on those franchisees but the testimony of a whistleblower from head office, former workers from stores around the country, a consumer advocate who has lobbied head office for over two years, and the damning opinion of the Fair Work Ombudsman paints a bleak picture of what it is like to work in one of the 620 franchise stores.

The picture is painted in the words of these experts along with evidence here.

THE WHISTLEBLOWER

A whistleblower chose to speak out because he says he had had enough of 7-Eleven head office deliberately ignoring systemic wage fraud throughout the franchise system.

“Head office is not just turning a blind eye, it’s a fundamental part of their business. They can’t run 7-Eleven as profitably as successfully as they have without letting this happen, so the business is very proud of itself and the achievements and the money it’s made and the success it’s had, but the reality is it’s built on something not much different from slavery,” he says.

The insider said it was time someone told the truth “or else they’ll just keep on doing it.”

Documents seen by a joint investigation by Four Corners and Fairfax Media reveal that head office started scrutinising payroll compliance of its franchisees shortly after the media investigations team informed 7-Eleven it was looking into its business model, wage fraud and the relationship with franchisees.

“About a month ago panic set in,” the whistleblower says. “We are now checking the paperwork against the CCTV and guess what? It doesn’t match in nearly every store.”

He said when Fair Work raided 20 stores last September, head office put in place processes to make it look like it was serious about addressing the problem. But he says few cross-checks were done, which made the process more like smoke and mirrors.

The whistleblower says the wage scam is shared among franchisees. In some cases, the most experienced franchisees who are handpicked to become mentors train new franchisees in how to falsify the payroll and manipulate records.

He estimates that more than 140 of the 620 stores would drown in red ink if they had to pay the legal wages.

Other documents show that 7-Eleven factors into its total earnings before interest and tax projections, store changeovers. In 2014, the company made almost $9 million from “changeovers” on more than 60 stores. Head office had projected more than 70 stores changing hands during the period. Store changeovers are money spinners for the group as every time a store sells it reaps a franchise fee.

THE VICTIMS

Pranay Alawala has worked in four 7-Eleven stores around Brisbane and at each store he’s been underpaid.

At one store he was asked to train for a week without pay on the promise he would be hired. He wasn’t hired and was never paid for the 40-plus hours he worked at that store. One store owes him more than $30,000 in unpaid wages. He quit after getting a back injury at work. He later confronted his boss for the money he was owed but the franchisee’s lawyer sent him a letter threatening to report him to immigration for working more than 20 hours a week, which is in breach of his visa conditions as a student.

Pranay says he’s disappointed with how he’s been treated and wants to stand up for all the international students who are being ripped off. The popular young man (his phone rings often the day Fairfax meets him), who came to Australia to complete his Masters in IT in August 2013, can point to 70 different 7-Eleven stores in Brisbane who are committing wage fraud.

Newlywed Sam Pendem has three degrees, including an Advanced Masters in IT, and oodles of ambition to build a life as a professional in Australia.

A former 7-Eleven store manager, Sam worked at three different stores under four franchisees in the Gold Coast region and was underpaid at each. He was part of the “half pay scam”, where franchisees pay half the award rate. Sam was required to work longer hours, shifts of up to 18 hours straight, without breaks. He was doing the job of two people, having to watch petrol pumps (if someone drove off without paying for petrol, he footed the bill), serve customers, clean the store and stock shelves in a busy store all on his own. The long hours put him in breach of his visa conditions. It gave the franchisees leverage to threaten to go to the authorities to have his visa cancelled if he complained about his salary or working conditions.

He has four separate Fair Work claims on foot seeking unpaid wages in total of $140,000. Sam still has nightmares about 7-Eleven when he was robbed twice in the space of 18 hours: a long serrated knife, a black balaclava and drug fuelled eyes. After each robbery his boss yelled at him and said he should have fought the robber instead of letting him steal money from the till.

Despite his poor treatment at the hands of 7-Eleven, Sam says he loves Australia and has applied to become a citizen. “I’m very outgoing. The lifestyle here suits my personality,” he says.

Mohammed Rashid Ullat Thodi came to Australia on a student visa to study architecture. He was one of the top students in India but long hours working at 7-Eleven drove him to the brink. He was living and studying in Geelong and his boss at 7-Eleven took a second store in South Yarra and asked him to work there. He was getting paid $10 an hour but after travel expenses and tax his wages were $5 an hour, which is slave labour.

On top of slaving long hours for low, below award wages, his complaints and attempts to resign were met with threats from his bosses that he would be deported. Student visas only allow students to work only 20 hours a week. A meticulous diary keeper, Mohamed kept a record of every single shift he ever worked at the stores. This diary was used by Fair Work to uphold his claim against the franchisees for unpaid wages and led to the couple who ran the store being fined $150,000 in the Melbourne Magistrates Court. It was a hollow victory for Mohammed, however, with the couple who owned the company placing their business into administration before any payment was made to Mohammed.

Tejinder Jit Singh or “Jeet” worked at two stores in the Melbourne CBD that paid him below the award rate, sometimes cash in hand. The owner would then log in on her own name and pretend to be working, when really it was Jeet.

In all stores he was forced to do at least one week’s training for free. One store, Parkville, paid him $11 and the other store paid him $16.50 an hour. Fair Work raided one of the stores last September and found wrongdoing. The regulator told the owners to pay back what was owed to staff. Fair Work never spoke to Jeet but based the amount he was owed on the rosters and what they saw on CCTV footage. The amount he was owed was estimated at $2500 but Jeet believes it is far more. The franchisees told staff they would pay them the money but afterwards that they would have to pay it back or lose their job. Jeet didn’t pay it back and lost his job.

One of his worst memories was when two robbers started stealing food. He tried to stop them but one of them pulled out a knife and slashed his face, just under his eye.

Jeet knows a lot of people working at 7-Elevens in Melbourne. He says none of them are getting paid the proper wages. Many are scared to speak up for fear they have breached their visa conditions and will be deported.

THE BILLIONAIRE

Until now, Russ Withers, 68, has managed to escape the public glare. In rare interviews he is portrayed as the son of a grocery store owner and wholesaler, who built a fortune when he went to the United States in 1977 and struck a deal to bring the 7-Eleven licence to Australia.

The 7-Eleven network, headquartered in a no-frills office in Mount Waverley, includes 620 stores across Australia generating $3.6 billion in sales a year and profits of $1.44 million.

Withers shares the spoils with his sister Bev Barlow. Their fortune is worth an estimated $1.5 billion. Besides 7-Eleven Australia, they control the Starbucks chain in Australia and 300 Mobil stores. They also own $450 million worth of property including 7-Eleven properties, which they rent to franchisees.

Earlier this year Bev Barlow smashed the record for a residential home sale in Brighton, snapping up a sprawling seaside mansion in Brighton for $20 million.

Withers’ principal place of residence in Australia is in the picturesque Victorian wine district the Yarra Valley, where he owns a property covering more than 250,000 square metres.

Withers is passionate about equestrian sports. He sits on the board of the Australian Olympic Committee and has held various sporting board seats over the years of sat on the board including Equestrian Australia between 2001 and 2006 and Team Equestrian Australia - the organisation helps to choose which athletes are picked in the Australian Olympic team.

He did not respond to questions as part of this investigation.

THE STITCH-UP

7-Eleven Australia operates on a franchise model that is unique to this country. It is part of a global chain of more than 56,000 stores in 16 countries. The model originated in the United States, with the US head office sharing gross profits with franchisees on a 50-50 split. In Australia 7-Eleven head office takes a 57 per cent cut of gross profits, while the franchisee receives a 43 per cent share.

Out of the 43 per cent share of gross profits, a franchisee has to pay wages as well as pay for superannuation, Work Cover, the telephone at the store, cleaning, landscaping, store supplies, bad merchandise, business licences, tax and “miscellaneous store expenses”.

Head office pays the rent for the store and also covers the cost of new store fitouts and the maintenance of equipment within the store.

All items sold in the store apart from petrol are subject to the 57/43 per cent profit split.

7-Eleven’s franchisees who own stores with petrol pumps receive a 1c per litre commission from the sales of fuel at their store, with the remaining income flowing back to head office. 7-Eleven says that, after its costs, it too only makes 1c per litre on fuel.

If a customer drives off without paying, 7-Eleven head office still counts that as a sale and the franchisee must pay for the full amount the customer did not pay. Often the franchisee will make the staff member who was working at the time of the drive-off pay out of their own pocket for the customer’s stolen petrol – even if they are receiving only $10 an hour.

According to head office, the average wage bill for a franchisee is $230,000 per annum.

And documents seen by the joint media investigation show that about 140 7-Eleven stores in Australia generate gross profit of $300,000 or less a year for the franchisee.

That means for many franchisees there’s $70,000 or less to cover all of the store’s expenses, including interest payments on the loan.

One agent selling 7-Eleven franchises makes it clear what he thinks of the franchise model: “You wouldn’t be able to afford to run profitably if you were paying those wages. It’s impossible. There’s no way,” the agent says.

THE ADVOCATES

Michael Fraser began his crusade when he moved to the Gold Coast two years ago next to a 7-Eleven store and discovered what was going on. He wants to help the thousands of international students being exploited throughout the 7-Eleven franchise system. His friendship with Sam Pendem, who he met at the 7-Eleven store next to his apartment, sparked his interest. He’s helping Pendem and other 7-Eleven staff pro bono to try and get their unpaid wages back.

Fraser has an IT business and is a consumer advocate. The self-described “Arbitrator” has previously exposed the Commonwealth Bank spying on members of federal parliament and went undercover to get 7-Eleven franchise agreements and talked to agents and franchisees as well as staff. He believes that head office is deliberately turning a blind eye. He has surveyed 60 stores around Australia and has found instances of wage fraud at most stores. He’s also spoken to state managers and alleges that one of these senior 7-Eleven managers told him, “there are ways around paying award wages”. He convinced class action lawyer Stewart Levitt to launch legal action against head office.

Stewart Levitt is a Sydney-based lawyer who specialises in immigration law and class actions. He launched a successful class action for victims of Storm Financial. He has investigated the situation and believes he has a strong case against the Australian head office of 7-Eleven and the US head office. He believes everyone is getting squeezed with staff the ultimate victims. He says head office is the only winner. It squeezes franchisees with a 57/43 per cent gross profit sharing model with franchisees then paying wages out of the 43 per cent cut. After wages and loan repayments, a number of stores are operating at a loss.

Levitt has set up a website and is signing up people to join a class action against 7-Eleven. He has pored over franchisee agreements and other company documents including retail reviews and store action plans and believes the business model used by 7-Eleven head office makes it hard for many franchisees to make a profit without trying to reduce labour costs.

The US head office has a well documented history of fostering similar problems, according to Levitt, who notes the US authorities have taken a much harder line on franchisees caught exploiting migrant workers with several prosecuted and sent to jail.

Levitt calls on the Abbott Government to offer an amnesty to international students to come forward and give evidence of wage abuse without fear of being deported.

THE RULE MAKERS

While Natalie James was appointed Fair Work Ombudsman in 2013 she is well across the regulator’s run-ins with 7-Eleven over the past six years. She says Fair Work has “audited” or raided 7-Eleven stores three times in the past six years. The first raid highlighted serious problems with wage fraud. The second raid was a joint audit by the regulator and 7-Eleven head office in October 2009, with 56 stores in Victoria targeted.

Soon afterwards, Fair Work launched legal action against Hao Chen and Zue Jing, a couple that owned several stores, for a $85,400 wage fraud committed against four workers, including Mohamed, over a four year period. Fair Work won the claim but the couple put their business into administration and the workers have never been paid. In September 2010, Fair Work announced the outcomes of its raid on the 56 stores which found 30 per cent were breaching workplace regulations.

Fast-forward four years and in September 2014 Fair Work raided 20 7-Eleven franchises across Australia and found 60 per cent were underpaying wages. It is now investigating the role of head office and will publish a report late this year or early next year with a set of recommendations. James has fronted a Senate inquiry in the past few months defending the regulator’s role in regulating working visas. Some of the criticism is that the regulator is under resourced and the powers of legislation need beefing up.

Labor Senator Deborah O’Neill is a member of a bipartisan Senate committee into working visas and wage fraud. She is concerned that wage fraud is widespread and is undermining the award wage system in Australia. There are more than 1.3 million people on working visas in Australia, which represents 10 per cent of the workforce. Many are underpaid. Senator O’Neill is worried about the impact on the economy. She believes that if it isn’t addressed it will get worse.

Senator O’Neill is concerned at the damage the exploitation of international visitors is doing to the country’s reputation overseas.

The goings-on at 7-Eleven have come on the Senator’s radar. At a Senate hearing in Adelaide in July she grilled Fair Work about the convenience store chain and asked what they were doing. She says it is time for a significant review. One of the things that needs to be reviewed is the regulator and whether it can do what it should be doing with the current resources. The legislation also needs to be looked at the use of enforceable undertakings doesn’t seem to be a deterrent.

When Allan Fels was chairman of the Australian Competition and Consumer Commission between 1995 and 2003 he investigated a number of franchise models, which together are worth $170 billion a year. He says there is a strong potential for exploitation by franchisors of franchisees – and franchisees in turn pass it on to staff. He believes that, given the evidence of widespread wage fraud and exploitation, there should be a fresh look at the Franchise Code of Conduct to make it stronger.

He says 7-Eleven is one of the toughest – and most controlling - models he has come across. He believes the profit share of 57 per cent to head office and 43 per cent to the franchisees is forcing some franchisees to underpay salaries to stay afloat. He says something needs to be done to fix the problem given it has been going on for years.

Fels advocates for stronger penalties, more resources for the regulator and less reliance on enforceable undertakings. Fels says the regulator should be looking at section 550 of the Fair Work Act, a provision that if you abet unlawful behaviour by others, you are liable for a penalty, admittedly a very small penalty.

Fels has looked at the 7-Eleven franchise agreement, store action plans and other documents and come to the conclusion that he would not buy into a 7-Eleven franchise.

“My impression – my strong impression – is that the only way a franchisee can make a go of it in most cases is by underpaying workers, by illegal behaviour. I don’t like that kind of model,” he says.

As chairman of the ACCC, Fels met 7-Eleven chairman and major shareholder Russ Withers on numerous occasions. He recalls he was a “forceful” businessman.

THE JOURNALIST

I first heard about the wage scandal at 7-Eleven when consumer advocate Michael Fraser contacted me and told me he had just finished visiting 60 stores around the country. He showed me that all the stores he visited were underpaying staff. The people he spoke to were miserable and frightened because they were students on visas only allowed to work 20 hours a week but were being forced to work longer hours for half the pay. If they were caught they would be deported.

It shocked me given 7-Eleven is such a big, familiar brand. Fraser put me in touch with a few students who had been victims of wage fraud and I felt their stories needed to be told. They put me in touch with more students and I realised it really was systemic.

I started to look into the business model to see why so many franchisees were part of the scam. Was it greed or out of necessity? With one in 10 workers in Australia on visas, this felt like a story that needed to be exposed online, in print and on ABC’s Four Corners. Sarah Danckert, Klaus Toft and the team at Four Corners and Fairfax Media have worked tirelessly to bring the story to life.

CREDITS

​INVESTIGATION ​Adele Ferguson & Sarah Danckert • BUSINESS EDITOR ​Mathew Dunckley • MULTIMEDIA EDITOR Felicity Lewis • VIDEO​ / STILLS​ Tom McKendrick • ​ADDITIONAL FOOTAGE Supplied ​by Four Corners​ & Klaus Toft • PRODUCTION / DESIGN Mark Stehle ​ • DEVELOPMENT Nathanael Scott