7-Eleven Taking a Dive Down Under

Worker exploitation, wage fixing, and a lax crisis response create massive backlash against 7-Eleven Australia

While 7-Eleven remains a ubiquitous part of American culture, the buzz surrounding the brand has taken a serious dive down under. A joint investigation by Four Corners and Fairmax Media found evidence of systemic wage fraud and intimidation of workers that goes all the way to the holders of the Australian franchise license for the popular 24/7 store, evidence which sparked a late-night raid by the Fair Work Ombudsman’s office on franchises around the country.

Early findings show a majority of stores were exploiting workers by paying them for only half their hours worked, having them work under psudonyms, and threatening with firing or even deportation when confronted. 7-Eleven Australia’s head offices initially pointed their fingers firmly at the franchisees, claiming the franchise code makes it too difficult for them to oust those caught underpaying (and creating a storm of angry comments and coverage denouncing this response) before putting together an actual release addressing the situation:

29 August 2015 — 7-Eleven Stores Pty Ltd (7-Eleven) is Australia’s largest petrol and convenience retailer, managing a successful franchise model across approximately 620 stores for 38 years.

We are an industry leader in franchising and retailing, providing operational, administrative and business support to more than 450 franchisees.

We take our responsibility as a franchisor seriously. We ensure we provide education and support to assist our franchisees to meet all their legal obligations, including their obligations as the employers of store staff.

7-Eleven is extremely disappointed that a number of franchisees have chosen not to meet their obligations as employers.

We are deeply concerned about the personal impact on affected employees or former employees, and the damage such actions cause to franchisees who are trusted, reliable and responsible small business owners, meeting their obligations as employers.

Our business does not condone the action of any franchisee who does not meet their employer obligations, and we do not and will not hesitate to take any appropriate action, under law and within the franchise agreement, where a franchisee is found to be in contravention of the law.

This is a perfect example of what we call, “Death by 1000 Cuts” crisis management, in which an organization attempts to say only the bare minimum and incurs exponentially greater damage as a result. And, as is wont to happen when you go this route, more damage came rolling in. Reports from media outlets quickly alleged that the company’s head office was well aware of the mistreatment of employees and actually had thousands of recorded interviews with franchisees which demonstrate clear knowledge of wage fraud. Further investigation also uncovered what many are saying is a system meant to force franchisees out of business so 7-Eleven can re-sell their stores, making serious profit in the process.

Finally, facing nationwide criticism and the tightening noose of investigators both civilian and government-employed, 7-Eleven Australia announced a massive buyback program that will see franchisees paid millions to leave their stores. Chairman and founder of 7-Eleven Australia Russell Withers stepped up with a statement meant to stop the bleeding:

Allegations against the 7-Eleven franchise model have challenged our business from individual store level to the top of our organisation.

As the founder and chairman of 7-Eleven Stores Pty Ltd, this stops with me.

I accept that responsibility and have directed my board and senior executive that we must fix this.

Our franchise business model is based on trust and mutual benefit.

I am deeply disappointed and dismayed that some people with whom we are in business have abused that trust.

Our company is urgently addressing two fundamental issues.

The first is underpayment of staff by franchisees.

It is well-known that we have funded and established an independent panel, led by Professor Allan Fels with Professor David Cousins, supported by Deloitte who will be providing forensic accounting services.

I again urge anybody who works or has worked for a 7-Eleven franchisee, and has been underpaid or has participated in any activity leading to their underpayment, to contact the panel on 1800 619 802 or online at www.7elevenindependentpanel.deloitte.com.au.

The panel’s terms of reference are designed to protect confidentiality, to assess claims of underpayment and – where determined – make good on that underpayment.

The second fundamental issue is our 7-Eleven franchise model.

We operate a franchise system that has evolved over nearly 40 years, and it is clear we must now take another evolutionary step.

This week, I have met 7-Eleven franchisees from Victoria, New South Wales and Queensland to contemplate substantial changes to better reflect our mutual obligations, ensure compliance and incentivise the positive behaviours required under our franchise agreement.

I have provided my commitment to fund the development of an Enterprise Bargaining Agreement for interested franchisees, following a specific request to do so from the franchisees themselves. I am fully committed to making further changes that I believe our franchisees will support, in addition to the recently announced increase in the minimum income guarantee.

I have reaffirmed our commitment to any franchisee who no longer wants to participate in the 7-Eleven system: we will refund the franchise fee and help to sell any store where a goodwill payment has been made.

Senior franchisees are already collaborating to develop a 7-Eleven franchisee charter, a mandatory commitment beyond the terms of the franchise agreement.

Further safeguards are in train, including a full review of the profit share model, changes to which will be offered in return for the requirement for all franchisees to utilise the 7-Eleven corporate payroll system, and the introduction of external audit of compliance to meet all obligations under law and the franchise agreement.

These initiatives require detailed consideration and will take time, but they will be realised and I give a personal commitment that this will happen in weeks not months, providing greater safeguards for franchisees’ staff and for franchisees’ businesses.

I have said it before, and I will say it again: what has happened, happened on our watch, and it is my commitment as founder and chairman that it will be made good.

While this is a strong statement when viewed on its own, the fact that Withers didn’t deliver it until after he had been all-but forced slashed its effectiveness to near-zero. Right now 7-Eleven Australia needs to make good on its words, and fast. Evidence it gave zero thought to doing the right thing until the story went public is mounting by the day, and while nobody is sure how deep this rabbit hole goes, right now there is no light at the end of the tunnel.

The BCM Blogging Team
www.bernsteincrisismanagement.com