Muffin Break owner says he was told by franchisor to ‘consider underpaying staff I can trust’

This article is more than 2 years old

This article is more than 2 years old

The parliamentary inquiry into the franchise sector has been handed a “chilling” succession of similar stories by small-business owners who claim franchisors suggested they should steal wages from vulnerable workers.

Labor senator Deborah O’Neill, who is deputy chair of the committee investigating franchising, told Guardian Australia the inquiry would need to look at how franchise business practices encouraged the exploitation of workers.

In a published submission to the inquiry, a former Muffin Break franchisee, Faheem Mirza, said he was told “to consider underpaying staff that I can trust”.

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“The key message was that as migrants, I must be aware of other migrants or students who would gladly accept underpayments in lure of their first job and hence not report or complain,” Mizra said.

“So, if I were able to exploit my employees I could generate a profit. Otherwise there is no other cost that can be managed enough to reverse this loss-making scenario.”



Foodco, the franchise operation that owns the Muffin Break brand, said it “strongly refutes this false allegation”.

Another small business owner, from a different franchise group, told Guardian Australia he was advised by an associate of the franchisor that he should exploit staff on 457 visas by demanding kickbacks.

The business owner said he was later told by his staff that a wages rort – which involved paying foreign workers the standard rate, then demanding a portion be returned in cash – had been in place before he bought the business.

“The whole suggestion was that we could get away with it, because they wouldn’t speak out. We just said: ‘We won’t do that,’ ” he said.



O’Neill said there had been many confidential submissions to the inquiry and that stories about wage theft were common. Guardian Australia reported last month that many franchisees were afraid to speak publicly because of concern that doing so would violate agreements that were heavily weighted in favour of brand owners.

“We’re in a situation where across the country people are independently putting forward evidence to the committee where they’re too frightened to have their name put to it,” O’Neill said.

“But there’s a consistency of storytelling here. They’ve been sold a business model that too often depends on wage theft to make a sustainable business.



“There’s a chilling similarity in the stories. That’s why they have such credibility. They’re doing it confidentially for fear of retribution.”

Franchisees say they don't dare tell inquiry about problems Read more

Rob Whittet and Emma Forsyth, from Toowoomba, in Queensland, estimate they lost $2.5m on failed Jamaica Blue franchises licensed by Foodco.

“It’s destroyed everything we had,” Whittet said. “We lost a property we owned outright. We had an investment property, we’re now living in.”



Whittet said the business model he was sold was, in reality, not profitable while paying staff the minimum wage, even when he and Forsyth were working more than 80 hours a week and not drawing a wage. Regardless of whether his business turned a profit, the master franchise always got their cut, because royalty fees were based on turnover.

He said franchisors should have a stake in the profitability of businesses, and ensuring that franchisees met their obligations to pay staff and bills, which meant ensuring standard practice was for royalties to be paid based on a percentage of profit, not turnover.

Foodco said in a statement: “We take very seriously our obligations to ensure our franchisees comply in the important area of lawful employment practices.

“Far from encouraging this practice of underpayment, in January 2017 Foodco entered into a voluntary partnership with the office of the fair work ombudsman by way of a proactive compliance deed.

“We regularly audit our network to ensure compliance issues are identified and remedied as quickly as possible.”