Underpaid employees are afraid to come forward because of intimidation by franchisees, and workers say cash-back scheme still in operation

This article is more than 4 years old

This article is more than 4 years old

Franchisees are still taking 7-Eleven workers to ATMs to withdraw and pay back wages, and some have resorted to violence and intimidation to deter underpayment claims, a Senate committee has heard.

The Fels wage fairness panel investigating the 7-Eleven underpayments scandal reported to the Senate employment committee on temporary work visa holders on Friday that it had made 188 determinations that 7-Eleven was liable to pay workers a total of $4.36m. On average, workers were underpaid $23,000 each.

The panel has received 2,169 complaints of underpayment, which it expects will result in 1,500 successful claims.

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But the panel’s chief, Allan Fels, warned the committee that “there’s no question there’s a problem that people aren’t coming forward in the numbers they should”. Just 60% of stores had been the subject of complaints.

That was because many workers faced “a campaign of deception, fear-mongering, intimidation and even actual physical violence”, Fels said.

Siobhan Hennessy, from Deloitte, who works for the panel, told the committee an international student was beaten by a franchisee while making an underpayment claim.

When he went to the police, he was told it was a matter between him and his employer.

Fels said franchisees exploited employees’ lack of knowledge by telling them they would need to prove underpayments in court, warned them they risked deportation and made threats against their families overseas.

He said the panel met 40 employees of the chain on Thursday and “there were a lot of claims that the cash-back scheme is still operating on a significant scale”.

Under the the scheme, franchisees take employees to the ATM and force them to withdraw and pay back some portion of their wages.

Fels said 7-Eleven employees reported that franchisees who had previously paid them half the correct rate were “now doing the cash-back scheme in the hope it won’t be detected by any investigations from head office”.

“I would not have confidence for every store that people are paid the correct wages, but there has been considerable improvement,” he said.

The fair work ombudsman, Natalie James, told the committee she was not confident that 7-Eleven workers were being paid correctly so she had exercised her choice not to shop there.

7-Eleven Pty Ltd representatives told the committee a payroll system that would pay wages directly to workers was being introduced.

The chairman of 7-Eleven Australia, Michael Smith, said the old system which allowed franchisees to receive workers’ wages from head office was “invidious” and a device that had helped the underpayment of wages in many cases.

Facebook Twitter Pinterest The 7-Eleven group says it has hired forensic payroll investigators to crack down on the payback practice. Photograph: Julian Smith/AAP

The interim chief executive, Robert Baily, told the committee the new system would include biometric sign-in, which he described as a “Big Brother-type practice”, to prevent employees being paid for fewer hours than they had worked.

But he said the system would not be foolproof, and it “cannot cover” the practice of paybacks. He said 7-Eleven had hired forensic payroll investigators to crack down on the practice, and had terminated two NSW franchisees’ contracts three weeks ago as a result of the investigations.

“Unfortunately there will be more,” he said. “There is quite blatant behaviour out there.”

The former chairman and current majority shareholder, Russell Withers, denied knowing in the past that wages were paid to franchisees instead of workers, and said be believed this practice was “the exception”.

Withers denied that the 7-Eleven franchisee agreement, which required franchisees to pay 55% of revenue to head office, was unviable and that franchisees were profitable only because of underpayment.

Under questioning from the Labor senator Sue Lines, Baily said franchisee greed drove underpayments.

Smith confirmed 7-Eleven would repay all underpayment claims verified by the Fels panel. So far, 7-Eleven has paid 117 workers a total of $2.8m. It has also entered into a compliance partnership with the fair work ombudsman to improve its practices.

James said she was encouraged by some measures including new electronic timekeeping and arrangements for 7-Eleven to terminate franchisees that did not correctly pay wages.

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Under an agreement with franchisees, the head office will pay the first $25m of the arrears. Franchisees will then contribute $5m to the head office. Once the claims exceed $30m, the franchisees will repay head office half the value of the claims.

Baily said a panel would determine what portion of the back-pay bill each franchisee would pay on an “as-needs basis”, opening the way for more profitable stores to cover the tab of struggling stores.

A 7-Eleven spokesman told Guardian Australia the company was not aware of the incident Hennessy referred to in her evidence as the Fels panel became aware of the incident only on Thursday and had not passed the information on.

“Intimidation of any kind is absolutely unacceptable to 7-Eleven and will not be tolerated in our organisation,” he said.

“If we are in a position where we have details of allegations of physical intimidation, we would take those matters to the police.”