National convenience store chain 7-Eleven has been in the news recently as a result of serious allegations that many of its franchisees are significantly underpaying their staff and not keeping accurate employment records.
If these claims are substantiated, 7-Eleven could be liable for significant financial penalties (potentially in the order of hundreds of thousands of dollars) as well as orders for compensation for any loss and damage suffered by the relevant employees.
What is the nature of the allegations against 7-Eleven?
It has been alleged that many 7-Eleven franchisees have not been paying their employees their minimum entitlements to wages, weekend and public holiday penalty rates, and night shift loadings and allowances under the applicable award over a significant period of time. Many franchisees have also been accused of not keeping accurate employment records. Indeed, there have been allegations that some franchisees have fabricated timesheets and payroll records to make it appear as though some employees have worked fewer hours than was actually the case. Further, a number of franchisees have been accused of exploiting vulnerable overseas students and migrants, using visa restrictions as leverage for their silence.
The Fair Work Ombudsman has already initiated proceedings against the owner of a 7-Eleven store in Blacktown, New South Wales for allegedly underpaying two employees almost $50,000 and creating false records for the workers. In particular, it has been alleged that the store owner made erroneous entries into the 7-Eleven head office payroll system that gave the appearance that the employees were paid about $25 an hour, when in fact the employees were paid about $10 per hour. Further, it has been alleged that the store owner made false entries that significantly understated the hours the employees had worked. Specifically, the store owner allegedly routinely recorded that the employees had worked only 10 hours a week when they had in fact worked considerably longer hours.
The 7-Eleven scandal: what has been the response?
Shortly after the serious allegations came to light, 7-Eleven issued a media release advising that it had established an “independent franchisee review and staff claims panel” whose terms of reference were to “undertake an investigation into allegations of non-compliance by 7-Eleven’s franchisees with their payroll obligations”. The panel would be convened by the former chair of the Australian Competition and Consumer Commission (ACCC), Professor Allan Fels, and the former Consumer Affairs Victoria Director, ACCC Commissioner and Prices Surveillance Authority chair, Professor David Cousins.
Further, 7-Eleven announced that it would introduce a telephone hotline service and website for people to make claims. The company also indicated it would review its franchise business model to try to ensure that any unlawful practices would not be repeated.
Following the allegations, both the Chairman and CEO of 7-Eleven announced that they had decided to stand down from their positions.
Lessons for HR managers
This case serves as a timely reminder for HR managers of the need to ensure that their businesses are meeting their minimum pay obligations to their employees and keeping accurate employment records.
A failure to do so may not only result in substantial negative publicity such as that experienced by 7-Eleven, but a range of other sanctions for the business, including civil penalties of up to $54,000 per breach as well as orders for compensation for any damage suffered as a result of the breach. In addition, the relevant HR Manager and any other individual involved in the contravention may be held personally liable and subject to a civil penalty of up to $10,800 for each breach.
Accordingly, now is an opportune time for HR managers to carefully audit their existing pay arrangements to ensure they are satisfying their minimum pay obligations and keeping up-to-date employment records. If you are unsure which award applies to your business and/or the particular minimum entitlements that need to be provided to staff based on their hours of work, you should seek urgent legal advice.
If you conduct an audit and consider that your business may not be meeting its minimum pay obligations under any applicable modern award or enterprise agreement, a plan of action should be put in place to rectify the underpayments as soon as possible, to understand how the issues arose, and to introduce suitable measures to ensure that no further instances of unlawful conduct will occur in the future.
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