7Eleven are in hot water this week and it’s not the first time. On Monday night, Four Corners aired their exposé on the franchise chain, shining a light on the abuse of workers and the restrictions of 7Eleven’s franchise model.

The joint investigation by Fairfax and the ABC raised some very serious issues deserving of public attention, but it’s not just the general public who should be paying attention to this story, franchisees and franchisors can learn a lot from the 7Eleven saga.

The Fair Work Commission and 7Eleven have a long history involving a range of offences in locations across Australia. In 2010, 7Eleven franchisees in Melbourne and Geelong (56 stores in total) were the subject of a targeted audit by the Ombudsman, resulting in the recovery of wages for 62 employees to the tune of $32,000. In 2011 a single 7Eleven franchise owner was ordered to back pay $90,000 to underpaid international students. In February 2015, a Brisbane-based 7Eleven franchise owner was ordered to back pay over $21,000 to an underpaid worker and in August, the same franchise owner was fined a further $6970 in the Federal Circuit Court for failing to complying with orders from Fair Work Inspectors.

And now, after Monday’s revelations, the full extent of 7Eleven’s issues have been made very public. It is abundantly clear that 7Eleven franchisees have some serious issues to resolve but those issues are not just their burden, they are also the burden of the franchisor, 7Eleven Stores Pty Ltd.

There are a range of reasons why the franchisor will share in the woes of franchisees, not least of which is the damage to the corporate brand. Unquestionably, the 7Eleven brand suffered some damage this week, the extent of which remains to be felt as consumers respond to the allegations contained in the ABC/Fairfax report and potential further investigations unfold.

A major cost of brand damage is brand rehabilitation. Take for example, the burger franchise Grill’d that was very publically dragged through the courts and the press earlier this year for alleged underpayment of employees. Although the claims were made against one single franchise owner, the impact on the Grill’d brand didn’t end with that one store, but flowed on to all stores and ultimately bought the franchisor under scrutiny. As a result, both that single Grill’d franchise owner and Grill’d corporate were forced to publically promise to modernise and renegotiate their workplace agreements. Media coverage of this case spanned months and the Grill’d logo was splashed across stories each time a new development took place. All this and neither Grill’d nor its franchisee were ever found to have committed any contraventions of the Fair Work Act.

Contravention of the Act under s550 is another of the biggest issues facing a franchisor in circumstances like 7Elelven’s. Section 550 says that where a company is involved in a contravention of the Act, it will be treated as though it has committed the actual contravention. A company can be involved in a contravention if they aid, abet, counsel or induce their franchisees into committing a contravention. A company can also be involved in a contravention if it has been knowingly concerned in, party to or has conspired with others to effect the contravention.

In short, this means that if a franchisor in any way contributes to a contravention of the Act, then it will be held to have committed the contravention itself. In the case of a franchisor, this may apply to every contravention of a franchisee. To put things in perspective, 7Eleven has 615 stores across Australia all of which are connected to the franchisor.

7Eleven are definitely in a sticky situation right now, but there is a lot to be learnt by both franchisors and franchisees from their conduct. In our opinion, the most valuable lesson is for franchisors – be pro-active and provide your franchisees with the tools they need to be effective and compliant business owners and employers. Sitting-back and letting franchisees do their own thing without providing them with support puts both them and you at risk. Skilled advice from outsourced HR firms can be helpful but it’s not a sufficient replacement for knowing how to handle situations and remain compliant on a day-to-day basis. We would recommend that franchisors develop their own policies and other resources, regularly update these resources and explain them to franchisees including why they are so important. Regardless of the profit split contained in a franchise agreement, franchisees need to be responsible employers for everyone’s sake and franchisors can help them achieve this.

If you would like to learn more about we do, contact THE WORKPLACE.

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