The Federal Circuit Court has issued a fine of $168,000 to 7-Eleven store owner, Jim Chien-Ching Chang, and his business, JS Top Pty Ltd, after finding he had underpaid eight staff members $19,937.

Background

In 2016, the Fair Work Ombudsman (FWO) conducted an inquiry into 7-Eleven’s business model following seven years of allegations and persistent reports of employees being significantly underpaid. In a media release, the FWO expressed concern about the convenience store’s non-compliance with federal workplace laws since 2008. Although the FWO engaged with the 7-Eleven head office between 2009 and 2014, it did not see any improvements in compliance, which was revealed in an assessment of 20 stores. It found a number of franchisees have been “deliberately falsifying records to disguise the underpayment of wages.” Similarly, there was increasing evidence the underpayments were linked to false employment records franchisees created. Despite being issued an Enforceable Undertaking, 20 letters of Caution, 14 Infringement Notices (on-the-spot fines) and three Compliance Notices, 7-Eleven failed to “adequately detect or address non-compliance.”

However, 7-Eleven launched a company-funded wage repayment program in July 2016 that paid out $128.5 million.

Previously, 7-Eleven faced numerous lawsuits over alleged underpayment of employees. For example, the FWO uncovered in 2016 two Brisbane outlets short-changed 21 employees more than $31,000. Another situation involved 12 staff (including international students) who were unpaid a total of $82,661 in 2014. Fortunately, the recent Federal Circuit Court decision will be a timely reminder to franchisors and franchisees of the consequences of serious non-compliance.

Be aware the conduct of franchisees and franchisors is regulated by the Australian Competition and Consumer Commission’s Franchising Code of Conduct.

Allegations

Fast forward to the present case, the Federal Circuit Court found the Brisbane owner, Mr Chang, to have underpaid one staff member nearly $14,000 between 2013 and 2014. Mr Chang even admitted his company had paid flat hourly rates as low as $13 an hour. It is estimated the minimum wage for an adult retail worker not engaging in shift work or working shifts that incur penalty rates at the time should have been $17.98 and $18.52. In contrast, some employees were underpaid amounts ranging from $203 to $1835 for shorter periods of work.

In his penalty judgment, Judge Michael Jarrett said Mr Chang had “established a business model that relied upon a deliberate disregard of the employees’ workplace entitlements and a course of conduct designed to conceal that deliberate disregard.” Justice Jarrett found Mr Chang knew what employees were owed under the General Retail Award 2010. Moreover, His Honour argued the company’s contraventions were not a result of poor cash flow. Instead, Mr Chang runs a profitable business and used tactics to conceal his underpayment. Justice Jarrett compared this case with other cases in the Federal Circuit Court that involve “serious and systematic contraventions of the most basic of the employees’ workplace rights.”

Key Take-Homes

Additionally, Fair Work Ombudsman Natalie James said the penalties should clearly communicate exploiting employees (particularly overseas workers) amounts to serious misconduct. Ms James said businesses have a legal obligation to pay minimum wage rates, keep appropriate employment records and issue pay slips. It is not negotiable. Businesses should be aware that the FWO does not tolerate non-compliance, and there are costly penalties that not affect businesses financially but also their reputation as well.

It is recommended employers should access the FWO’s website for information about employee entitlements or contact an expert franchise lawyer if they have questions concerning the Franchising Code of Conduct or compliance.

Final Thoughts

Let the 7-Eleven outcome remind franchisors and all businesses there is a high level of compliance imposed upon them. If they fail to do so, it is high likely they will be caught out by the FWO who will commence investigations.

Let us know your thoughts on franchises like 7-Eleven underpaying its employers by tagging us at #lawpath or @lawpath.

Fiona Lu

Fiona is a Paralegal working in our content team which aims to provide free legal guides to facilitate public access to legal resources. With an interest in information, media, consumer and employment law, her primary focus is on how technology will affect the future of the legal industry.