Senate Education and Employment References Committee’s public hearing
Melbourne 24 September 2015

Madam chair, my name is Russell Withers, I am the Chairman of 7-Eleven Stores Pty Ltd and joint shareholder in the company.

With me are 7-Eleven CEO Warren Wilmot and General Manager Operations Natalie Dalbo. I have a brief opening statement to make.

It is clear that a number of 7-Eleven franchisees have underpaid their staff.

7-Eleven Stores Pty Ltd does not in any way condone this practice.

It is a breach of the franchise agreement not to comply with any law, including labour laws.

Underpayment of staff by franchisees in no way benefits 7-Eleven Stores Pty Ltd and the reputational damage to the brand and the company by this practice has been considerable.

I want to stress that this has been highly embarrassing, and I apologise unreservedly to any worker that has worked in a 7-Eleven store who has not been paid correctly.

Australia has a wage system that 7-Eleven and its franchisees must and will honour.

We have recognised that there is a problem.

My company will fix it, and we will do everything in our power to make sure this never happens again.

By way of background, in 1976, I signed a licence agreement with 7-Eleven in the US to bring 7-Eleven to Australia.

The first store opened in 1977 and there are now 620 7-Eleven stores in Australia.

My company offers a full service business franchise to independent business people.

There are currently 458 7-Eleven franchisees, all operating under their own a company structure.

The franchise agreements operates on a split of merchandise gross profit, giving both the franchisor and franchisee a common goal of gross profit dollars in the store.

7-Eleven Stores Pty Ltd’s 57% share of the gross profit goes pay for:

• Rent or provision of the store
• All equipment in the store
• Maintenance of buildings, premises and equipment
• Cost of utilities
•  And advertising

We provide a bookkeeping service, and an optional payroll service that relies on information provided by the franchisee.

Financial statements are provided monthly, right down to balance sheet for the franchisee.

The franchise agreement establishes the franchisee as an independent contractor.

From the franchisee share of gross profit, the franchisee is responsible for hiring and remunerating all staff in the store.

The franchisee also meets expenses such as telephone, minor janitorial costs and supply items such as paper bags.

The balance is the franchisees’ net income.

The extent of the practice of underpayment has been very difficult to determine, as the offending franchisees have falsified records and underpaid staff have failed to come forward.

However, we have been open, honest and collaborative with the Fair Work Ombudsman in its investigations of franchisees.

We note the Fair Work Ombudsman investigates individual businesses who are the employers, not 7-Eleven Stores Pty Ltd.

In September2014, the Fair Work Ombudsman commenced 20 audits of 7-Eleven Stores in Melbourne, Sydney & Brisbane.

A year later one franchisee has entered an enforceable undertaking and one is defending a prosecution.

These audits did trigger our company to take further action.

In the absence of results from the Fair Work audit, in May this year 7-Eleven increased its own audit of franchisee pay records.

With our findings we immediately and significantly improved our systems, monitoring and detection.

The Four Corners program claimed massive wage fraud being covered up by 7-Eleven head office.

I assure you there is no such cover up.

We believe any underpayment of workers whether at 7-Eleven or any other place is wrong and cannot be condoned.

My company recognises that there is a problem and is doing everything possible to fix it.

We have established an independent panel chaired by Prof. Allan Fels with Dr David Cousins, supported by a Secretariat staffed by Deloitte to receive, process and adjudicate on any claims of short payment of franchisee staff.

7-Eleven Stores Pty Ltd will settle these claims promptly without further investigation.

There is no time limit or statute of limitation on claims.

The Panel’s work is confidential.

A Hotline and website is in place.

Advertising has commenced.

And we have directly contacted nearly 5000 people employed by franchisees and provided details about the Panel.

In addition to the Panel, we have commissioned our internal auditors EY to design a system to bring in measures including:

•  All franchisee employees must be paid through the 7-Eleven payroll service
•  Biometric sign on and sign off for all store staff
•  Weekly signed acknowledgement by the employee that the pay is correct for the number of hours worked
•  Whistle blower hotline details will be included
•  Weekly monitoring of payroll compliance by 7-Eleven District Managers
•  Random external store audits by EY
•  Where proven, immediate termination of the franchise for any intentional underpayment of franchisee staff will occur.
• It would be easy for us to say that this is the responsibility of offending franchisees.

But the reality is that, whatever the extent of the problem, this has happened on our watch and we want to make it right.

The 7-Eleven system does not rely on the underpayment of franchisee staff in order to be viable. 38 years of successful operation in the convenience store business reinforces this.

Madam Chair, as I said earlier, I am joined by 7-Eleven CEO Warren Wilmot and General Manager Operations Natalie Dalbo and we would be pleased to take your questions.