By Adele Ferguson and Sarah Danckert
It was December 9 and Jon had just finished reading about the franchisee scandal at Retail Food Group, the company behind iconic brands including Brumby's, Donut King and Crust Gourmet Pizza, and decided to make a call.
The call was in response to an ad placed in Mandarin in Chinese newspaper Sydney Today, asking for delivery drivers at Crust.
The franchisee, who runs a Crust Pizza franchise in Sydney, told him he had two options: he could be paid in cash at $15 an hour plus up to $2 for each delivery or $17 an hour, plus $2 for each delivery, if he wanted to go on the books and pay tax.
Either deal required him to use his own car and pay associated costs including petrol and insurance. Both offers were below the minimum wage for an adult in Australia.
Retail Food Group founder and businessman Murray d'Almeida at a Donut King outlet in Queensland this week.Credit: tash@sabistudios.com.au
What the franchisee didn't know was that the caller, Jon, a Chinese student on a visa, was posing undercover for Fairfax Media.
"Underpayment still goes on everywhere," he says. "We are getting more than we used to but we still get less than we should. I sometimes imagine what it would be like if everyone could be paid correct in future."
That the franchisee was still spruiking for cheap labour at a time when the spotlight has never been greater on RFG, speaks volumes about the desperation of franchisees, many of which have gone to the wall due to a brutal business model, which squeezes fees, royalties and high food charges in a quest to grow profits.
Part three of a Fairfax Media investigation into RFG and its franchisees has uncovered claims of widespread underpayment of wages, the deliberate underpayment of penalty rates and the use of families and friends for little or no money.
Tony Alford at the time of the RFG float in 2006.Credit: Robert Rough
It can also reveal that many franchisees work long hours for little or no pay to keep costs down. Since the investigation's first part was published, shares in the company have plunged 35 per cent, from $4.40 to to $2.85, to hit a five-year low.
Murray d'Almeida, who founded Retail Food Group, back when it owned two brands the Donut King and bb's, says he is shattered but not surprised at what has been uncovered, including the volume of franchisees failing and cutting corners by underpaying wages.
"The current phenomenon of franchisees working long hours with their family just to pay the bills rather than grow the business and hiring foreign workers is alien to me," he says. "When RFG started, families worked hard but it was so they could build the business and then get others to manage it, or buy other stores, not what's going on now."
He says he went to the UK in 1996 to expand the brands and when he returned to Australia control of RFG had changed. "I could see the writing was on the wall," he says. "I could see the direction it was heading."
It's like 7-Eleven, they had no choice. There's too much of a squeeze with all the costs and fees.
Michael Sherlock
He sold out of the business at a fraction of what his shares were worth.
"I walked out in 1999 after 20 years of hard work, but I considered it better to sleep well than eat well."
In 1999, Tony Alford, who would become RFG's long-time managing director and chief executive until stepping down in June 2016, took the reins at RFG.
Fairfax Media last week revealed the colourful history of the former accountant including allegations made by the family of late rock star Michael Hutchence that he was involved in the mismanagement of the INXS frontman. Alford, who has long denied any wrongdoing in the handling of Hutchence's estate, did not respond to Fairfax Media's questions.
Sleep? What sleep?
Former Michel's Patisserie franchisee Vicky Chen walked away from her Michel's store on Bourke Street in Melbourne's CBD in 2015 and says underpayment at RFG is as bad as at 7-Eleven.
"Franchisees can't afford to pay the right wages. It's just not possible to pay the correct wages with all the costs RFG insists we pay," she says.
7-Eleven had systemic wage fraud across its network of convenience stores which so far has resulted in more than 3000 workers being paid back more than $150 million in underpayments after Fairfax Media exposed rampant underpayment. Scandals at other franchises have followed including Domino's Pizza and Caltex prompting the federal government to pass new laws to try and tidy up the franchise sector.
But the changes don't appear to have affected those working under the RFG umbrella.
A Crust Pizza franchisee with two stores in the top end of Australia says she owes her staff wages and doesn't know when they will be paid.
"Not being able to tell them when I can pay it... I have nothing left to give them," she says.
"Most Mondays still in the red, Wednesday is wages, can't pay them, again haemorrhage our own funds, don't even mention the tax bill, the superannuation, rent, avoiding the landlord's calls. Sleep? What sleep. Scared to open emails, what can't I pay this week but even if the account didn't have enough in it the RFG fees still managed to be debited."
A trawl of ozYoYo, a website many foreign nationals use to find jobs reveals several Crust and Pizza Capers ads including one placed last year for a delivery driver at Crust offering a base salary of $10 an hour and $2 delivery fee.
In the fast food industry, the minimum award rate for an adult is $20.08 per hour.
RFG workers confirmed to Fairfax Media they were being paid well below the award rate at between $10 and $15 an hour in cash without penalties, superannuation or payslips. Some workers are being misclassified into lesser roles to keep wage rates down.
Many are international workers on short term holiday working visas, which reduces the risk of getting caught say a number of franchisees who declined to be named for fear of reprisals.
RFG denies systemic non compliance and pointed to a number of initiatives in place to assist franchisees meet their obligations including appointing Deloitte to conduct an external review and an RFG Foundation program developed with the National Retail Association to facilitate workplace relations and legal advice.
At the annual meeting on November 30, chairman Colin Archer told shareholders RFG had implemented "a whole of business review." This would include wages.
"We have not dictated employment terms via network wide enterprise bargaining agreements but have empowered our franchise partners to have control of their own workplace arrangements," he says.
"We have not divested ourselves of responsibility, and considerable effort has been invested in providing our networks with the resources and processes necessary to better assure their success and to ensure our franchise partners operate within the boundaries of the law."
But the company refused to answer a series of questions including how many franchisees had been kicked out of the network in the past two years due to underpayment issues, whether it had conducted a compliance audit across the network or why it had ignored an invitation from the workplace regulator, the Fair Work Ombudsman in September 2016, to enter a compliance deed.
It also declined to answer how it monitors sub-contracting for delivery drivers in its Crust and Pizza Capers chain to ensure they aren't sham contracts.
Chen from Michel's Bourke Street store says she worked long hours and relied on family members and cousins to help her out in a bid to keep her labour costs down. But sales weren't high enough to cover rent and other costs and fees.
Chen walked away with nothing except debt.
"I bought a dream, I trusted them that if I became a franchisee, they had the system, they had the products but it's all bullshit, Franchisees have no bargaining power, it's one big rip off."
Chen says there are many Chinese immigrants who have been stung by their decision to buy into Michel's and other franchise brands.
"They get visas and come to Australia and buy a business and lose everything. The Chinese newspapers are full of ads and agents pressure us to buy. Michel's is a shit business. It is so unfair and nobody is helping us."
Indentured servitude
Chen's claims of long hours for little or no pay as well as use family members and friends for a fraction of the award rate are echoed by many franchisees who liken working under RFG to being little better than indentured servitude.
It is illegal in Australia to underpay family members, unless they are listed as a director of the company that owns the franchise. Fairfax Media can confirm that several workers that it spoke to were unwilling to go to FWO or speak out publicly because of their familial relationship with the franchisee.
Wing Chan is 60 and says he works at least 70 hours a week in his two Michel's stores in the Hunter Valley town of Cessnock and in Newcastle. He paid more than $500,000 for both stores.
He has been trying to sell for at least two years, but can't find a buyer.
He says it is a struggle to pay the bills and admits owing an employee "a lot of money" in super.
"I am in such a deep hole that I can't dig myself out," he says.
This month he must pay the final instalment on the loss-making Cessnock store and the lease and the franchise agreement on his Jesmond store is up for renewal, which could cost up to $200,000.
Chan bought into the Michel's stores and used his retirement savings after he couldn't find a job. It was 2011 and he says it was the worst mistake of his life.
"It it like having someone hold down my throat and then put their hands in my pockets."
Wage fraud is also rampant at Brumby's, claims former Brumby's founder and former managing director Michael Sherlock who says he was aware of underpayment across the network.
"Of course there is underpayment," he says. "It's like 7-Eleven, they had no choice. There's too much of a squeeze with all the costs and fees."
When Sherlock sold his stake in Brumby's he kept seven stores, but under the RFG model they started losing money.
He extricated himself from the last store 18 months ago.
Franchisee sources says some stores hire bakers with fake apprenticeship certificates that cost $4000 to $5000 for each certificate. These "bakers" are kept off the books.
One baker who is currently working at two Brumby's stores in South East Queensland and asked to remain anonymous to avoid losing their job, says one franchisee was paying them less than $20 an hour in cash for 15 hours' work a week, while the other franchisee was paying a mix of cash and proper wages but no cap on the hours worked.
On Monday's shift, the baker would be paid $150 for nine hours which is under $18 an hour.
"You feel like it's a big family and you have to take one for the team in order for the franchisees to survive," the worker says. "You become so close and you feel like you need to help them."
Zombie network
Michael Fraser and Maddison Johnstone
from Franchise Redress spent 30 days on the road from October 25 this year visiting more than 100 stores in Victoria, NSW and Queensland.
In its report, titled RFG: The Zombie Brandchise Network, Franchise Redress says it spoke to many workers and franchisees and underpayment or non-payment of staff members across RFG brands was extremely common.
The report says the most common form of worker exploitation detected was underpayment or non-payment of family members.
"It was common to hear franchisees say they couldn't afford to hire staff members and without the input of their relatives, they wouldn't be able to survive."
The report cited one Michel's Patisserie franchisee saying he was underpaying his workers but he had no choice.
"He says his wife was needed back in the store only days after giving birth, which we found distressing to hear," the report says.
"We also came across staff members who were performing managerial duties but were not being classified as a manager and only received minimum wage."
The report says a NSW Crust Pizza delivery driver in his mid 20s from the subcontinent says he was being paid $13 per hour, plus $2 per delivery.
"He had no uniform, was using his own car and was illegally parked due to no parking provisions for delivery drivers."
They say a number of Crust Pizza franchisees told them wages of $13 per hour plus $2 per delivery was allowed and common practice.
Some franchisees use clause 1.7 in the disclosure document, which allows franchisees to appoint sub contractors to create sham contracts in a bid to keep labour costs down.
A spokesman for the workplace regulator the Fair Work Ombudsman (FWO) says the regulator continues to have concerns about non-compliance issues within the Retail Food Group network.
"I can confirm that in recent years the Fair Work Ombudsman has received requests for assistance from workers at businesses operating under a number of those brands; Brumby's, Gloria Jeans, Donut King and Crust outlets," a spokesman says.
The regulator wrote to RFG in September 2016 inviting it to enter a compliance deed to ensure underpayment was stamped out in its network.
"Since then, the Fair Work Ombudsman has made further approaches to the Retail Food Group to discuss a Compliance Partnership but the Retail Food Group has not engaged in any significant discussions with us to date," a spokesman says.
Several operators of stores under RFG's brands have been caught by the FWO for underpaying workers in recent years.
Cash in hand work for below-award wages and the non-payment of penalty rates to staff who were on the books have been a common theme in the actions brought by FWO against RFG franchisees.
A spokesman for the regulator says the Ombudsman had received 46 requests for assistance from Crust Pizza employees throughout Australia between July 2011 and the end of March, 2016.
The rampant underpayment has led to the FWO launching several court cases against RFG's franchisees. Some of the actions related to underpayment that occurred within the brands prior to RFG's ownership, but many relate to serious breaches of workplace laws while RFG owned the brands.
A long history
In 2015, the former owner-operator of the Crust Pizza outlet in the Sydney beachside suburb of Maroubra was fined by the Federal Circuit Court for refusing to reimburse eight employees who were underpaid almost $26,000.
RFG purchased the Crust Pizza brand off its original owners in 2012. In 2015 and 2016, The Canberra Times ran a series of articles about underpayment in four Crust Pizza stores in the nation's capital. There are eight outlets in Canberra.
A separate report in late 2015, revealed Crust's delivery drivers were earning a base rate of $10 an hour.
But store owners within RFG's brands have a long history of breaching workplace rules
A Donut King franchisee was fined in October 2008 for deliberately underpaying 10 of its casual staff some of who were as young as 15.
In July 2009 another Donut King store, this time in Tasmania, was fined $60,000 after they admitted to pressuring nine teenage workers to sign workplace agreements which reduced their penalty rates.
Professor Allan Fels, who chairs the migrant workers taskforce and led the initial compensation scheme at 7-Eleven, says the adoption of oppressive profit sharing schemes not only causes unconscionable underpayments but spreads a dangerous culture of underpayment across franchise operations generally.
He says the taskforce found that most underpayment of migrant workers was in two categories: students on visas and working holiday workers.
"We are finding more and more working holiday workers are being exploited and it is now widespread," he says.
And he says franchisees and their families working long hours for little or no pay was becoming an issue.
"Historically in Australia we accepted up to a degree the fact that in a franchise arrangement, families had to work hard with long hours, but of late this is getting out of hand."
Do you know more? Contact: adele.ferguson@fairfaxmedia.com.au or sarah.danckert@fairfaxmedia.com.au