7-Eleven: A sweatshop on every corner

• "The reality is it's built on something not much different from slavery"

The raids were swift and co-ordinated. Teams of inspectors from the workplace watchdog swooped on 7-Eleven stores across the country.

It was September 2014 and as night set in, teams of plain-clothes investigators raked over more than 20 stores taking photographs, seizing documents and interviewing shell-shocked staff.

It was the Fair Work Ombudsman's third raid on the famous 7-Eleven franchise chain in the past six years. Each time investigators unearthed fresh evidence of underpayment of wages.

A joint Four Corners and Fairfax Media investigation into 7-Eleven has uncovered startling and systemic wage fraud across the country's biggest convenience store chain, including falsification of payroll records and other illegal practices.

A BusinessDay - Four Courners joint investigation has found allegations that 7-Eleven store owners defrauded and blackmailed staff.Credit: Arsineh Houspian

Billionaire owners

The 7-Eleven empire is owned by Russell Withers and his sister Beverley Barlow. The pair brought the franchise licence to Australia almost 40 years ago.

They are two of Australia's richest people and their franchise network has been caught underpaying some of the nation's poorest and most vulnerable people. Mr Withers has for many years sat on the Australian Olympic Committee.

Explosive internal documents obtained by Four Corners and Fairfax Media show the results of a review of 225 stores through July and August by 7-Eleven's head office.

It found that a staggering 69 per cent of stores had payroll compliance issues, including falsification of records and rosters.

The documents show stores are manipulating their rosters.

This is known because when rosters are cross-checked against CCTV footage, the surveillance footage reveals that people not on the roster are actually working at the store. Instead those manning the tills are often students on visas getting illegal cash payments well below legal minimums.

7-Eleven owner Russell Withers sat on the AOC for many years.

A Fairfax Media-Four Corners investigation has uncovered much more. There are staff log books, court documents, financial accounts of individual stores – including one owned by 7-Eleven head office – and it all paints a grim picture of what it is like to work for one of the most well-known brands in Australia with 620 outlets.

Damning review

In the wake of inquiries from Fairfax Media and Four Corners, store reviews ramped up. The findings are damning.

Harmandeep Sarkaria with Tony Abbott.Credit: Facebook

When I came here I was told everywhere in Australia you'll get only $12 or $13 or $14 or $15.

Yash Radcha, student and 7-Eleven worker

"I ask [franchisees] why there (sic) not paying correct rates for this trading period. The reply was to save money," one review on a store in outer eastern Melbourne reads.

While yet another review on an inner city suburb in Melbourne declares: "Clear evidence payroll is being falsified."

On and on it goes.

Under the current immigration law student visas allow students to work only 40 hours a fortnight. If they breach the law they face the risk of deportation, which makes them targets for exploitation.

Unscrupulous employers allow students to work more hours but threaten to report them to authorities for breaching their visa if they complain about working conditions. Employers time sheets and rosters are doctored to maintain the scam.

To pull off the fraud, the franchisee or a family member, nicknamed the "ghost worker", pretends to work up to 80 hours a week to disguise the fact that the student worker is really doing the hours.

Four Corners and Fairfax Media spoke to many students and they all said that they are being exploited by 7-Eleven franchisees in a rort known as "the half pay scam", designed to pay students half the pay for double the hours.

Under this scheme payslips record only half the hours worked, meaning the employee gets just half the money per hour entered through the payroll system.

Yash Radcha, a student from India studying a masters of computer science, says he had to work long hours at 7-Eleven because he was paid so little.

"The cost of living in Australia is a bit high," he says.

"If I get only $200 or $250 I can't even pay my rent even. I can't eat anything here... So there's a reason not only me, each and every international students here is working only for $11 to $15."

System undermined

Under 7-Eleven rules for franchisees, stores open 24 hours a day, seven days a week, which makes salaries a potentially very big expense especially once weekend and late night penalty rates are included.

With more than 1.3 million workers in Australia – or one in 10 workers – on a visa, worker exploitation is potentially a very serious problem.

Besides undermining the award wage system, it is threatening the country's reputation overseas in the wake of other visa scandals.

There are more than 300,000 students on visas in Australia. Most of the 4000 employees working at 7-Eleven stores are students.

Yash believes most international students don't get paid the award rate.

"When I came here I was told everywhere in Australia you'll get only $12 or $13 or $14 or $15, that's not above that."

He believes it is different for residents.

"When you are resident or an Australian you'll get paid more," he said.

The minimum award wage for a 7-Eleven worker is $24.69 for a Monday to Friday shift and $28.49 for a Saturday shift and $37.98 for a Sunday shift."

Advocate moved

Michael Fraser, a consumer advocate, started looking at 7-Eleven in 2012 when he moved to the Gold Coast next to a store.

He befriended one of the staff and was told that it wasn't just his store who underpaid staff, but all 7-Eleven stores.

Fraser decided to do his own due diligence. He went to 60 stores across Australia and asked staff how much they were getting paid. Some were too afraid to talk for fear of reprisal from their boss, but most told him they were getting well below the award rates.

"I'd go in and ask what are they getting paid per hour, how many are on at a time, does head office know, how does the franchisee treat them. That was basically the data I was getting each time I went into a store," he says.

Fraser says most students don't have much choice where they work because they have poor English.

"They've really got no option but to find someone that is willing to employ a foreigner [is difficult]. These franchisees know that they're on a visa, with a limit of 20 hours a week," he says.

In the past two years Fraser has donated a substantial part of his life to expose wage rorting at 7-Eleven stores.

He is not paid for the work and claims to be motivated by a desire to help student workers confused by seemingly endemic wage scamming – as well as a sense of personal outrage that authorities have not clamped down on what he believes is widespread abuse.

"Nobody seems to care and I think that's sort of the common expression that that I get and they can't understand why does no one care," he says.

Training threat

During period in which they are trained, some franchisees force the workers to work more than 20 hours a week to get the job.

"Then they hold that over their head come time to offer them $10 an hour or $12 an hour or they say to them if you say anything about your underpayment, I will report you to the government and have you deported tomorrow for breaching your visa terms," he says.

During the course of the investigation, working students told Fairfax Media would they prefer not to risk their visa and get paid the correct money, or maintain the status quo. They all wanted change.

Offences including franchisees withholding staff passports and drivers licences and underpaying wages are just a few of the complaints being made by students.

Regulator pounces

Fair Work's raid last September revealed of the 20 stores audited, 60 per cent were underpaying staff. This was double the findings of its previous audit of 56 stores in Victoria.

The regulator has taken legal action against three 7-Eleven franchisees over the past six years. Two of the franchisees had their companies wound up, which meant they could avoid repaying staff.

The third legal action, filed against a store operating out of Blacktown, is set down to be heard in the Federal Circuits Court in NSW later this year.

Fair Work launched action against the 7-Eleven Blacktown franchisee Harmandeep Singh Sarkaria in July for underpaying two workers at his store and providing the regulator with false and misleading records of when staff worked.

In an interview, Sarkaria says he will be defending the claim and is disappointed Fair Work is litigating as he had been under the impression he had been co-operating with the ombudsman. He says he had other stores which he had sold last year.

"After this litigation, I'm going to sell this store and then I'm out," he says.

Sarkaria, who is the campus manager for a vocational education college as well as a franchisee, says his problems with Fair Work are a combination of poor record keeping on his behalf and a misunderstanding of the penalty rates that applied at different hours.

"A small business owner – like a small shopkeeper, a Subway guy, a Dominos guy, a small restaurant operator – I'm not sure they're professional accountants or professional bookkeepers that they can maintain their books to certain standards all the time, though there are obligations hiring an accountant costs a lot," he says.

Not all cases of wage fraud result in litigation. Another option is entering an 'enforceable undertaking' with the franchisee, which includes the franchisee agreeing to repay exploited staff as well as agreeing to develop systems and processes to promote ongoing compliance and complete an online education course on the Fair Work website.

The joint media investigation can reveal that enforceable undertakings are far from bullet proof. Some of the stores busted by Fair Work continue to rip off staff and commit acts of fraud.

Repeat offenders

Days after the September 2014 Fair Work raid, one 7-Eleven operator, Kumar Sundarakumar, who runs the shop at 237 Exhibition Street in Melbourne, decided to pre-empt any findings by confessing to deliberately underpaying 12 of his staff.

He told Fair Work he had illegally falsified records and manipulated payroll. He made the startling admission that he learned how to do the so-called "half-pay scam" from another store owner at a 7-Eleven conference.

He outlined the scam in detail, including how he falsely entered in the payroll system that he sent to head office – whereby staff were recorded working less than half the hours that they actually did work.

Sundarakumar entered an enforceable undertaking with Fair Work in May. He agreed to pay back 12 staff more than $30,000 that he had underpaid them between October 2013 and October 2014. He has not returned calls.

However, it is understood that Sundarakumar's store still has issues with payroll. It is understood that it didn't have time books for staff and some of the times did not correspond to the roster.

While it was not clear at which conference Sundarakumar learned how to commit wage fraud from another franchisee because 7-Eleven has put on at least one major national conference for its franchisees in the past five years.

Training ground

Its national conference on the Gold Coast in 2011 shows the lengths head office will go to fete its store owners.

At the grand dinner on the final night of the conference the 1000-plus attendees were greeted with the strains of the Queensland Symphony Orchestra and regaled with motivational speeches by cricketing great Glenn McGrath, a full set with costume changes from pop singer Guy Sebastian, stand-up comedy from Anh Do and a lavish show by a troupe of Bollywood dancers.

The contrast between this world and the day-to-day grind of long shifts for below minimum wage is stark.

It can also be revealed that another store busted as part of last year's Fair Work raid is also believed to be still behaving badly.

The store, at Parkville in Melbourne, agreed to repay tens of thousands of dollars in wages to staff and give proof of the repayment to Fair Work – the franchisee then asked staff for the money back or they would lose their jobs.

Tejinder Jit Singh, or "Jeet" to his friends, was one of the student workers at Parkville who was underpaid and overworked.

He says he received a few thousand dollars in back pay based on the last two months he worked at the store. He was then told to pay it back. He lost his job.

"It's just not enough," he says.

"I was working during the week, every weekend, every public holiday and I work with them for two years and nine months," he says.

Jeet was also often made to work 16-hour shifts without a break.

During one of those long, tiring shifts, Jeet tried to stop two people from stealing food from the store and was nearly blinded for his efforts when one of the thieves slashed his face just under his eye.

Jeet has many friends who work at 7-Eleven and he says it is very common for a franchisee who has been ordered to back pay staff to demand the staff member immediately repay the money.

The franchisees sold the Parkville store but held on to a store in Melbourne's CBD. It is understood they are still underpaying staff.

7-Eleven's general manager of operations Natalie Dalbo says most franchisees choose to underpay staff because of "greed".

"If you use a casual award, which would be the highest award, [the payroll cost] comes in at about $230,000. And the average gross income generated in the network is significantly higher than that," Dalbo says.

7-Eleven chief executive Warren Wilmot says the franchisee can help limit that through the hours that they work in the store.

"And obviously the most efficient way is that the franchisee works the weekend or the night shift," Wilmot says.

Often a franchisee will work for free in the belief that the goodwill locked within their business will grow and upon sale provide a windfall.

Hands tied?

7-Eleven says it the franchise code makes it nearly impossible for head office to get rid of franchisees caught underpaying staff.

"I'm not even sure under the franchise agreement that we could. It's an interesting question. I'm pretty sure that we can't. The obligation is to work with the franchisee and if we can get restitution for the staff then that's obviously the requirement that we have," Wilmot says.

Dalbo, confirmed the company does not "necessarily" report franchisees to Fair Work for wage fraud it uncovers during the review.

"We haven't had a reporting regime," she says.

A Senate inquiry is under way into wage abuse and visas. Labor senator Deborah O'Neill believes what they have heard during the hearing is only the tip of the iceberg.

"Given the numbers that the Fair Work Ombudsman is receiving in terms of complaints, which is experiencing exponential growth, we have to start to see this as not just isolated incidences, but a systemic problem of exploitation of people who come to Australia expecting to be part of a democratic society," she says.

O'Neill says the committee will release a set of recommendations later this year. They are expected to include beefing up the powers of the regulator and looking the penalties.

"We go through all of this process with an employer that is proven to be untrustworthy, proven to be exploiting workers, and then another three or four years later down the track we are going back over the same territory. Surely, there is something wrong with this process," O'Neill says.

Franchisees flee

Since the Four Corners-Fairfax Media investigation into 7-Eleven began, the number of stores for sale by franchisees has ballooned from 50 to 76.

Some franchisees are up in arms. The 7-Eleven website shows 41 are for sale in Victoria alone. The parent company makes millions of dollars a year on store changeovers. In 2015 it earned more than $9 million in franchisee fees from franchises changing hands.

In a statement 7-Eleven says it sees no connection with the investigation and number of stores for sale.

"The turnover of 7-Eleven franchises fluctuates year-on-year, but inevitably normalises around the 11 per cent per annum mark, with average tenure of about seven years," the company says.

Under the 7-Eleven franchise agreement, head office takes 57 per cent of gross profit and the franchisee takes the rest.

Out of its cut, head office pays the rent (some of the properties are owned by 7-Eleven), supplies all the equipment and fittings, utilities and back office services including payroll.

From their 43 per cent takings, the franchisee pays a raft of other running costs including all staff wages. A 7-Eleven franchise can fetch anywhere between $300,000 and $1.7 million, depending on its size, location and whether a petrol station is attached.

One store for sale in a busy Melbourne suburb is being sold for almost $1 million. The sale document estimates that payroll for the past 12 months was about $171,000. After this is deducted from gross profit, it leaves the franchisee with a net income of $90,000.

However, if all wages are included and properly paid for, the income would be close to $40,000. After interest repayments are deducted, the figure would be even less. It leaves little room for paying full freight salaries.

Consumers have grown accustomed to the convenience of buying milk, bread or slurpees at any hour. The salary pressures that this appears to force on both franchisees and workers, seems to raise a dilemma: who really pays for this convenience?

Do you know more? Email Adele Ferguson at [e-mail] or Sarah Danckert at [e-mail] .

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