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Angus McKay, 7-Eleven CEO - opening statement to the parliamentary inquiry into the operation and effectiveness of the Franchising Code

14 September 2018

Thank you Chair and committee members for the opportunity to appear before you today. I will address the claims aired in the media this morning as part of my opening statement.

We welcome this inquiry, and are pleased to contribute to its important work.

It’s been three years since widespread wage underpayment was first revealed within our franchised network. Since then we have learnt how prevalent this appalling practice is across the economy and have focused on addressing these issues inside and outside our network.

We have taken enormous steps to remedy the past underpayments and reform our business. 7-Eleven immediately set about reaching out to 15,000 past and present franchisee employees and encouraging them – on multiple occasions – to submit claims. Without any legal obligation, we have voluntarily paid more than $160 million in underpaid wages to franchisee employees.

We have also implemented a comprehensive range of measures across our business – well beyond any regulatory requirements – to raise the bar on compliance. These are detailed in our submission, and include centralised payroll, biometric time and attendance systems, a sophisticated data platform and a significant increase in field-level investigation and compliance.

We have sought to address our challenges from the front and not retire from the debate that was sparked. We’ve also learnt a number of lessons and developed ideas for regulatory reform that we believe will help raise the standard across the sector.

These are detailed in our submission, but let me touch on each briefly.

7-Eleven recommends a modification to the termination provisions in the Franchising Code of Conduct and the Oil Code to provide franchisors with a right to immediately terminate a franchise agreement in the case of serious non-compliance with Commonwealth Workplace Laws or Fair Work Instruments, as defined in the Fair Work Act, such as knowingly and systematically underpaying workers.

Secondly, we recommend a harmonisation of the relevant termination provisions of the two Codes because there is no reason why fuel and non-fuel stores should be subject to different termination provisions and standards of acceptable behaviour.

Currently the Franchising Code permits us to issue a breach notice in the case of serious underpayment. However, provided that breach is rectified within a reasonable timeframe, we are powerless to act further unless there is evidence of fraud. The underpayment -> breach notice -> rectify cycle can continue for the life of the agreement, and we are powerless to act.

This not only harms the vulnerable workers being exploited, but also harms the many other franchisees doing the right thing as it potentially damages the franchisor’s brand and may erode the value of the franchisees’ investment.

Our submission highlights our recent experience terminating the agreement of a franchisee involved in the insidious cash-back practice. This one termination required us to prove fraud – a significantly higher threshold - and took 18 months through the NSW Supreme Court and Court of Appeal. The original hearing subjected two former employees of the franchisee to the trauma and anxiety of having to appear as witnesses, and 7-Eleven incurred costs of approximately $750,000 that may not be recovered.

The extensive requirements and resources involved in securing such a termination are likely beyond most franchisors. Without the legal power to take action, turning a blind eye may be the more likely approach leaving vulnerable workers exposed.

Our submission also recommends greater disclosure requirements, and to ensure franchisee employees have access to information on their workplace rights and mechanisms to confidentially raise concerns.

I should point out that as the committee is aware, 7-Eleven is currently the defendant to class action proceedings in the Federal Court of Australia. 7-Eleven is concerned to ensure that the process of the inquiry does not place at risk the due administration of justice in these proceedings. However, we will make every endeavour to assist the committee with its inquiries.

I will now quickly turn to the broader franchise sector.

We agree with many others that what is needed is not more regulation, but better enforcement of what is already a highly regulated but also highly fractured sector.

We would see merit in the establishment of a body such as a Franchise Industry Ombudsman, as suggested by Professor Andrew Terry, to bring together some key educational, compliance and enforcement functions.

A Franchising Ombudsman could centralise and bolster key roles that are currently piecemeal by:

  • acting as a repository for franchise agreements and endorsing they are code compliant;

  • providing a register for accredited experts in franchising law, accounting, finance and business that prospective franchisees must call upon in the disclosure process;

  • providing or accrediting training courses for prospective franchisees regarding the risks and rewards of franchising; and

  • potentially acting as a dispute arbiter.  

Lastly, let me address the claims of influencing witnesses again aired in the media this morning.

I emphatically reject the allegation. It is utterly false and without foundation. It is a gross insult to the integrity of my team and the franchisees concerned.

The claim is made by someone who is the lead plaintiff in a class action against 7-Eleven and therefore has their own agenda.  It is this same person who came before the inquiry back in June and alleged that 7-Eleven bought the silence of the Association’s leaders that has now also approached us twice in the last month to buy-back his own stores. As such, we question the motivation and credibility behind his claims.

Not a shred of evidence has been provided to substantiate the claim. Reports of a statutory declaration containing nothing more than hearsay or ‘shop gossip’ on a chat app defy credibility.

The clear facts of the matter, provided promptly to the committee with supporting documentation following the claims first being made in June, are these:

  • It is normal business practice for 7-Eleven to buy-back franchised stores, with about 20 similar transactions since mid-2015.

  • These negotiations proceed at the pace determined by the franchisee and their particular circumstances.

  • The five Franchisees referenced in this claim approached us in March 2018 or earlier, prior to the announcement of this inquiry, seeking to exit the network.

  • The negotiations were conducted as they normally would, with no regard to the timing of or matters before the inquiry.

  • The terms entered into with these franchisees contained typical provisions requiring confidentiality of terms and non-disparagement, but do not prevent participation in any regulatory inquiry including inquiries such as this.

  • In fact, these provisions contain an express carve-out ensuring franchisees may freely participate in any regulatory inquiry without restriction.

  • These franchisees were all legally represented at the time that the terms were negotiated and agreed.

  • Four of the agreements were finalised and signed on 6 June – two and a half weeks before the Melbourne hearing, and before the fact of the Melbourne hearing had even been listed on the committee’s website.

  • With regards to the fifth agreement, terms were agreed before the hearing, and the draft transaction documents are nearly agreed and remain with that franchisee for his final approval.

We have also informed the committee that another franchisee, who was listed for the Melbourne hearing, similarly approached us to buy back his store which we declined to do on his proposed terms. Our actions are inconsistent with the allegation that has been made.

These are the clear facts of the matter, fully documented to the committee.

In closing, we made mistakes in the past that led to the underpayment issues discovered three years ago, but we have sought to be an exemplar in our approach to remediating the past, reforming our business, and raising the standard across the sector. We welcome the opportunity to contribute to the Committee’s work in this regard.

Thank you.