Wage theft is a business model
A damning Senate report has uncovered exploitative practises marring the $170 billion franchise industry.
The Fairness in Franchising joint parliamentary committee report, released last week, highlighted widespread wage theft and a significant power imbalance that favours franchisors.
A parallel was drawn between the state of the franchise sector and the recent royal commission into the finance sector.
"The extent of poor corporate governance in some areas of franchising is comparable to that in the financial services sector," the report said
Wage theft widespread
The report acknowledged the ongoing use of wage theft to support franchise models as both a cost cutting measure to keep struggling franchises afloat and, in some cases, a symptom of franchisor greed.
“In some instances wage theft was encouraged by franchisors,” the report said.
One of the report’s recommendations is that franchisors must disclose clear guidance to franchisees on employment matters and in particular minimum wages and conditions.
The recommendation follows a wave of underpayment scandals.
In recent times, the majority of audited 7/11 stores were found to be underpaying staff; 76% of Caltex stores were not complying with minimum wage requirements – and recordkeeping was found to be so poor that complete backpay calculations could not be made; Domino’s culture of wage underpayment, including illegal sale of sponsorships of migrant workers for as much as $150,000, was exposed; and an array of restaurants associated with celebrity chefs were revealed to be serving up sides of wage theft.
Just last month, Muffin Break’s General Manager Natalie Brennan complained to News Corp there was “nobody walking in my door asking for an internship, work experience of unpaid work”.
Ms Brennan’s comments follow reports from a Muffin Break franchisee who said he was encouraged to underpay ‘trusted’ staff.
IEUA-QNT Assistant Secretary Brad Hayes said the report findings highlighted an exploitative culture of wage theft that has been allowed to continue for far too long.
“Clearly existing legislative protections are not going far enough to shield workers from insidious instances of wage theft,” Mr Hayes said.
“Each time such a case is uncovered, our movement must highlight shameful employer activity – not only to tell them that such action will not be tolerated but to reiterate to workers the value and importance of being part of their union.”
Mr Hayes said the national union-led Change The Rules campaign was a driving force to improve our industrial rules.
“Our union is strongly engaged with the Change The Rules campaign; our members are fighting for the right of all workers to avoid exploitation in their work and to have access to a secure job with fair pay.”
Franchisees claim misleading conduct of franchisors
In addition to the hardships faced by workers under exploitative franchises, franchisees claim inflated sales figures and misrepresentations are being used to induce them to buy failing stores.
Particular concerns were raised over ‘churn and burn’ business models. In one example, Retail Food Group (RFG) which owns Brumby’s Bakery, Gloria Jeans, Donut King and Michel’s Patisserie opened 1,000 franchises and closed 1,100 over a seven year period.
RFG franchisee Wing Chan invested his $600,000 retirement savings into two Michel’s Patisserie stores but was forced to essentially work for free for seven years before the investment collapsed. Mr Chan told the Sydney Morning Herald he is still being pursued financially by RFG and its suppliers.
RFG received particular criticism from the joint parliamentary committee with the report recommending the Australian Competition and Consumer Commission (ACCC), the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) investigate RFG for potential insider trading, tax evasion, quality of audit, directors' duties and continuous disclosure.
The report broadly calls for greater regulation of the sector, increased penalties and an overhaul of the franchising code.
To read a copy of the report, visit the joint parliamentary committee website.