Learning’s From The 7 Eleven Franchise Scandal
The convenience chain 7-Eleven franchisee employee wage scandal arguably rocked the franchising industry when it was brought to light and continues to have material implications on the franchising industry. As a result of the media investigation that very publicly brought to light that numerous Australian franchisees within the 7-Eleven chain were underpaying their workers, members of the Franchisor team have left and certain franchisees have had their Franchise Agreements terminated. Furthermore, various of the Franchisor’s ownership and management team were called before a Senate inquiry, who have now released a final report, “A National Disgrace: The Exploitation of Temporary Work Visa Holders”.
This report has made 33 recommendations including that the Franchising Code of Conduct, (being the main law impacting franchising in Australia), be reviewed to determine whether the Franchising Code of Conduct should be amended to include provisions that would effectively result in Franchisors having some responsibility and/or liability where their Franchisees breach certain workplace laws, as well as granting Franchisors clear rights to terminate a Franchisee’s Franchise Agreements without notice where the Franchisor has reasonable grounds to believe that there have been serious contraventions by a Franchisee of the Fair Work Act.
While over the next few months we will learn more about how the Federal Government intends to deal with the recommendations, in the interim, if Franchisors have not already, they should be immediately conducting their own risk audit into whether this is a situation they could find themselves and the practices, policies and systems that should be in place to prevent such a situation occurring, and managing it if it does occur.
While care needs to be taken in the balance between how involved Franchisors get in their Franchisees’ business, given the importance of this issue and the fall out that can result, many Franchisors seem to have sought to ensure they have policies and processes in place to ensure that the Franchisor, Franchisees and their staff are educated and made aware of their obligations and rights, with a complaint process to deal with matters at their initial stages.
This is also a timely reminder that Franchisors should have in place crisis management strategies in the event of any legal or media scandal whether or not the Franchisor was involved. This is given that often when a scandal happens to a franchise system, even if only one Franchisee is involved, it can brandish other Franchisees or the network as a whole. How a Franchisor reacts or fail to reacts can cause immense damage on the brand and the franchisee network overall.
Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.