Australia's 7-Eleven scandal
has wider implications
by Simon Lord
last updated 17/09/2015
Australia's 7-Eleven employment scandal is starting to raise wider questions about the roles and responsibilities of franchisors and master franchisees
The investigation into employment practices among 7-Eleven franchisees in Australia (see ‘A Sweatshop on every corner’) has caused massive damage to the brand, but how far can a franchisor be held responsible for its franchisees' actions? In this case, it's clear the franchisor had been aware of issues with some franchisees for over a year, but it's also clear that it was advising franchisees of their obligations under both the law and the franchise agreement, and was requiring that the issues be addressed. 7-Eleven has appointed Allan Fels, the former head of the ACCC, to head an investigation supported by a team of forensic accountants from Deloitte.
Now it seems that the US parent company may also be caught up in a class action with lawyer Stewart Levitt telling the Sydney Morning Herald he believed 7-Eleven Australia was acting as an agent for its American parent.
‘… that means that in my view we could probably take this all the way to the States and we can hold them accountable for American activity on Australian soil,’ Mr Levitt said.
If Mr Levitt is successful, the implications for any company operating in Australia via a master franchise or master licence agreement could be considerable.
Does the franchisor have a moral responsibility?
Professor Lorelle Frazer, who is director of the Franchising Centre at Griffith University in Brisbane, has also written an interesting article on the scandal questioning whether franchisors have a moral obligation to go beyond the minimum legal requirements and show leadership in setting the direction and culture for franchisees. While accepting that many franchisors do exactly that, she suggests that when things go wrong at the franchisee level, it is easy for the franchisor to say that legally, ‘It’s not my problem’ – but it most definitely is their problem in terms of public perception of their business and brand, and also on franchisee and staff recruitment and retention.
‘The question of the moral obligation exhibited by franchisors stems back to how they view their corporate responsibility, and if the core values of their business extends beyond profits to care for the workplace and personal well-being of everyone involved with the organisation,’ she writes, and notes that the Australian Fair Work Ombudsman has said it expects franchisors to take more responsibility and pay greater attention to workplace compliance by their franchisees.
‘It is also worth noting that the Fair Work Ombudsman (FWO) encourages Proactive Compliance Deeds for businesses to better understand and comply with workplace laws, and to avoid more adversarial measures such as litigation. There is no legal requirement to undertake these deeds, but businesses benefit from improved training, systems, communication, self-auditing and self-resolution and set the standards of best practice for their franchisees and their staff to observe and follow.’
‘A number of franchise groups – including Retail Zoo, Dominos, McDonald’s and Red Rooster – have signed up to this programme, showing there is scope in franchising to go beyond what is legally required by demonstrating a moral obligation to promoting ethical corporate behaviour and being an employer of choice.’
'Law breakers are law breakers'
But her article has drawn fire from commenters, including an impassioned Richard Evans, a strategist/consultant and former Executive Director of the Franchise Council of Australia. He writes, ‘In all franchise agreements there is a clause which states franchisees must abide to all laws associated with business within Australian law. There is no clause that states a franchisee should mistreat their staff through poor compliance to Australian law.’
‘Whose responsibility is it then for franchisees to understand Australian law and their requirements? It could be argued the franchisor has a responsibility to ensure a franchisee understands the law, but given the franchisee is not required to provide a disclosure document on capability, background and financial position it is then difficult for the franchisor to control such matters.’
‘Conversely, is it the government’s responsibility, perhaps it is the franchisee financiers' responsibility, or maybe it is the FWO’s responsibility?; for surely, they too have a moral obligation to ensure employees are paid under the laws of Australia. Yet, it seems Professor Fraser thinks the franchisor has this responsibility solely within the franchise model.’
‘What is wrong with small business owners complying with the law? What is wrong with franchisees complying with their franchise agreement? Can they not educate themselves about their responsibilities? Too often these issues come back to the franchisor’s responsibility and the franchise laws are then often amended to add further to the compliance burden of the franchisor; these legal and Code amendments are often advocated by many folks who have little understanding of the franchise business model, the franchise agreement and the responsibilities of franchisees, and even the challenge of small business.’
‘Law breakers are law breakers be they franchisors or franchisees, and they should never be given any credibility by pointing a moral accusing finger at some one else.’ Read more comments by scrolling down here.
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