How does wage theft occur in franchising?

The $170-billion franchising industry has been exposed in a series of media investigations as a hotbed of wage underpayment,or wage theft.

Companies including convenience store giant 7-Eleven,Caltex,Domino’s Pizza,Pizza Hut,Retail Food Group – which includes brands such as Brumby’s,Michel’s Patisserie and Donut King – and bubble tea operator Chatime have all been caught underpaying workers.

Franchise business models are characterised by high fees and royalties that can add up to 10 per cent or more of sales,draconian refurbishment costs and policies that include having to source products from the franchisor at prices that are sometimes more expensive than if bought elsewhere. RFG was recently caught selling full-price cakes to franchisees that were near or past their use-by date.

These models pour money into the franchisor’s pockets,but push franchisees to cut corners – including ripping off workers to remain afloat.

To reduce the risk of being caught,the franchisees largely employ foreign workers on visas. These overseas workers often don’t understand their rights or are too afraid to speak up for fear of being deported. The franchising sector employs more than 500,000 workers and accounts for almost 8.9 per cent of GDP.

It has added up to a huge problem,not just in terms of the undermining of the labour market with wages as low as $8 or $10 an hour in cash but the number of franchisees left destitute,having bought the dream of running their own business.

A series of inquiries has resulted in recommendations to clean up franchising and worker exploitation but they are yet to be implemented.

See Adele Ferguson's original 7-Eleven investigation here.

What do farms have to do with wage theft?

No industry in Australia has worse labour conditions – or more flagrant breaking of labour laws – than Australia’s farms. Farmers are pressured over prices by the supermarket duopoly,workers have little bargaining power and Australia’s visa system is ripe for exploitation.

Only in recent years has there been a real attempt to organise farm workers through the United Workers Union.

The results have been dramatic with dozens of cases emerging of workers paid a pittance and of them being abused (and even assaulted) by unregulated middlemen. Workers from Vanuatu,for example,were being paid as little as $8 an hour on a Shepparton tomato farm and exposed to a chemical stench that led to nose bleeds,The Age revealed in 2018.

There have been changes to the law by the Coalition to increase penalties for employers that exploit vulnerable workers. But the problems persist.

The Victorian Farmers Federation and the UWU want visa reform so workers from countries such as Malaysia can have a way to work here legally and to be paid award wages.

Why do we hear about wage theft in hospitality so often?

Hospitality is almost entirely un-unionised (although that is changing a little) and many workers are backpackers,students or young people.

The workplace regulator,the Fair Work Ombudsman,is unable (through lack of resourcing or will) to make much of a difference.

The Ombudsman’s surveys have regularly shown around half of all hospitality businesses are non-compliant with labour laws. There are a variety of rorts.

In restaurants,these often involve full-time staff being paid just above the award wage but being required to do excessive unpaid overtime. That can push the actual wage down to $15 an hour. That has occurred most graphically at high-end restaurants whereThe Sunday Age has exposed some of the biggest names in the industry.

They include Neil Perry,Heston Blumenthal,the restaurant empire behind Chin Chin,Teage Ezard,Shane Delia,and Guillaume Brahimi. Then,of course,there is now former MasterChef star George Calombaris,whose business collapsed in early 2020 after a consumer boycott.

Elsewhere,the rorts can involve being paid cash in hand or being paid a flat rate without legal penalty rates,which is commonplace.

The problem is so endemic any change will necessarily be slow and painful.

A greater role for unions to inspect books,a stronger Ombudsman and visa reform would be a start,as would the ability to more easily make legal claims for underpayment – at the moment it is often too costly to make it worthwhile.

How are supermarkets involved in wage theft?

One of the biggest underpayment scandals was,on the face of it,perfectly lawful and went on for many years with the complicity of a major union.

An investigation byThe Age andThe Sydney Morning Herald in 2015-16 found that some of Australia’s biggest companies,in deals with the shop assistants union,had struck deals that traded away penalty rates and other conditions with only small increases in hourly rates.

The dividend for the union was that the employer encouraged union membership,which gave them wealth and power in the Labor party’s internal forums.

It is estimated that at least 250,000 workers were underpaid from the deals struck between big business and the Shop,Distributive&Allied Employees Association.

The deals were (incorrectly) approved by the Fair Work Commission despite a legal requirement they only approve agreements that pass the “better off overall test” (BOOT),which is designed to ensure no worker is paid less than the minimum rates of the award.

In 2016,the full bench of the Fair Work Commission found that a deal involving Coles and the SDA failed the BOOT.

As a result of the Coles decision,employers such as Woolworths,Domino’s and KFC have had no choice but to strike deals that pay workers much higher rates.McDonald’s has also been required to pay full penalty rates.

Greens MP Adam Bandt has proposed amendments to the Fair Work Act to tighten the BOOT and to ensure there would be no repeat.