Investigating 7-11 Wage Fraud

We’ve all been in 7-Eleven stores from time to time and have noticed many of the workers are foreigners. But, have you ever thought about the working conditions they have to endure?

Over the years workers have revealed the systemic wage abuse they suffer at 7-11 stores.  7-Eleven's payroll system up until a few years ago allowed franchisees to pay whatever rate they liked even if it was below the legal minimum; it was learned at a hearing of the Australian Senate in Melbourne.

The explosive admission was made as 7-11 founder Russ Withers and other executives at the company admitted that wage exploitation at 7-Eleven's stores was "widespread". "I can certainly say that the level of underpayment [exists], we've certainly been blindsided you can say. I was not aware it was as significant as it appears in the evidence," Withers told the Senate hearing.

Responding to questions from Senator Deborah O'Neill, 7-11 chief executive Warren Wilmot admitted that 7-11 previously used an ad hoc payment system under which 7-11 would pay whatever pay rate the franchisee had nominated regardless of whether or not it was below the legal minimum.

"Yes, I think that was a gap in the system," said Wilmot, who was head of operations between 1996 and 2002. It was no longer the case, he said. He “thinks” it was a gap. My goodness, talk about ethical blindness. To care so little for one’s workers is the height of corporate irresponsibility

7-Eleven general manager operations Natalie Dalbo told the hearing that the head office had issued 159 breach notices for payroll non-compliance in the past month following internal reviews conducted in the wake of the media investigation reports on the company.

Dalbo said total cost of payroll across the 536 stores that use the company's centralized payroll system had increased 16 per cent in recent weeks. [I wonder why]. Total wages paid per week for the 536 stores across Australia jumped to $2.248 million as of last week compared to $1.845m for a week in June.

If it’s happening in Australia and the UK, you can bet it’s happening in the U.S. This may be a case of a company taking advantage of foreign labor, perhaps even illegal foreign workers (at least that’s probable in the U.S.). This may be a perfect example of why so many Americans can’t find work.

In the hearing in Melbourne it was discovered some workers get as little as $5 per hour. When I look at the hourly pay at 7-11 stores in the US it seems to me those folks get paid very little. A sales associate gets $7-$12 per hour; cashier $8.00-$14.00; assistant manager gets $9-$13 with the average being $11.02. That means an assistant manager earns about $22,880. That is pathetic. Who can live on such an annual salary?

Earlier in the Senate hearing, a 7-11 worker who was ripped off by his former boss says the handling of his case by the Fair Work Ombudsman and the Department of Employment caused him incredible emotional stress.

Former worker Mohamed Ullat Thodi said he warned Fair Work that the 7-11 franchisees he was working for were allegedly hiding assets to avoid paying him and other workers compensation. "I lost my job, I lost my pay and I lost my money – after nine years I still haven't been paid," Thodi said.

Business and consumer relationships advocate Michael Fraser told the hearing he was confident head office was complicit in the mass underpayment of staff. In a submission to the Senate inquiry, Fraser says he first alerted 7-11 head office to wage fraud in December 2012 and that situation must have been known at the highest levels. "Something so widespread that has been going on for decades could only have continued with head office support and turning a blind eye at the very top, all the way to the chief executive and the chairman.”

"This is a culture within head office. This is something that starts at the top and if the culture is bad all the way to the top then there's nothing the top can do to change it. I think there needs to be a change in management and a change in ownership," Fraser said. 

The culture of a company sets the tone for its employees and should provide an ethical roadmap to encourage responsible behavior. Clearly the ethical tone at 7-11 is the lack of internal controls over wage payment issues and, it appears, a disregard for whether the employees of 7-11 were getting a fair wage.

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on October 1, 2015. Professor Mintz teaches in the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.ethicssage.com.