Amid a week of seemingly apocalyptic market corrections, American business stalwart 7-Eleven is facing the beginnings of a perfect storm. Australian investigative journalists have uncovered a culture of wage cheating and false reporting that have been described as “little different from slave labor.” Apart from the joint investigation by Fairfax Media and Four Corners, 7-Eleven is facing the much more serious problem of being subjected to an inquiry by the Australian Competition and Consumer Commission (ACCC). Comments made to the ABC by former ACCC commissioner Alan Fels are not going to be encouraging for the retail giant.
“My impression, my strong impression, is that the only way a franchisee can make a go of it in most cases is by underpaying workers, by illegal behaviour.”
The Australian Financial Review reports that 7-Eleven is now in “panic mode.” In a drastic and seemingly desperate move, 7-Eleven’s head office has initiated a nationwide buyout, offering to buy back any business from franchisees who are either unhappy with the model or unable to sustain it. The effects of this could be enormous. There are close to 700 7-Elevens in Australia, some of them priced at up to $1.7 million dollars, which means that the buyback could potentially represent a hit of hundreds of millions of dollars. The scandal means that current 7-Eleven franchisees, most of whom are struggling to break even in spite of widespread and flagrant labor fraud, will be operating under the microscope, further adding to their woes. This makes mass uptake of the proffered buyout much more likely. And, as with any market, a significant dump of franchises on the market is going to de-value those franchises, with obvious ripple effects for 7-Eleven America.
The allegations of labor fraud were broken by a joint investigation launched by Fairfax Media and Australian Four Corners. During this, they were able to gain access to a 7-Eleven “insider”, who spilled details of wage and labor fraud on a breathtaking scale. According the insider, some stores were reporting payroll figures so low that the only possible scenario in which they could be true would be one in which franchisees were working “a million hours a week.”
When Fairfax and Four Corners informed 7-Eleven of their investigation, head office reacted spectacularly, first attempting to place all blame on the franchisees and then announcing a comprehensive internal inquiry to be chaired by an “eminent Australian.” The attempt to blame the franchisees, many of who would rate as small business owners, caused widespread outrage. This toxification of their relationship with 7-Eleven’s HQ makes the possibility of a mass buyout much more likely. And as if two external and one internal investigation weren’t enough, Levitt-Robinson Solicitors, a significant Australian law firm, is preparing a class action against both 7-Eleven Australia and 7-Eleven America.
With serious questions being asked about the degree to which 7-Eleven’s head office management were complicit in wage fraud and false reporting, and the possibility of hundreds of millions of dollars being haemorrhaged in the buyout and even more in future lawsuits, 7-Eleven is looking like a distinctly shaky investment at the moment. While Australia might seem remote, it has some of the fiercest wage and labor protection laws in the world, and a history of hitting companies that flout them very, very hard indeed.
[Picture via Getty Images]