Daily Bulletin


The Conversation

  • Written by The Conversation
imageFranchisors like 7-Eleven cannot hide behind plausible deniability.Tim Wimborne/Reuters

The systematic exploitation and non-compliance with legal obligations highlighted by this week’s Four Corners program is not typical across all franchises.

While a recent enforcement campaign by the Fair Work Ombudsman suggested 60% of 7-Eleven outlets engaged in non-compliant practices such as staff underpayment, its campaigns in other heavily franchised industries such as hospitality typically report non-compliance by around 30% of employers.

Still, even that is a worrying level of non-compliance. There is a structural aspect of the franchise model that encourages this.

The 7-Eleven business model in Australia requires 57% of gross profit to be returned to the franchisor head office. This week’s report argued this makes doing business legally almost impossible.

International students bear the consequences. Many are trapped by practices such as the “half-pay scam” where employees are paid for only half the number of hours worked each week (in effect, working for only half the hourly award rate), under threat of having their visa cancelled if they disclose.

A matter of accountability

We recently studied the limited existing research on management of industrial relations (IR) in franchises. We found that diverse accountability of franchisors (head offices) and franchisees (outlets) explained differences between franchisor control over products and their control over labour processes.

On one hand, the franchisor is accountable to the customer for ensuring quality of the product. If the customer is unhappy with the product (say, a coffee) from any individual outlet, they may stop buying from that or any other outlet in that franchise. So typically, franchisors tightly direct and audit product-related processes, such as those applying to suppliers and health regulations.

On the other hand, the franchisor is not accountable to outlet employees. It’s the franchisee who is accountable for ensuring compliance with legal obligations. So the outlet owners, not head office, are investigated and fined for indiscretions.

This suits the franchisors quite well. They can mix the benefits of large businesses’ access to markets, marketing, pricing and control, with the low labour costs (not always legitimately) of small businesses. If breaches are found, they can say “it is extremely disappointing that franchisees have chosen to not meet their employer obligations”. It provides plausible deniability.

This is not to deny that franchisors often support franchisees. Some audit behaviour, provide seminars and workshops, develop wage determination tools and respond to queries from franchisees and their employees. But their involvement varies, partly because franchisors may fear misinformation about pay or penalty rates could shift liability onto themselves.

Who doesn’t comply with their obligations?

Generally, we know that small businesses are more likely than large businesses to breach labour standards, pay lower wages and to have no human resource management or union presence.

While most franchise outlets can be classified as a small business, they do not operate independently. They are influenced and controlled by a larger head office organisation.

A US report by David Weil conducted from 2012 suggested franchised businesses had better industrial relations compliance rates than comparable independent small businesses. Yes, support from franchisors makes a difference.

While Australia doesn’t have research of the same standard, a 2010 report by the Fair Work Ombudsman found employers that received industrial relations support from their franchisor were more likely to abide by the law than other employers. Large and small franchises offered different levels of support. As franchises mature, franchisor control over key processes in outlets tends to increase. But this doesn’t always extend to IR.

Franchisor involvement

Just as large, well-established organisations normally show high franchisor control, so did 7-Eleven. It reportedly even centrally maintained the temperature of individual outlets. The company’s statement of August 13 said it conducted audits of outlets. However, the high rates of franchisee non-compliance reported by the Fair Work Ombudsman raises doubts about how deeply these audits dug into employment practices.

The 7-Eleven statement said if employees contacted head office with concerns of non-compliance, they were advised to speak to their employer or the Fair Work Ombudsman. For vulnerable international students, caught in the trap of working more than their maximum allowable hours but not being adequately paid for them, that’s not very helpful.

The scale of the breaches, a recording of a franchise agent saying “nobody pays their staff full wage, man”, and revelations from within, all make plausible deniability implausible.

The response by 7-Eleven to the unfolding saga among franchisees is also unlikely to be helpful for the company’s reputation, which could well suffer lasting damage.

Other franchisors are likely to ask themselves, “are we vulnerable, too?” A business model based on diverse accountabilities and plausible deniability may not be sustainable. This is particularly so if the firms do not give the same attention to ensuring compliance with awards and legal agreements as they give to making sure the coffee machines and muffins are up to scratch.

Adrian Wilkinson receives funding from the ARC

As a university employee, David Peetz has undertaken research over many years with occasional financial support from the Australian Research Council, governments or government organisations organisations from both sides of politics in Australia and overseas, employers and unions for specific projects. Those funded projects do not concern the subject matter of this article.

Keith Townsend receives funding from the Australian Reseach Council and various state government departments throughout Australia.

Ashlea Kellner does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Authors: The Conversation

Read more http://theconversation.com/why-franchises-care-more-about-their-coffee-than-their-people-46948

Writers Wanted

How To Find The Right Emergency Plumber Lismore

arrow_forward

Delivery rider deaths highlight need to make streets safer for everyone

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Ben Fordham, 2GB

BEN FORDHAM: Scott Morrison, good morning to you.    PRIME MINISTER: Good morning, Ben. How are you?    FORDHAM: Good. How many days have you got to go?   PRIME MINISTER: I've got another we...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Kieran Gilbert, Sky News

KIERAN GILBERT: Kieran Gilbert here with you and the Prime Minister joins me. Prime Minister, thanks so much for your time.  PRIME MINISTER: G'day Kieran.  GILBERT: An assumption a vaccine is ...

Daily Bulletin - avatar Daily Bulletin

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Business News

Nisbets’ Collab with The Lobby is Showing the Sexy Side of Hospitality Supply

Hospitality supply services might not immediately make you think ‘sexy’. But when a barkeep in a moodily lit bar holds up the perfectly formed juniper gin balloon or catches the light in the edg...

The Atticism - avatar The Atticism

Buy Instagram Followers And Likes Now

Do you like to buy followers on Instagram? Just give a simple Google search on the internet, and there will be an abounding of seeking outcomes full of businesses offering such services. But, th...

News Co - avatar News Co

Cybersecurity data means nothing to business leaders without context

Top business leaders are starting to realise the widespread impact a cyberattack can have on a business. Unfortunately, according to a study by Forrester Consulting commissioned by Tenable, some...

Scott McKinnel, ANZ Country Manager, Tenable - avatar Scott McKinnel, ANZ Country Manager, Tenable



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion