There may be no more serious breach of ethics than a franchisee paying their employee full salary and then demanding a percentage of it paid back to them in the form of cash. Such a cash kickback scheme is not only a crime, and in violation of a number of laws, it now has also been determined by an Australian court to be grounds for the franchisor to terminate the franchise agreement and reacquire the franchise store.

Over a year ago, franchise giant 7-Eleven became aware of a situation where low-income employees of the franchisees, mostly immigrants, were being paid fair, legal wages only to be required to pay back a large portion of their income to their boss, usually the manager or owner of the 7-Eleven franchise and often an immigrant himself. When alerted of this crime, the Australian government threatened the entire franchise industry with tough sanctions that would hold franchisors responsible for the franchisee’s employee wage crimes by declaring that the franchisor and franchisee were “joint employers.” In response to government promises to crack down, 7-Eleven took it upon themselves to self-police franchisees and have begun auditing franchisees to investigate the allegations made by employees of such a cash kickback scheme taking place. In instances where employee wage fraud has been found, 7-Eleven is terminating the franchise agreement and reacquiring the franchise. Such action was challenged by a 7-Eleven franchisee accused by the franchisor of shaking down employees for cash kick backs in court which upheld 7-Eleven’s position that the company was within its contractual rights to terminate the franchise agreement and retake possession of the store.

The court found in favor of 7-Eleven in no small part because of the due diligence the company performed in obtaining sworn and detailed affidavits from employees that accuse their franchisees of the unlawful behavior. Such detailed evidence supported the company’s acquisition of franchise stores which held up in a court.

Critics of 7-Eleven’s voluntary policing of franchisees argue that the company’s program of auditing and reacquiring stores does not go far enough to protect workers who have been financially extorted with threats of deportation and physical harm to their families back in their country of origin. Emboldened by the employees at 7-Eleven that have come forth with sworn affidavits, other employees at franchise giants such as: Domino’s Pizza, Caltex, Woolworth, and many others have come forth with similar claims of wage and visa abuse. With affected employees numbering in the thousands and growing every week, the franchise business model itself is under fire as encouraging franchise owners that have no choice but to underpay workers or face bankruptcy. This at a time when franchisor profits and stock prices are at record levels makes it difficult not to encourage new legislation to protect franchisees and their workers from franchise agreements that are lopsided in favor of franchisors.

Sources:
http://www.mondaq.com/australia/x/617980/Franchising/Franchisee+wage+fraud+7Eleven+vindicated+in+NSW+Supreme+Court+case