Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Education and Employment References Committee
24/09/2015
Australia's temporary work visa programs

DALBO, Ms Natalie, General Manager Operations, 7-Eleven Stores Pty Ltd

WILMOT, Mr Warren, Chief Executive Officer, 7-Eleven Stores Pty Ltd

WITHERS, Mr Russell, Chairman, 7-Eleven Stores Pty Ltd

[14:19]

CHAIR: I now welcome Ms Natalie Dalbo, Mr Russell Withers and Mr Warren Wilmot from 7-Eleven. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I invite you to make a short opening statement of no more than a few minutes. At the conclusion of your remarks, I will invite members of the committee to put questions to you. Do you have any comments to make on the capacity in which you appear?

Mr Withers : I am a joint shareholder in the company. I do have a brief opening statement to make.

CHAIR: Thank you, Mr Withers.

Mr Withers : It is clear that a number of 7-Eleven franchisees have underpaid their staff. 7-Eleven Stores Pty Ltd does not, in any way, condone this practice. It is a breach of the franchise agreement not to comply with any law, including labour laws. Underpayment of staff by franchisees in no way benefits 7-Eleven Stores Pty Ltd. The reputational damage that has been caused to the brand and the company by this practice has been considerable. I stress that this has been highly embarrassing and I apologise, unreservedly, to any worker who has worked in a 7-Eleven store and has not been paid correctly. Australia has a wage system that 7-Eleven and its franchisees must and will honour. We have recognised that there is a problem. My company will fix it and we will do everything in our power to make sure that this does not happen again.

By way of background, in 1976 I signed a licence agreement with 7-Eleven in the United States to bring 7-Eleven to Australia. The first stores opened in 1977 and there are now 620 7-Eleven stores in Australia. My company offers a full-service business franchisee to independent business people. There are currently 458 7-Eleven franchisees, all operating under their own company structure.

The franchise agreement works on a split of merchandise gross profit, giving both the franchisor and the franchisee a common goal of gross profit dollars within the store. 7-Eleven's 57 per cent share of the gross profit goes to pay for the rent or the provision of the store, the equipment in the store, the maintenance of buildings, premises and equipment, the cost of utilities—that is, power—and advertising. We provide a bookkeeping service and an optional payroll service that relies on information provided by the franchisee.

Financial statements are provided on a monthly basis, right down to the balance sheet for franchisees. The franchise agreement establishes that the franchisee is an independent contractor and, from the franchisee share of gross profit, the franchisee is responsible for hiring and remunerating all staff in the store. The franchisee also meets other expenses, such as telephone, janitorial costs and supply items, such as paper bags. The balance is then the franchisee's net income.

The extent of the practice of underpayment has been very difficult to determine, as the offending franchisees have falsified records and underpaid staff and the underpaid staff have failed to come forward. However, we have been honest, open and collaborative with the Fair Work Ombudsman in its investigation of franchisees. I note that the Fair Work Ombudsman investigates individual franchise businesses who are the employees not 7-Eleven Stores Pty Ltd.

In 2014 the FWO conducted 20 audits on 7-Eleven stores in Melbourne, Sydney and Brisbane. A year later one franchisee has entered into an enforceable undertaking and one is defending a prosecution. These audits did trigger our company to take further action. In the absence of results from the FWO, in May of this year, 7-Eleven increased its own audit of payroll records of franchisees. With our findings, we immediately and significantly improved our systems, our monitoring and detection.

The Four Corners program claimed massive wage fraud being covered up by 7-Eleven head office, and I can assure you that there is no such cover up. We believe that any underpayment of workers—whether it is 7-Eleven or any other place—is wrong and cannot be condoned. My company recognises that there is a problem and we are doing everything we can to fix it. We have established an independent panel—chaired by Professor Allan Fels with Dr David Cousins, supported by a secretariat independent of 7-Eleven—to receive, process and adjudicate on any claims of short payment by franchisee staff. 7-Eleven Stores Pty Ltd, my company, will settle those claims promptly and without further investigation. There is no time limit and there are no statutes of limitation on claims. The panel's work is confidential. A hotline and a website are in place. Advertising has commenced. We have directly contacted nearly 5,000 people employed by franchisees and provided details of the panel.

In addition to the panel, we have commissioned our internal auditors, EY, to design a system to bring in measures, including that all franchisees must be paid through the 7-Eleven payroll system, biometric sign-on sign-off for all staff, weekly signed acknowledgement by the employee that the pay is correct and that the numbers of hours worked is correct. Whistleblower hotline details are available, weekly monitoring of payroll compliance will be made by 7-Eleven district managers and random external audits will be conducted by EY. Where proven, immediate termination of the franchise will occur for any intentional underpayment of franchise staff.

It would be easy for us to say that this is the responsibility of the offending franchisees but the reality is, whatever the extent of the problem, this has happened on our watch and we want to make it right. The 7-Eleven system does not rely on the underpayment of franchise staff in order to be viable. Thirty-eight years of successful operation as a franchisee, in Australia, in the convenience store business should reinforce this. As I said earlier, I am joined by my CEO and general manager of operations and I would be pleased to take your questions.

CHAIR: You said in your opening statement that there are a number of stores, which would seem to indicate that a few stores were engaging in wage fraud. Exactly how many stores were found to be engaging in wage fraud or to have payroll irregularities over the past three months?

Mr Withers : It is very difficult to determine the number of underpayment offences that have occurred, because the franchisee has returned to us information on their payrolls that includes the employee and the hours worked. That is what, in turn, has been paid through our payroll system. It is, simply, not in our knowledge to know whether the franchisee employee has been underpaid or not.

CHAIR: You have put together a panel. You have had the Fair Work Ombudsman uncover irregularities in the past. You are here today and you cannot tell us the number of stores where wage fraud has occurred.

Mr Withers : No, I cannot. With the information I have been provided, to this day, I do not know the extent of the problem. It is in the hands of the franchisees. We have certain information. We have been fully cooperating with the Fair Work Ombudsman but I cannot tell you, and I do not have the information that says there are any number of stores. What the independent panel has determined is that they so far have, I think, 250 claims before them. There are nearly 5,000 employees in the system. I am not, for a minute, suggesting that is the limit of the problem, by any means. We are concerned about it. We do not condone it. But what I am going to say to you is: we will make it right.

CHAIR: Of those 250 workers who have put forward claims, presumably to the panel, how many stores are they across?

Mr Withers : I do not have that information.

CHAIR: Are you able to get that information?

Mr Withers : That would be available from the independent panel, but we leave the independent panel independent and we do not seek to influence or—

CHAIR: Is that information available to the Senate committee?

Mr Withers : I would expect that the independent panel, under Professor Fels, would be happy to make that information available.

CHAIR: Is that a request that the Senate committee needs to make of Mr Fels or is it something you can pass on and make happen?

Mr Withers : I would think it would be appropriate if the committee made the inquiry of Professor Fels, but I am more than happy to express your desire to get those figures.

CHAIR: You said that the work of the panel is confidential. Does that mean it is confidential to this Senate inquiry?

Mr Withers : I do not know how the Senate inquiries are structured. Obviously, if there are legal requirements for the panel to impart information, they would be obligated to do that.

CHAIR: So how does the confidentiality apply to the panel? What do you mean by that?

Mr Withers : The name of the applicant—somebody who is putting in a claim—is kept confidential.

CHAIR: Is the panel going to produce a report at the end of the process?

Mr Withers : Yes, a part of the terms of reference is that the report would be made public. Obviously the names of the individual claimants would not be made public, but the broad numbers certainly would.

CHAIR: You said in your opening statement that this has done reputational damage to 7-Eleven, and I am sure it has. I am very anxious going into the stores myself, hoping that the worker that is serving me is not being ripped off. Given that it is your business—one that you have had since 1976—if that were me, I would have gone out and started to ask the question of how many stores were underpaying workers. I just find it extraordinary that you are not able to tell us today, of your 620 stores, how many you think are not paying workers correctly?

Mr Withers : Let me defer to Ms Dalbo on that matter.

Ms Dalbo : We are undertaking an audit of all 620 stores. We are at 505 stores complete as of yesterday, and once we have completed those audits and the investigations on those findings, then we will have an idea of the extent. What we measure for is payroll noncompliance. A finding of payroll noncompliance without further investigation in and of itself is not a finding of wage fraud. So we need to be really clear in our articulation of the results of those surveys, about whether the issues are administrative or whether there is evidence that supports and substantiates that an underpayment has occurred. That process is ongoing and is due to be completed in the next 30 days.

CHAIR: How much payroll noncompliance have you found to date?

Ms Dalbo : In terms of the 505 stores?

CHAIR: Yes.

Ms Dalbo : I do not have the results of those surveys. The results are due in a month. There are individual store surveys—

CHAIR: Who is undertaking the survey?

Ms Dalbo : Our internal audit team. We have a team of retail specialists that conduct those audits.

CHAIR: Do you have an idea?

Ms Dalbo : I would be guessing if I estimated an idea. I would prefer to take it on notice and provide the results when we have got them.

CHAIR: Don't you find it extraordinary? You are here today before a Senate inquiry. You have been the subject of a Four Corners report. We have heard evidence after evidence today of workers being substantially underpaid. In fact, the union gave evidence this morning that a worker was receiving as little as $6.85 and you come here today and you cannot give us any idea, across your 620 stores, of how many are engaged in payroll irregularities or noncompliance.

Mr Withers : It is a breach of the franchise agreement not to comply with a wage regulation, so the franchisee is not going to advise us, and the workers have not been coming forward, so this is the difficulty that we face. What we are now faced with is a way to prevent this, and this is the re-engineering of the payroll system, if you like, to make sure that it is absolutely watertight, or as watertight as possible, so that any employee of a franchisee is going to be paid the right rate for the correct number of hours worked.

CHAIR: Are you suggesting the franchisees are not telling you the truth? Is that what you are suggesting?

Mr Withers : That is correct, yes.

CHAIR: How many franchisees do you think are not telling you the truth?

Mr Withers : Again, I simply do not know. The information that they are providing us, we are taking on face value as being correct. As I said, it is a breach of the agreement, so they are not going to give us information that in turn is going to cause a termination of the franchise agreement.

CHAIR: Why then have you put a panel together? If they will not give information, what is the point of the panel?

Ms Dalbo : The panel hears claims from employees of the franchisees. So it is to provide a forum for workers who have been underpaid.

CHAIR: I think Mr Withers said there have been 250 to date.

Ms Dalbo : I think the exact number is 244 as of midday 23 September.

CHAIR: Do you know across how many stores?

Ms Dalbo : No, we do not. The panel has a reporting function back to 7-Eleven when they have assessed the claims and approved the claims, and our role is to then pay the claims. But I am sure the information is available from the panel.

CHAIR: Okay. We have heard evidence today from the Shop, Distributive and Allied Employees Association and from Mr Fraser, who, under evidence, has been touch with the three of you over the last couple of years, bringing to your attention this issue of underpayment. We have heard from the workers themselves. Every person that we have heard from this morning has told us there are systemic underpayment issues at 7-Eleven. Do you accept that?

Senator McKENZIE: Brisbane, Perth—

Mr Withers : I can certainly say that we have been blindsided by the level of underpayment. I was not aware that it was as significant as it appears to be in the evidence. But, again, that will be borne out by the number of people that we are going to repay any short-payment of wages to.

CHAIR: The other evidence we have heard today from those same witnesses is that the head office has been aware of the underpayments and has been aware that there is a systemic problem across the 7-Eleven franchisees in terms of the correct payment of wages.

Mr Withers : We have been certainly aware, going back to the Fair Work Ombudsman's—

Ms Dalbo : 2008-2009 audit.

Mr Withers : 2008-2010. But again, I think what we have done each time is responded to those with additional safeguards within the system. With 20/20 hindsight, that probably was not enough. But we were looking at it as being an isolated problem, not a systemic problem, and certainly the information that we had out of those audits did not indicate that it was a systemic problem.

CHAIR: Do you accept that it is a systemic problem now?

Ms Dalbo : We would accept that it is more widespread than we originally thought. The extent of it will be determined by the work being undertaken by the panel.

CHAIR: Then how widespread did you initially think it was?

Ms Dalbo : I think if we look through the timeline of audits that have been undertaken by the Fair Work Ombudsman, there was certainly an indication in 2009 that five stores had been found underpaying, through that audit process. At the time of those audits, we genuinely did not believe the practice was widespread, and we worked with the FWO to put in place the appropriate measures to ensure that our franchisees were educated on their responsibilities as employers, and that they were provided and afforded the correct compliance training to meet those obligations.

CHAIR: And so in 2009 and 2010?

Ms Dalbo : In 2009 there was a joint audit that was undertaken by 7-Eleven and the Fair Work Ombudsman. Again, there were 17 stores out of 56 that had recorded contraventions. Those contraventions varied from evidence of underpayment in some of those 17 stores, to paperwork and payslip contraventions as well. So again, of the 56 stores, there were 17 where there were findings, and we did put in place some increased focus on education and training, and that 2010 audit led to the introduction of what we call our 'retail review program', where we audited payroll compliance.

CHAIR: Allan Fels said on the Four Corners report that under the business model you are operating, because of the royalties and other charges that you charge back to franchisees, it is impossible to pay workers fairly. What do you say to that?

Mr Withers : Madam Chair, we have operated under this franchise system for 38 years. There have been 2,500 franchisees through the system, many of whom have built their lives coming to Australia and successfully franchising stores, and gone on and sent children through university, and then the children have gone and franchised stores. What I say is that it is a very viable system. Any franchisee that comes into the system is given information which gives the bottom third of franchisee financials, the middle third of franchisee financials and the top third of franchisee financials. All of the income and expense lines are detailed there. If they are taking any business loan, they go to a bank and they have to present their credentials, their business plan, their cash flows and their profits, in order to be able to get a bank loan. Whilst I respect Professor Fels enormously, I would submit that he really does not have the information to be able to make that judgement.

CHAIR: Have you signed off on renewals for stores that generate less than $310K gross income?

Ms Dalbo : When you say 'renewal', what do you mean?

CHAIR: A store renewal agreement.

Ms Dalbo : The renewal of a store agreement with a franchisee?

CHAIR: Yes.

Ms Dalbo : If the franchisee has requested a renewal at the expiration of the 10 years, then we would.

CHAIR: That generates less than $310K?

Ms Dalbo : We have some stores that do, and I think that has been reported and acknowledged. We have, however, always had an informal process of income support above and beyond what is included in the store agreement. What we did following the Four Corners story was formalise that to remove any doubt whatsoever about the capacity to pay the correct wages to employees of franchisees.

CHAIR: Is there a document you can table for the committee?

Ms Dalbo : In relation to?

CHAIR: You said the formalisation.

Ms Dalbo : Yes. We have communicated to our franchisees and made that commitment.

CHAIR: Is that something you can document?

Ms Dalbo : It is a memo to franchisees. I am happy to table it.

CHAIR: Prior to the announcement of your gross income guarantee of $310K per year, what was the guarantee?

Ms Dalbo : It was $120,000.

CHAIR: How long had it been at the lower level?

Mr Wilmot : At least 23 years, because that is how long I have been there. But, as Ms Dalbo said, we have had an informal process for hardship cases to make sure we top that up.

CHAIR: Informal, but you have now formalised that?

Mr Wilmot : Absolutely.

CHAIR: How many times was the informal process invoked?

Mr Wilmot : We would have to table that as well.

Ms Dalbo : We did last year pay a million dollars in income support above and beyond what is required under the store agreements, so we are happy to provide that detail.

CHAIR: Obviously, in 23 years, there have been significant numbers of increases to the awards.

Ms Dalbo : Absolutely, and there has been a significant increase in the sales that are generated in stores and the gross income that is generated.

CHAIR: What is the cost of the panel to 7-Eleven?

Mr Withers : We are paying the fees of the panel and the fees of the independent secretariat, Deloitte.

CHAIR: How much are they?

Mr Withers : I do not know that I should be revealing Professor Fels's fees or Dr David Cousins's fees. I would imagine that they would be confidential.

CHAIR: The other fees?

Mr Withers : As with any auditor, Madam Chair, there is a list. It is a laundry list of many fees and charges. Suffice it to say that it will be a very expensive exercise for us.

CHAIR: More than $1 million?

Mr Withers : Yes.

CHAIR: More than $2 million?

Mr Withers : Depending on how many claims are processed.

Senator O'NEILL: Could I just continue with a couple of questions around that. What are the terms of engagement of Professor Allan Fels and his team? What contract have you signed with them, and what are the terms?

Mr Withers : The terms of engagement have been made public. I do not have them with me. I am happy to provide them.

Ms Dalbo : I do.

Mr Withers : Natalie apparently does have a copy of the terms of engagement. I am happy to table those.

Senator O'NEILL: If you can, that will be helpful. In terms of the communications with employees and with your franchisees, what have you advised them about their rights within this structure that you have set up?

Ms Dalbo : In relation to the panel?

Senator O'NEILL: Yes.

Ms Dalbo : We have communicated formally in writing and sent to the home address of every employee in the payroll system a letter detailing the panel's existence and the contact details for the panel and also referred to the Fair Work Ombudsman website for information on awards and salaries and our publicly listed statement on our website in relation to the terms of reference. Franchisees were also advised that that letter was being sent to every employee that is registered on our payroll system. We have a franchisee communication forum. We have talked about the existence of the panel with six representatives of that group, and we have discussed with them our obligation, which we have made public, to repay that money for successful claims.

Mr Withers : The panel has—

Senator O'NEILL: Have you contacted former employees?

Ms Dalbo : We have contacted the employees that we have on our employee maintenance system. We have also, I think, given permission to—

Senator O'NEILL: What does that mean? Is that current or past?

Ms Dalbo : They are employees that are in the system that have not been terminated by franchisees, both active and inactive. So, if you were added to our payroll system—

Senator O'NEILL: Could you undertake today to contact the past employees, because there are many of them who are coming forward to us?

Ms Dalbo : We do have a process internally for communication that comes to us directly, where we provide, via email or whatever other methodology we receive the query in, information in relation to the panel. We have posted the information on our Facebook page, and we have also asked for advertising of the information to happen through the panel at our expense to make sure that there is a broad recognition and awareness of the panel's existence and how you go about lodging a claim with the panel.

Mr Withers : The panel has established—

Senator O'NEILL: So are you committing today to—sorry, I want to ask the question—providing funds, full repayment of all wages in accordance with the legislation that was relevant at the time for all former employees who bring a claim?

Mr Withers : We are, and I am.

Senator O'NEILL: And no statute of limitations in terms of time?

Mr Withers : No, none.

Senator O'NEILL: And, if people have returned overseas, are they eligible to come and secure funds through this process?

Mr Withers : Yes, they are.

Senator O'NEILL: Without documentation, how will you be able to assess the validity of their claims?

Mr Withers : That is up to the panel to determine. They would clearly have to have some supporting evidence. We would provide—we have a liaison person within 7-Eleven who is liaising with the panel on providing information—any information that we have within our system.

Senator O'NEILL: Have you required Professor Fels to contact the Fair Work Ombudsman and advise immediately of sites in which they believe there may be breaches?

Mr Withers : I know that Professor Fels has been in contact with the Fair Work Ombudsman about the work. I am not aware of the agreement between FWO and the panel though.

Senator O'NEILL: Did you not make it one of your terms that Professor Fels should immediately advise the Fair Work Ombudsman of any breaches?

Mr Withers : The FWO have asked of us that any of our inquiries that have shown anomalies in the payroll system be provided to them, and we have done that.

Senator O'NEILL: With respect, Mr Withers, your system does not seem, from the report you have given us today, to be adequate. If Professor Fels is locating more sites, it would seem only right that he should immediately inform the Fair Work Ombudsman and encourage the franchisees then to abide by the law immediately.

Mr Withers : I would be more than happy for that to take place.

Mr Wilmot : Could I also add that I invited the Fair Work Ombudsman to actually be part of the panel, and that is when the coordination between Professor Fels and the Fair Work Ombudsman started.

CHAIR: Senator O'Neill, that was Mr Wilmot.

Senator O'NEILL: Have you communicated with the Department of Immigration and Border Protection?

Mr Withers : No, we have not.

Senator O'NEILL: Have you directed Professor Fels to secure amnesty for people coming forward to the panel?

Mr Withers : Professor Fels has made statements in a report, which was to the committee, with respect to that matter, requesting that an amnesty be provided.

Senator O'NEILL: One of the concerns that we have, given the evidence that we have received, is about how fearful people are of coming forward. You say you have 5,000 people on the system already, plus all your former employees. At this stage, is it 200 or 500 that have come forward?

Mr Withers : Two hundred and forty-four, I think, is the number so far.

Senator O'NEILL: That is not very many people, Mr Withers.

Mr Withers : What can I say to that, Senator? There are certainly not 5,000 employees who have been involved in the system. There are many of our franchisees that do the right thing. I am still hoping that this is in a minority of franchisees.

Senator O'NEILL: Do you support a call for the federal government to provide an amnesty visa so that people who want to make a claim feel safe enough to come forward?

Mr Withers : I would be happy to do that.

Senator O'NEILL: In terms of your audit of 225 stores that was undertaken in July and August and was reported in Four Corners, where it was asserted that 69 per cent of franchisees surveyed had payroll compliance issues, you have not been forthcoming with those figures today. Do you dispute those figures that are out of the public record?

Ms Dalbo : Those figures are correct in terms of the questions that were asked. They are not necessarily evidence of an underpayment.

Senator O'NEILL: That is a fine point, Ms Dalbo.

Mr Withers : For example, if a roster were not posted in a store, it would flag as an anomaly.

Senator O'NEILL: In terms of the systems of audit, we heard this morning that, if a staff member was actually in store and there was missing merchandise, your information systems are so accurate that that would be identified and the staff member asked to repay the amount for something as small as perhaps one Slurpee. With such a system in place, how can it be credibly understood by the general public that you have no understanding or careful oversight of the payroll system that you provide as part of the franchise system?

Ms Dalbo : I think the construct in relation to our control of stock in stores is not one that we would agree with. That is not factually correct. We cannot, down to an individual Slurpee, identify theft by operator. We do not have networked CCTV. It is local, in stores. We are not viewing it at head office. We conduct quarterly audits of stores, and we provide that quarterly audit result to the franchisee. It does not date-stamp the transaction time when something went missing. I think that that is incorrect.

Senator O'NEILL: Sorry, I am a little incredulous here. It is almost impossible for any member of the general public who has seen the Four Corners report or heard the evidence before this committee to believe that your payroll systems in 2015 are so inadequate that you were unaware that up to 69 per cent of your franchisees as of July and August this year were operating in a way that is certainly noncompliant and, based on the evidence we have received, more likely than not to be fraudulent.

Ms Dalbo : If I may just explain: the 69 per cent figure that was reported is a number around compliance with our franchise systems manual in terms of the requirement for recordkeeping for payroll, and there are some elements of the questions that relate to the ability to reconcile those things. The 69 per cent is the totality of the contraventions or the adverse findings; it is not the totality of findings that relate to the award.

Senator O'NEILL: Thank you. Mr Wilmot, have you ever told senior franchisees to burn their records?

Ms Dalbo : Absolutely not.

Mr Wilmot : Never.

Senator O'NEILL: Mr Wilmot?

Mr Wilmot : It is Mr Wilmot responding. Never.

Senator O'NEILL: Why did you allow the sale of two of your biggest sites to the sibling of the general manager of operations, who had no previous 7-Eleven experience and a criminal record?

Mr Wilmot : And a criminal record? I am not aware of any criminal record. It was a decision I made. He had been operating a supermarket, which gave him relevant experience. We thought that there would be a limited time that we might be at those sites, so it was going to be quite a different sort of transaction to a normal franchise transaction, where there is a long-term lease. We wanted someone who we thought would go in and absolutely optimise the time that was left there, someone who we knew was going to meet all the criteria—and someone who has done a great job since.

Senator O'NEILL: Given your deep faith in this person, why were you unable to advise whether they had a criminal record or not?

Ms Dalbo : I think the findings are around the—

Mr Withers : The checks from MoneyGram would answer that anyway. All our stores have MoneyGram transfer requirements within the store so that money can be transferred overseas and in turn brought into the stores. As part of the prudential requirements for that, criminal records must be examined for all franchisees. Certainly that store has MoneyGram in it, so I would expect that that criminal record check has been done.

CHAIR: Senator O'Neill, one more question.

Senator O'NEILL: Thank you. Could I just ask about Mr Fraser. When he first approached you, what was your response? He claims you did not answer his concerns and that he has been making these concerns known to you for several years.

Mr Wilmot : I think that, every time that we have been approached, and there have been many, we have followed up, whether it be to go and investigate the store or ask him to refer any information that he had to Fair Work, which I think is an indication that we were not complicit in any of this. Why would we send someone to a regulator if there was a problem? It got to the stage where I think we were almost feeling like—

Senator O'NEILL: I think it has been described as a very thin veil between your organisation, at the head office level, and the actual franchise structure, which has provided with you a degree of plausible deniability of knowledge—that is increasingly contested.

Mr Wilmot : I cannot agree with your assertion, I am sorry.

Senator RICE: 7-Eleven has stated that it conducts 1,500 unannounced audits each year, and that any adverse findings are immediately addressed. Of the 1,500 unannounced audits conducted last year, how many produced adverse findings?

Ms Dalbo : The reviews that you are referring to cover a whole range of aspects. Our overall compliance is at 90 per cent, so 10 per cent of the questions have failed.

Senator RICE: How does that correlate with 69 per cent of franchisees surveyed having payroll compliance issues?

Ms Dalbo : It is difficult in the detail of the review, but the review covers different areas of compliance within the 7-Eleven system and not just payroll compliance. So the scores are averaged overall, in terms of the number of questions that are asked. There are five payroll questions that are the 69 per cent that has been referred to.

Senator RICE: How many instances of underpayment, payroll compliance and wage fraud were uncovered through your 1,500 audits last year.

Ms Dalbo : What I can say is that this year, in the last 13 months, we have served 159 breach notices to franchisees for noncompliance with any of the five questions that are on the review.

Senator RICE: Can you take on notice to supply those figures for the last five years?

Ms Dalbo : We have been doing the review since November 2011. I can provide the results from that date forward.

Senator RICE: Okay. In how many of those instances of adverse findings did 7-Eleven take immediate action, and what did that action involve in each case?

Ms Dalbo : Immediate action involves the district manager putting the allegation or the finding to the franchisee, and having that issue resolved.

Senator RICE: How many were then resolved? Do you follow that up?

Ms Dalbo : We do follow that up.

Senator RICE: How many notices of breach did 7-Eleven issue last year, and how many in the last five years?

Ms Dalbo : As I said, 159 in the last 12 months. I do not have the figure for the last five years.

Senator RICE: How many franchise arrangements have you terminated following a failure by the franchisee to rectify a notice of breach?

Ms Dalbo : I would need to take that one on notice, because we have conducted some terminations, but they may not necessarily have been a result of a finding in the retail review.

Senator RICE: Do you have a ballpark figure of how many franchisee arrangements you have terminated?

Ms Dalbo : Because of the results of the audit? Is that the question?

Senator RICE: Yes.

Ms Dalbo : I would say that in the general sense, based on our powers under the franchising code and the oil code, if the breach is rectified, especially under the franchising code, we do not have the ability to terminate.

Senator RICE: Could you repeat that?

Ms Dalbo : We do not have the ability to terminate under the franchising code if a breach is rectified.

Senator RICE: What is your standard for determining that the breach is rectified? Have there been repeat incidents, particularly with the payroll compliance?

Ms Dalbo : But the finding has been closed out and whatever the action was, or the gap in compliance, has been closed. So, if it was identified that paperwork was not being kept for employees, if the next audit or a follow-up visit by the district manager shows that that paperwork is being kept, then the finding and the breach is rectified.

Senator RICE: We have had a lot of evidence of people being underpaid on an ongoing basis over many years, so I find it difficult for that to be consistent with what you have just been telling us. How do you respond to the evidence of ongoing, systematic underpayment?

Ms Dalbo : Going back to the time we identified some issues in payroll, in 2009, progressively through that period of time we have put in place a number of checks and balances to improve our methodology for how we actually undertake that payroll compliance piece of work. So we started with education and compliance training, as I said. We introduced the retail review, in November 2011. We have refined and added additional payroll questions, specifically based on the finding of our own work or the work of the Fair Work Ombudsman. Then we have recently also added the correlation of rosters and time sheets to CCTV, which is something we did for this round of retail reviews. So, our processes have evolved over time. In hindsight, we accept that in the beginning, in 2008 and 2009, they were not as robust as they needed to be to uncover the type of wage abuse you have referred to. We fell into—as the Fair Work Ombudsman has admitted on a number of occasions to us—a false sense of security when the administration looked to be correct. We addressed that in May and incorporated a check of CCTV. Those checks have to be done onsite in each individual store. We do not have a centralised head office system for CCTV.

Mr Wilmot : If I could add, again going back to the franchising code, if the Fair Work Ombudsman finds an adverse finding and there is a pay-back to staff, or there are enforceable undertakings, that is deemed to be a cure of the breach. So, again, even when there is an adverse finding like that we still cannot actually terminate the franchise agreement, under the franchise code. It is almost unbelievable, but that is the truth.

Senator RICE: Given that you have said you have tightened up your procedures and you are asking for the CCTV footage to be looked at, on a store basis, were you surprised by the ongoing information that Mr Fraser has been providing you with over the last year on the extent of the breaches?

Mr Wilmot : I think we are. It is just unbelievable that with all the scrutiny and all the feedback and all the procedures we have put in that some people would still be doing this.

Senator RICE: Mr Fraser has offered to meet with you to provide you with the information he has been gathering, and this has not occurred.

Mr Wilmot : We have asked him to send in any information. Unfortunately, Mr Fraser does not have any official standing. No employee has asked us to represent them. It does not take much of a Google search to perhaps be worried about some of the motives there.

Senator RICE: Are you—

Mr Wilmot : In 2012 Mr Fraser said that one thing he was trying to do was monetise his business model. That concerned me that there was something here we should not be—

Senator RICE: So you have discounted the evidence that he is presenting to you?

Mr Wilmot : We asked him every time to provide it to Fair Work. They are the appropriate authority that can actually investigate it.

Senator RICE: Is it the case that many workers, if not most, in 7-Eleven franchises are people who hold temporary visas or student visas, or the like?

Ms Dalbo : In 2013 we did a survey of store staff, and of the 850 respondents 49 per cent classified themselves as students. We are not the employer of the staff members, so we do not have visibility to the visa status of those individuals. So we cannot confirm that, other than to say that, when we surveyed staff in 2013, 49 per cent of them said they were students.

Senator RICE: In general, how are 7-Eleven employees recruited?

Ms Dalbo : 7-Eleven store employees?

Senator RICE: Yes.

Ms Dalbo : By the franchisee.

Senator RICE: Are you aware of the reports in the Fairfax papers this morning that some of your franchisees 'are running as one-stop recruitment shops providing a steady stream of heavily indentured students and other workers in 7-Eleven stores'?

Ms Dalbo : Only to the extent that we have read the newspaper article you have referred to.

Senator RICE: So you were not aware of it before this morning?

Ms Dalbo : No, we were not aware of it.

Senator RICE: You have not promoted or advised on this practice within your franchises?

Ms Dalbo : Absolutely not. We are a retail franchise, not an immigration franchise. We have no knowledge or expertise in the immigration system. Other than to provide our franchisees with access to the website to check the visa status of people they are employing, so that they can understand any restrictions on hours, we offer no support or advice in relation to that, other than on their obligations as employers.

Senator RICE: I am also interested in the franchisees themselves. Where do you usually recruit new franchisees from?

Ms Dalbo : Our franchisee recruitment happens through our website. It has historically been the fact that many of our franchisees predominantly come from referrals from other franchisees. In our recruitment processes of late we have been actively trying to broaden the pool of applicants by doing more online and digital advertising, but recruitment through referral previously had certainly been our biggest source.

Senator RICE: Which means that a significant number of the franchisees are also overseas workers on temporary visas? Would that be the case?

Ms Dalbo : The franchisees?

Senator RICE: Yes.

Ms Dalbo : You need to have permanent residency status to obtain a franchise at 7-Eleven.

Senator RICE: It appears from the evidence that has been presented to us that not only in some cases the workers do not know their workplace rights in Australia, but that the franchisees also do not appear to know their responsibilities. So we seem to have both the workers of the franchisees who are not familiar with labour laws. How do you respond to that?

Mr Wilmot : We would not agree with that assertion. When the franchisees join us—and the chairman talked a bit about this before—we give them all the information on how to cost a roster. They actually do that as part of their franchise process. They present that to the bank as their business plan, saying that that is how they will run the store. They get a letter of legal sign-off, so that a lawyer has actually explained the agreement and their obligations to them before they actually join. So there has been many times there. They also do the e-learning modules we have for staff. This is to ensure they understand where they find their information and what the obligations are. There is actually a test of their comprehension of all of those elements.

Ms Dalbo : There is considerable training through our 7-Eleven franchise systems training, which goes for nine weeks, that focuses on payroll and payroll compliance and obligations. We provide copies of the award and access through our in-store portal, and via the e-learning module, to the Fair Work Ombudsman website. We talk about obligations and we provide details around penalty rates, through an external third-party expert. We also provide external support, at our cost, for franchisees to engage directly with the HR provider to get independent advice of 7-Eleven around their rights and obligations. I do not think it is reasonable, based on the training we provide, to believe that any franchisee is not aware of their workplace obligations as employers.

Mr Wilmot : I believe also that Fair Work mentioned in some of their findings that the franchisees we really clear that they did understand their obligations, but that they had chosen to do the wrong thing.

Senator RICE: With 57 per cent of the profits going back to 7-Eleven, what on average is left in the franchisees' pockets after wages and employment costs come out of the 43 per cent left to them?

Ms Dalbo : The average franchisee net profit last year was $165,000, after all expenses.

Mr Withers : It is approximately eight per cent, I think, of gross sales.

Senator RICE: How do you respond to the information that Mr Fraser has given us that if you are going to be staffing a shop with just one employee for 24 hours a day it would be $230,000 a year. Yet, the information he has gained is that the maximum he had seen in payroll was only $160,000 a year?

Ms Dalbo : Mr Fraser does not have access to our financial reports. What he has seen is what has been provided to him by relevant—I am assuming—franchisees or staff members. There are stores paying $30,000 a month in payroll expense. The total weekly payroll process last week through our payroll system was $2.248 million. So I think to—

Senator RICE: In total?

Ms Dalbo : In total. And I can tell you the number of stores that are using the payroll system. There are stores that are—

Senator McKENZIE: How many?

Ms Dalbo : Stores using our payroll system?

Senator McKENZIE: Yes.

Ms Dalbo : I think it is 86.5 per cent at the moment.

Senator McKENZIE: Thanks. I can work it out from there. I have a few questions. Mr Withers, you are obviously very passionate about 7-Eleven. You have been head of it for a long time—many decades. Do you often still head into a 7-Eleven store—walk in and buy a slushy?

Mr Withers : I try to visit all stores every year, in fact.

Senator McKENZIE: Really!

Mr Withers : I have a regular visiting program in the stores. I think it is important that I—

Senator McKENZIE: Get a feel for what it is like on the ground?

Mr Withers : Exactly.

Senator McKENZIE: Good—keep in touch. Given that, I find it really quite incredible that you did not notice the changing face of 7-Eleven stores and their workers over the decades.

Mr Withers : There has certainly been a changing face. There is no doubt about it.

Senator McKENZIE: As a businessman did you not think at any point—you are a smart guy—that there was something systemic going on right around the country with the changing face? Because the evidence we heard this morning was that this practice has been going on in your franchisees' stores since the 1990s.

Mr Withers : I would be very surprised if that were the case. I think that this has been something that has happened relatively recently, but, having said that and having worked in 7-Eleven stores and with franchisees, when we have a penalty rate system and a rate of pay in Australia, it is quite incredible to think that someone would not honour that. They are going to get caught and they have been caught.

Senator McKENZIE: They have not really been caught. Despite the Fair Work Ombudsman, despite Four Corners, despite continual issues over time and despite the changing face of 7-Eleven stores, even your own evidence suggests that as the overarching operator your systems were inadequate to detect what seems to be systemic fraud.

Mr Withers : I would have to agree. In 20-20 hindsight, you are right: we should have been able to see this earlier. The number of instances in reports from the FWO were relatively few and far between—

Senator McKENZIE: Are you referring to the earlier case in 2008 where nearly 30 per cent were in breach?

Ms Dalbo : There were 17 stores, and the ombudsman—

Senator McKENZIE: That is 30 per cent of the stores—

Ms Dalbo : that were sampled.

Senator McKENZIE: I am assuming that the sample the Fair Work Ombudsman does is proportional.

Ms Dalbo : It was predominantly Melbourne and it was predominantly the CBD and surrounding suburbs. We have a very large suburban network of fuel stores these days. The nature of our stores—

Senator McKENZIE: There are not too many 7-Elevens in Leongatha.

Ms Dalbo : That is absolutely correct.

Senator McKENZIE: So 30 per cent of stores were in breach back then. In any risk assessment, that is a problem.

Ms Dalbo : At the time we took the actions that we thought were appropriate and, as Mr Withers has said, in hindsight, if we had better understood the practice that was going on with the falsification of records by our franchisees, we should have taken different ones. That is exactly what we have put in place now. The engagement of EY to look at the end-to-end system including the time and attendance record keeping and how we find anomalies in the system will make us better placed in the future to find any underpayments.

Senator McKENZIE: Are you categorically denying, Mr Withers, that over three or four decades now you turned a blind eye to the changing face of 7-Eleven?

Mr Withers : The changing face of 7-Eleven—

Senator McKENZIE: What we have heard today is that there has been a systemic targeting of international students by 7-Eleven franchisees and then subsequent exploitation of those students.

Mr Withers : I have certainly seen many more students in 7-Eleven and they are excellent staff members. The store standards of 7-Eleven have never been higher, I think. I have not been aware of any systemic wage fraud over those visits over that period of time. I am still not sure as to the extent of it, Senator—that is what I am saying to you.

Senator McKENZIE: Hopefully, Professor Fels will get to the bottom of that. As well as the average profit, I would like the median profit and the range of profit. I want to go to some of Fels' comments—bearing in mind that, when he was in charge of the ACCC, there were a few small business owner-operators who were not too happy with how he interpreted the Competition and Consumer Act.

Mr Withers : We had no problem with Professor Fels.

Senator McKENZIE: I am sure you didn't. You are hardly a small business, Mr Withers. He said:

… the only way a franchisee can make a go of it—this is going to your business model—in most cases is by underpaying workers by illegal behaviour.

He goes on to say that he would never sign an agreement with 7-Eleven because the only way of making a profit in many cases is to underpay workers and to break the law. When we talk about your business model, does it assume that owner-operators purchase the franchise?

Mr Withers : Yes, it does.

Senator McKENZIE: Yes, it does. When my dad was an owner-operator of a little dairy in Benalla, he worked really hard and mum worked really hard. We went on one holiday every two years for two weeks, and I got paid $2 a day to do a milk round. Owner-operators do not pay themselves for their time—they build the business and the value in that business and then they on-sell it. Your business model assumes owner-operators and it assumes that to keep a store open for 24 hours people are not being paid legal wages.

Mr Withers : No, but that that is where the income to the franchisee comes in. The average income, as we have—

Senator McKENZIE: I do not care about averages, Mr Withers, because I understand maths.

Mr Withers : Well, let's say $165,000—$165,000 is net profit.

Senator McKENZIE: I want the range.

Ms Dalbo : Sure. We will give you the range.

Senator McKENZIE: Thank you.

Mr Withers : I am happy to provide that.

Senator McKENZIE: It is true to say that, of the 620 stores, some make considerably more money than the $165,000. And there are a third of the stores, that I think have been reported in the press, that would be in the low-income band.

Senator McKENZIE: Absolutely. You did speak earlier about having the data that you would provide to people wanting to sign up to your—

Mr Withers : Yes.

Senator McKENZIE: The third?

Mr Withers : Yes.

Senator McKENZIE: Could you please provide that to the committee on notice? I am trying to get an understanding of the business model. Fels is not one for mincing words, and if that is what he is saying about your business model—and you yourself have admitted that the assumptions underpinning your model are that it is going to be an owner-operator—I find it very, very hard to work out how we factor in employees being paid legal wages and conditions under that model. But I look forward to getting your answers on notice. In terms of the financial pressure on your franchisees, what steps have you taken to address that increasing pressure over the last five years?

Mr Withers : Through additional assistance, if particularly—

Senator McKENZIE: For $10,000? From $120,000 to $130,000—is that the additional financial assistance?

Ms Dalbo : Gone to $310,000.

Senator McKENZIE: To $310,000? Sorry, my apologies.

Mr Withers : With any new store into the system, inevitably there is approximately a three-year maturity period that the store takes to get up to mature sales. During those years one and two there is a need for additional assistance in some cases. Some stores will come into profit for franchisees from day one, but we stand there ready to be able to assist our franchisees. We have a close business relationship with them—we do review their financials; we do sit down with them with the district managers—

Senator McKENZIE: But not their payroll.

Ms Dalbo : We are reviewing their payroll.

Senator McKENZIE: You are now.

Ms Dalbo : We accept that our—

Senator McKENZIE: This has been going on for a long time.

Ms Dalbo : Yes.

Senator McKENZIE: You review their finances and make sure you get what you need, but we are not reviewing their payroll. I digress—sorry, Mr Withers.

Mr Wilmot : Sorry, could I—

Senator McKENZIE: Mr Withers was answering my original question.

Mr Withers : Sorry, I have lost my train of thought from your interjection.

Senator McKENZIE: You were reviewing the financial assistance you provide to your franchisees.

Mr Withers : Yes, exactly—particularly during those early stages, when it is more likely to be required. If the franchisee is not making money then we are not making money, because of the gross profit split within the store.

Senator McKENZIE: Which is? Remind me again what that is.

Mr Withers : The 7-Eleven charge is 57. For that we provide the premises, we provide the equipment, we provide maintenance, we pay the power, we provide the bookkeeping service, the payroll service. And out of the franchisee's 43 per cent comes the payroll for the staff, the remuneration responsibilities—

Senator McKENZIE: The staff that the business model assumes do not exist. Go on.

Mr Withers : That is not correct. The $165,000—

Senator McKENZIE: You admitted that, Mr Withers.

Mr Withers : No, I am sorry.

Senator McKENZIE: Your whole model is premised on the fact that it is owner-operators purchasing your franchise.

Mr Withers : No, that is not correct insomuch as owner-operators are able to employ staff and they are employing staff at the rate of $2 million-odd last week.

Senator McKENZIE: And they are exploiting staff; that is the evidence that this Senate inquiry keeps hearing.

Ms Dalbo : And the extent of which will be determined by the panel, the FWO and our own investigations.

Senator McKENZIE: I will have some questions on notice. We are tabling that. I think I am done.

Senator PERIS: Mr Withers, you said earlier on that your branding has suffered reputation damage and that you have been embarrassed by all of this. You also said that the franchisees have breached the agreement; however, we understand that there has never been a termination of an agreement by the franchisee. What happens—how do you regain your reputation? Who is at fault here if you cannot terminate people who have damaged your reputation?

Mr Withers : The franchising code does limit us in the ability to terminate. It basically is only on fraud—I think that is correct, is it, Warren?

Mr Wilmot : There are about three requirements. Fraud is one.

Senator McKENZIE: I have the franchising code right here. Can you point me to the exact clauses about termination?

CHAIR: Senator Peris, keep going with your questions while they look at that.

Mr Withers : To answer your question: we have terminated franchises, but inevitably it has been for more serious matters of breaching the franchise code. When we issue a notice of breach, the franchisee has the right to be able to correct that under the code.

Senator PERIS: You have said there has been a termination before. Is that right?

Ms Dalbo : We have terminated franchisees. It is easier for us to terminate a repeat offender under the oil code. For a fuel store, if you have three strikes, there is an ability under the oil code to terminate a franchisee. Under the franchising code, you cannot terminate if the breach is rectified, regardless of how many times the franchisee commits the same breach, as long as each time you serve the notice they fix it. You catch them again, and they fix it. You catch them again, and they fix it. This can go on ad nauseam.

Senator PERIS: Are you able to provide how many times that has happened?

Ms Dalbo : In terms of the terminations?

Senator PERIS: No, how many times it has been breached.

Ms Dalbo : In the last 12 months we have served 159 breach notices specifically in relation to payroll compliance. We have served breach notices for other reasons as well. If that information is valuable, we can provide it.

Senator PERIS: Thank you. We have heard from a number of employees telling us that they have never had a job description before. Is a job description of employees something that you would provide to your franchisees as the peak body?

Mr Withers : We provide training to the franchisee, who in turn employs the staff.

Ms Dalbo : We do not provide job descriptions for the franchisees to use with their staff. We talk about the tasks that need to be undertaken, and then the franchisee employs staff and provides job descriptions. As you have said, in those instances they have not.

Senator PERIS: With the amount of people who have come forward and spoken, there is obviously a significant amount who have not. They do fear. We have spoken about the call for amnesty visas to protect these workers coming forward. What about their job security? If they come out and speak about this, could you as the peak body say that, if they come forward, you are not going to sack them? The fear is that they are going to lose their jobs if they speak out.

Ms Dalbo : We are not their employers, so we cannot guarantee employment. We would not be the people terminating the employment of those individuals.

Senator PERIS: But would you encourage people to come out and speak up?

Ms Dalbo : Absolutely. I think that, given what has happened, we have been very public and on the record about our desire to fix it to make good for those who have been underpaid. It is absolutely abhorrent to us. It is not our corporate culture to underpay people. We will do whatever we can to make sure people know how to make a claim through the panel. We will not be determining whether those claims get paid; we will simply be paying them based on the panel's decisions.

Senator PERIS: But you cannot offer them job security. If they come out and speak out, you could not say to them, 'You're not going to lose your job because of what you've done.'

Ms Dalbo : We could not guarantee someone who is not an employee of our job security. That would be a guarantee we could not make in good faith.

Senator McKENZIE: Could you write to your franchisees and encourage them?

Senator PERIS: That is probably a good question. These people have so-called 'damaged' your reputation.

Mr Withers : I understand and share your concern. Certainly we can assist by saying to the franchisees that, if somebody comes forward and is subsequently compensated through the panel, we do not want to see them unilaterally dismissed because of the fact that they have come forward. That should not be the case.

Senator PERIS: Thank you.

Senator McKENZIE: I have a question about e-learning modules. I assume we go to employment law.

Ms Dalbo : There is an induction module that all staff and all franchisees cover that does talk about their rights and obligations as employers and employees.

Senator McKENZIE: Could you submit that to us on notice?

Ms Dalbo : Yes.

Senator McKENZIE: How long has that been in place?

Ms Dalbo : We would need to find the exact date.

Senator McKENZIE: A decade? Five years?

Ms Dalbo : No.

Mr Wilmot : Three or four years. We will find out for you.

Senator McKENZIE: Fantastic. Does it include obligations under immigration law?

Ms Dalbo : I would need to confirm this, but I think it does cover off the obligation to check visa status.

Senator McKENZIE: I did ask the previous witness about this. Under the franchising code, IPs, sites, you name it are covered, but compliance with employment law is not covered at all. Do you think that would be a decent amendment to the franchising code? What assurance can you give this committee that your franchisees, in terms of their understanding of going into business with you, are very well aware, given the changing face of 7-Eleven, of international student obligations under their visas? We have heard evidence that your franchisees are encouraging them to breach their visas.

Mr Wilmot : We would certainly support any strengthening of the franchise code in this area. I think it then becomes part of your overall education regime. It becomes part of the regime of testing the internal audits in the stores as well.

Senator McKENZIE: But right now it is not part of what your franchisees are educated about?

Ms Dalbo : In terms of their workplace responsibilities as employers?

Senator McKENZIE: In terms of international student working hours.

Ms Dalbo : They are educated.

Senator McKENZIE: Absolutely aware?

Ms Dalbo : They are educated on the restrictions of certain visas and they are told where to access information to check the validity of the visas that are being presented to them.

Senator McKENZIE: Could you please table for the committee your franchise contract?

Ms Dalbo : Yes.

Senator McKENZIE: Thank you.

Senator RICE: I want to follow up on the payroll figures that you gave us before. You said that last week it was $2.4 million that went through your payroll system.

Ms Dalbo : $2.248 million.

Senator RICE: And that is for 90 per cent of your stores?

Ms Dalbo : For 536 stores in total.

Senator RICE: Would you be able to tell us—perhaps you might need to take it on notice—how that has changed? I would like to know what the amount of your payroll was prior to the Four Corners program.

Ms Dalbo : I can tell you what the amount of the payroll was in the first week of June. It was $1.845 million. By the time we got to the end of July, before the Four Corners program, the audit activity that we had already undertaken had delivered a 16 per cent increase.

Senator RICE: And perhaps a year ago?

Ms Dalbo : I do not have that number, but I can find that number for you.

Senator RICE: Oka. Are you aware of the claims that we heard this morning about the cash-back system that was being used—people now being paid the right amount of money but being told that they had to come in and hand over a proportion of their cash back to the manager of their store?

Ms Dalbo : We have seen that reported.

Senator RICE: How are you following up those allegations?

Mr Withers : It almost defies belief that somebody would actually do that. I do not disagree that it has happened, but it is absolutely amazing that somebody would say, 'You've now got to give me money back.'

Ms Dalbo : We are currently investigating two stores and working with the staff in those stores to gather the evidence we need to terminate those store agreements if we can provide the evidence and satisfy a reasonable person that that is the evidence that points to that behaviour. We have had a staff member make contact with us and we have worked with those people to obtain the evidence that corroborates their story. We are gathering that now and going through a review of that with a view that we will terminate that franchisee.

Senator RICE: Thank you.

CHAIR: In evidence to Senator Rice you talked about your payroll last week, which was $2.248 million, and you said that prior to the Four Corners program it was around $1.84 million.

Ms Dalbo : In June it was $1.84 million.

CHAIR: And then you said it went up 16 per cent. What did it go up to?

Ms Dalbo : I do not have that number in front of me, but it has increased significantly since then. It has gone up to $2.24 million as the current week total payroll processed.

CHAIR: Is that a consistent figure?

Ms Dalbo : It is a consistent figure in recent weeks. It went up 16 per cent by the end of July, and then the increases have stabilised.

CHAIR: Given that you are running a tight business model, why didn't that ring alarm bells? Sixteen per cent is staggering.

Ms Dalbo : It did not ring alarm bells about the fact that it has increased?

CHAIR: Yes.

Ms Dalbo : It was a validation for us that the audit activity that we have undertaken has led to some behavioural change.

CHAIR: When other senators and I have said to you today that there is systemic underpayment in your stores, doesn't that figure tell you there is?

Ms Dalbo : I think we have admitted today that it is more widespread than we believed, absolutely.

CHAIR: Except in your opening statement you said it was some stores. We are saying systemic; we are saying most stores.

Ms Dalbo : We are saying it is widespread and the extent of that will be determined in coming months.

CHAIR: So 16 per cent is a massive increase in payroll in and of itself, is it not? Tell me if I am wrong. It looks pretty massive to me.

Ms Dalbo : It shows that the activities that we have undertaken have delivered some results and have resulted in franchisees paying the correct rates of pay to their employees.

CHAIR: So how do you represent on your balance sheet the payroll? It is humming along at this level and then suddenly it jumps up at least 16 per cent—and it is probably more than that. What does that do to the business model that you are running?

Mr Wilmot : It does not appear on our balance sheet. It appears on the franchisee's balance sheet. It is a franchisee cost, so it is on the franchisee's balance sheet.

CHAIR: You are doing the payroll and you notice that it has gone up 16 per cent. From that, you must be able to tell us which stores it has gone up in.

Mr Wilmot : We could; we can table that.

CHAIR: Has it gone up in two stores, in 500 stores? How many stores has it gone up in?

Ms Dalbo : I do not have the number, but we are happy to provide the information.

CHAIR: If you could provide that, that would be good. What evidence do you have that superannuation is not being paid?

Ms Dalbo : We process superannuation for the employees that are on the payroll system based on the hourly rates and the hourly amounts being submitted in the payroll system.

CHAIR: So you pay it?

Ms Dalbo : On behalf of the franchisee—it is part of the payroll service. For each employee that is added to the payroll service by the franchisee, the franchisee pays for the superannuation but it is processed by the payroll department.

CHAIR: Do you make a lump sum to an industry super fund? Who do you pay it to?

Ms Dalbo : I think—and we would need to confirm this—individuals have the right to nominate their own fund.

CHAIR: Yes, they do.

Ms Dalbo : If a fund is not nominated, there is a default position in our payroll office.

CHAIR: What is the default fund?

Mr Wilmot : I believe it is REST, but we will check for you.

CHAIR: Employees have said today that they were not receiving superannuation. So what have you been processing?

Ms Dalbo : We have been processing the Superannuation Guarantee for the payroll that has been processed through the payroll system.

CHAIR: But today we have been told consistently by employees that they never received super and that the deduction was coming out of their pay. Do you do deductions?

Ms Dalbo : No, we do not.

CHAIR: So if a deduction is made, how is it made?

Ms Dalbo : It is not being made by the payroll service that 7-Eleven provides.

Mr Withers : The deduction is, as far as the wages are concerned, when the wages are paid to the franchisee staff; there is a deduction made for the superannuation.

CHAIR: Superannuation is not a deduction; that is the whole point. But we have heard today, on evidence from former 7-Eleven—

Mr Withers : I understand what you are saying: yes, of course, it is paid by the employer.

CHAIR: But they had on their pay slip a figure that deducted superannuation and some of them have said they did not get any superannuation.

Mr Wilmot : I would be happy to chase up any employee who said they had not. It is almost an automated process in the payroll system, so it might just be that the information is missing rather than the actual superannuation.

CHAIR: Is Mr Fels looking at the non-payment of superannuation, if that is a claim that is made?

Ms Dalbo : He is looking at claims of underpayment. If you are underpaid, there is superannuation paid on the amount that you are underpaid. So I would assume that it is a part of his brief.

CHAIR: How much have you set aside for underpayment of wages?

Mr Withers : We have not yet made an assessment of the underpayment. We will do so this year.

CHAIR: So you will pay that and then recoup it from stores? How will that work?

Mr Withers : We will certainly seek to recoup it from the franchisees that are in the system at the moment, yes.

CHAIR: So then you would have to align an individual worker to a particular store?

Mr Withers : Correct.

Mr Wilmot : That will have to happen just to verify the claim. We will provide the—

CHAIR: So if I tell you I worked at such and such a store, you have to check that I worked there?

Mr Wilmot : Yes. The panel will check that.

CHAIR: Almost without exception every former 7-Eleven employee who has come before us as a witness has told us they worked for significant periods doing unpaid training. Is unpaid training something that you support?

Mr Wilmot : No.

CHAIR: Where it is their word that they undertook training and it was unpaid, how are we going to verify that?

Mr Wilmot : I think it will be a job for Deloitte, as part of the panel, to see how many hours were paid; that will leave a gap in the process. I know that Fair Work has done a fairly good job. They have been able to do it through fuel stores' 'dip books'. The tanks are dipped daily and there are signatures there. I think that is how they have verified that some people have actually done work that was not paid. So there will be various methodologies. It will not be easy though.

Senator O'NEILL: Have any of the 200 people who have been engaged with the independent panel been paid out yet?

Ms Dalbo : I do not believe so.

Mr Withers : No. I think the investigations are only just beginning now.

Senator O'NEILL: Do you have any idea of the amount of claims from any of those individuals at this point?

Mr Withers : No, I do not.

Senator O'NEILL: Do you know whether they will be required to sign a confidentiality agreement on the completion of the claim?

Mr Wilmot : No, they will not be required for confidentiality.

Senator O'NEILL: So they will be able to tell their story in public after they have been through this process? Do we have your assurance on that?

Mr Withers : Absolutely. This should not have happened and we are standing here saying we are going to make it right. It should not have happened.

Senator O'NEILL: Will there be any bargaining with these individuals to reduce the amount that is paid to them? Or will there be consideration for additional compensation given the time lag between their just payment and the payments they have received plus the emotional distress that we have heard about from former employees this morning?

Mr Withers : The undertaking that my company has given is that any adjudication of the panel will be paid without further query.

Senator O'NEILL: Wonderful. I have a couple of questions for Mr Wilmot. Mr Wilmot, you were the national operations manager?

Mr Wilmot : I was, for many years, before I became CEO.

Senator O'NEILL: And which years were those?

Mr Wilmot : Probably from about 1996 to 2002.

Senator O'NEILL: Is it true that at that time the staff would nominate at the discretion of the franchisee and the payroll department would pay any pay rate that was nominated whether it corresponded with the award or not?

Mr Wilmot : I think that was actually a gap in the system, yes.

Senator O'NEILL: In terms of the current payroll system is the current award wage rate set in the system, or can that be manipulated?

Mr Wilmot : It is now set in the system and we check that every pay that goes through meets the minimum award rate. And we have been doing that for many years.

Senator O'NEILL: For how long?

Mr Wilmot : We will take that on notice, but I would think it is probably about five years.

Senator O'NEILL: Mr Withers, when was the last time you were in one of the stores when you did your annual visit?

Mr Withers : I was in the stores two weeks ago.

Senator O'NEILL: And prior to that?

CHAIR: Senator O'Neill, I think someone else covered off on that. Thank you very much Mr Withers, Ms Dalbo and Mr Wilmot for appearing today. We will be calling Mr Fels and the panel. I take it that that will be done with your full cooperation.

Mr Withers : Absolutely.

Proceedings suspended from 15:38 to 15:47