7-Eleven: Former franchisees dragged to court by Fair Work even after back-paying workers over $80,000

Two former 7-Eleven franchisees will be asked to defend their pay practices in court, amid claims the store they ran underpaid a dozen workers, including international students, around $84,000.

The former owners of the store on Royal Parade in the Melbourne suburb of Parkville, Haiyao Xu and Yiran Gu, are being taken to court by the Ombudsman, along with their company, Hiyu Pty Ltd.

It is the latest 7-Eleven store to be caught up in the controversy surrounding underpayment claims since the franchise became the subject of a national inquiry into wage fraud last month.

According to Fair Work, 12 workers at the Royal Parade store were being paid flat rates of $11 an hour in some cases.

The alleged underpayments, which occurred between September 2013 and 2014, came to the attention of the Ombudsman last year following a series of audits.

The Ombudsman has also indicated that the pay practices of another Melbourne 7-Eleven store owned by the pair, located on the corner of Flinders and Spencer Streets, are under investigation.

Fair Work Ombudsman Natalie James said in a statement the franchisees had allegedly made false entries to head office to make it appear like the business had been paying employees award rates and staff had worked less than they had actually worked.

While the former workers have now been back-paid, the Ombudsman is still seeking court orders to ensure the business owners comply with workplace laws in future and notify the Ombudsman if they sell the other business or engage other workers in any other business.

Will Snow, senior associate at law firm Finlaysons, told SmartCompany this morning even though the business is no longer operating and the owners have sold the franchise, they are still facing Fair Work proceedings.

“They have already sold the business – that has not stopped Ombudsman continuing to investigate,” he says.

Snow says Fair Work is also still pursuing the case despite the workers have been back-paid to make sure the former franchisees comply with workplace laws in future.

“And also that it inform Ombudsman if it plan to sell other 7-Eleven store or engage workers in any other business,” he says.

“Although they have fixed the problem by paying back wages, it will still be involved in a court case which will create risk for their business and cost time and money and legal costs.

“So consequences here are employers fix up issue, make the payments, but notwithstanding it looks likely it (their business) will be involved in continued scrutiny with the Ombudsman into foreseeable future, depending on the orders the court makes.”

Snow says the ramifications of the ABC andFairfax investigation into 7-Eleven has affected both individual franchises as well as the parent company.

“There’s a question here about actual knowledge of all the parties involved, between franchisor franchises,” he says.

Snow says the lessons for other franchisees include having an open discussion with franchisors about responsibilities.

“You need to understand these are the responsibilities, if they are concerned about workplace laws or underpayments, they should discuss with franchisors,” he says.

“It’s good to know the Ombudsman can look back over historical arrangements, you may have sold business  a couple of years ago, but any underpayment issues can still be looked into from back then.”

SmartCompany contacted 7-Eleven but did not receive a response prior to publication.

SmartCompany was unable to contact Hiyu Pty Ltd or Haiyao Xu and Yiran Gu prior to publication.