Analyzing the 7-Eleven Wage Scandal: Legal and Ethical Implications

The 7-Eleven wage scandal in Australia revealed significant flaws in the franchise model's legal framework, particularly concerning the obligations of franchisors towards their employees. The scandal highlighted the asymmetrical nature of franchise agreements where franchisors often evade responsibility for employee underpayment issues. This case underscores the need for stricter regulations and more balanced franchise agreements that ensure transparency and accountability from both parties involved. By examining Australian laws like the Fair Work Act 2009 and the Franchise Code of Conduct, students will analyze how current legal provisions either fail or succeed in protecting employees' rights within franchised businesses. Additionally, this assignment encourages a discussion on ethical considerations, suggesting reforms to franchise agreements that could prevent similar incidents, thereby fostering a more equitable business environment.

Running head: LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
Legal Aspects of International Trade and Enterprise
Name of the Student
Name of the University
Author Note

1LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................4
Answer 3..........................................................................................................................................6
Reference list...................................................................................................................................9

2LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
Answer 1
A multinational company that operates in Australia is 7-Eleven Stores Pty Ltd. This
company is a proprietary Company that generates majority of its income from the Food Retailing
Industry in Australia. At present, the company operating in Australia comprises 1000 employees
including the employees of all the subsidiaries under the control of this company and 45000
employees gloablly. The company is an American-Japanese international chain of convenience
stores that has it’s headquarter in Irving, Texas (Webster 2017).
The company operates franchises and licensed about 56,600 stores in 18 countries. This
chain was known as ‘Tote’m Stores’ until it was renamed in the year 1946. The Irving based
company traces its roots in Texas. It moved to Canada in 1969 and México in 1971. In 1974,
the retail chain expanded its operation into Japan as 7-Eleven Japan and became the parent
company in November 2005. At the present day, the company has its stores in Taiwan,
Thailand, Australia, Sweden, Malaysia, Indonesia, Macau, UAE, Denmark, Norway,
Philippines, Hong Kong and Singapore through franchise agreements and area license.
The first Australian store was opened in August 1977 and today this company operates
more than 630 stores in Queensland, New South Wales, the Australian Capital Territory,
Victoria and Western Australia. The 7-Eleven product and services range includes slurpee
beverages, 7-eleven fuel, stationary & gifts, treats, refreshments, news, magazines, Personal
Care & Cleaning, Auto & Car care, Australia Post Parcel lockers and Citilink payments
facilities.

3LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
Figure 1: 7-Eleven numbers of stores
Source: (Webster 2017)
The goals and objectives of the company is to ensure that the customers are able to find
their favorite drinks, snacks, and other convenience items at a store near them, given so many
fresh food and beverages as well as personal care products that are available at the store. the
motto of the company states ‘Give the customers, what they want, when and where they want
it’. Some other interesting facts about the 7-Eleven Stores Pty Ltd is that it was the first store
to operate for 24 hours a day, sell fresh-brewed coffee in to-go cups. This company is the first
conventional store retailer to provide the guests with freedom of choice by making all major soft
drinks available to them at the store fountain. This company was the first to sell pre-paid phone
cards and in the year 1948, 7-Eleven was the first convenience retailer that offered ATM services
to its customers.
The most essential fact about this company is that it has been successful in redefining the
way people usually shop for their products with the change in technology. The advancement of

4LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
technology has never impeded the operations of the company, instead it has always resulted in
the incline of its operations and customers. There is a mobile application for this company that is
available on the phones which has only enhanced its customers. This is because it tends to
support bigger and better loyalty programs that are aimed at fulfilling the needs of the customers
of the digitalized era or the digital-savvy generation of customers (Hanrahan, Ramsay and
Stapledon 2013).
The company always strives to improve its technologies and remain updated with the
rapidly changing technology, which is evident from the fact that the corporate giant has made
significant investments in business and software processes that have revolutionized the way in
which the company used to operate. This way the company succeeds in delivering fresh food
products to the respective stores regularly. The company believes in remaining updated about the
latest technology as it keeps implementing the updated technology ad equipments. The company
solely believes in innovations, be it with the products and services or the technologies, it strives
to inspire its employees and aims at creating a loyal customer base for its goods and services all
over the world. Despite the growth and success of the company, it persists to fix its focus on
making lives of the customers easier, healthier and happier.
Answer 2
The regulatory framework or the legislations that regulates or governs the operations of
the 7-Eleven company in Australia includes the Fair Work Act 2009 (FW Act), Fair Work
Regulations 2009 (FW Regulations), Australian Competition and Consumer Commission, the
Franchising Code of Conduct and Australian Consumer law.

5LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
The franchises are regulated under the Competition and Consumer Act and the
mandatory Franchising Code of Conduct. The regulatory framework of Franchising Code
affects the 7-Eleven and all other multinational companies operating in Australia significantly.
The Regulators fail to strike a balance between providing safeguards to the franchisees and
encouraging entrepreneurial franchisors. The Franchisees are unable to sign a franchise
agreement until they are provided with the disclosure document of the franchisors within 14
days. After signing the document, they are provided with a 7 days cooling off period during
which they may terminate the agreement. This gives the franchises 21 days to conduct a due
diligence, which determined whether they would benefit joining the particular company (Buchan
et al. 2017).
However, this requirement often affects the multinational companies operating in
Australia. This is because the disclosure document includes current information about the
franchisor, the specified franchised business and the system (Sealy and Worthington 2013).
Since the document is provided as a part of legal compliance, it often provides the franchisees
with false and manipulated security. Further, the conduct of due diligence is not as easy as it
appears to be as the franchisees are required to set aside the ‘halo effect’ of well-known brands
such as 7-Eleven and ne focused and objective while conducting sue diligence. In the context of
marketing, the phrase ‘halo effect’ refers to the customer biasness towards any particular product
due to the favorable experience with other products provided by the same company. It is an
impression developed in one area that tends to influence the opinion of the customers in respect
of another area.
Since the franchise systems are a complex mixture of relational contracts, it is necessary to take
advises of lawyers and accountants that have profound knowledge about the same and have

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access to alternative source to obtain information about the disclosure document. However, the
hiring of lawyers and accountants from ASIC who are competent to provide such information is
both time-consuming and an expensive procedure (Buchan et al. 2017).
Since the franchise is developed by the franchisor for its individual benefits, the
franchisors can contract out the risks and obligations to the franchisees and retain the rewards,
hence, the regulatory frameworks have conferred the legal power on the franchisor in a
franchisor-franchisee relationship (Hannigan 2015). The Division 5 of the Franchise Code of
Conduct entitles the franchisors to terminate the contract and in case of any crime committed by
the franchisor or failure to pay back to the franchisee, the franchisee is not entitled to terminate
the relationship.
In case of 7-Eleven Stores Pty Ltd’s wage scandal where it was alleged to have been
engaged in underpaying its employees, the franchisees had to suffer financial losses, as they were
unable to have access to any information that would have cautioned them about the existing
flaws in the system. The franchisees were found to have manipulated and presented false wage
records of the employees as they merely aimed at earning benefits for the franchisors. The
asymmetrical nature of the franchise relationship is the most significant disadvantage for the
franchisees of the company as the difference in objectives of the franchisor and the franchisee
leads to the loss of the company’s reputation and finance. Therefore, a regulatory framework that
is symmetrical and enforces common objectives for both the franchisor and franchisee shall
ensure a fair and just organizational system.

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Answer 3
The typical franchise agreements have impacted on the products or services that the
company deals with in Australia. As discussed above the franchisee agreement under the
Franchise Code of Conduct do not state the franchisors accountable for any actions of the
franchisees towards their employees, as they are financial and legally independent parties
(Sivaraman and Turner 2016). Franchisees are legally obligated to carry out the business
operations while complying with the principles of uniformity of the goods and services offered
and the system of the business under the ACCC.
In June 2014, the Fair Work Ombudsman (FWO) initiated an inquiry about the
allegations about the company being engaged in the significant falsification of employment
records and underpayment of wages in Australia. The investigations established that the
company failed to act in compliance with the Fair Work Act 2009 and the FW Regulations
2009, which also includes examples of intentional manipulation of the employment wage records
to conceal the underpayment of wage practice, carried out by the franchisees of the company.
The recent decision in the Federal Circuit Court, which held that the company had
systematically exploited the employees of the organization and had deliberately, implemented a
business model that intentionally disregard of the workplace entitlements of the employees of the
corporate giant. The court had imposed over $400000 in fines on the ground of non-compliance
of the company with the Australian laws and the regulatory frameworks that regulated or
governed the business operations in the country. It further stated that the company has repeatedly
made several attempts to deceive the Fair Work Ombudsman by concealing and manipulating
the wage record of the company (Webster 2017).

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Figure 2: Inconsistency with 7-Eleven records
Source: (Buchan et al. 2017)
The franchise agreements debar the franchisors from undertaking any responsibility for
any action, whether it is willful misconduct or non-compliance of any legal provisions towards
the employees of such organization. Further, the franchisors are only concerned about the profits
that are earned from the business operations. The non-accessibility of the information mentioned
in the disclosure documents have left the franchisees with no other option but to engage into the
franchise agreements with the company, being influenced by the halo effect of the corporate
giant. The franchisee could not assume the flaws that were present within the system and in order
to provide the franchisors with profits, they developed false records and fabricated the entries
into a payroll system of the 7-Eleven company (Buchan et al. 2017).
Due to such scandal and the FWA inquiry, there has been a significant impact upon the
goods and services offered by the company. The company has been engaged in damage control
measures as the company has suffered significant financial loss. The company had to treble the

9LEGAL ASPECT OF INTERNATIONAL TRADE AND ENTERPRISE
level of financial support it extended towards its franchisees after the investigation revealed that
138 of the 620 stores in Australia has earned $300000 or less income in the year 2015 which was
insufficient to pay the full wages, costs and full freight (Sivaraman and Turner 2016).
The scam and the wage scandal has reduced the customer base as they have started to
lose their faith on the company products and services on the ground that they might not be
completely honest about the quality or standard of the goods and the service offered by the chain
retailer. At least 50 or more 7-eleven stores are expected to shut down, as they are not
performing. After the revelation of the wag scandal, in 2015, as they were not making sufficient
money, the company branch is failing to pay correct wages to the employees.
Thus, the scandal or fraud of the 7-eleven company in Australia is the outcome of
asymmetrical nature of the franchise agreement, largely. In order to prevent any company from
suffering such significant financial loss as well as the loss of goodwill, it is important to make
the laws governing the franchisee-franchisor relationship is made more stringent and fair. The
franchisors may draft a franchise agreement that stipulates the rights and obligation of both the
franchisor and the franchisee (Sivaraman and Turner 2016).
The franchise agreement may include a clause whereby the franchisor may request the
franchisees to provide report about the franchisee’s business, this would enable the franchisor to
monitor the number of employees and the amount of wages paid to the employees of the
organization. The cooperation between the franchisor and the franchisee would not only lead to
the growth of the company but also satisfy its objectives, which is to provide customer
satisfaction.

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Reference list
Australian Competition and Consumer Commission
Australian Securities and Investments Commission (ASIC)
Buchan, J., Frazer, L., Weaven, S., Tran‐Nam, B. and Grace, A., 2017. The Adequacy of Pre‐
purchase Due Diligence in Independent Small Business and Franchising. Australian Accounting
Review.
Fair work act 2009 (Cth)
Fair Work Regulations 2009
Franchise Code of Conduct
Hannigan, B., 2015. Company law. Oxford University Press, USA.
Hanrahan, P.F., Ramsay, I. and Stapledon, G.P., 2013. Commercial applications of company law.
https://www.7eleven.com.au/about-us
Sealy, L. and Worthington, S., 2013. Sealy & Worthington's Cases and Materials in Company
Law. Oxford University Press.
Sivaraman, G. and Turner, P., 2016. The 7-Eleven wages scandal: The need for law
reform. Precedent (Sydney, NSW), (135), p.53.
Webster, J., 2017. More than underpayments and civil penalties–Taking a strategic approach to
regulatory workplace relations litigation. Journal of Industrial Relations, p.0022185617705816.

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