Learn something.
Go down the rabbit hole of Australian workplace relations history, and discover everything that’s led us to the current spate of wage underpayments.
Contents:
Introduction & Glossary – Learn some important terms and some context.
How did this start? – Learn some background information.
How widespread is it? – Learn about the people this affects.
What about franchises? Learn about how this affects franchises.
Why is it happening? – Learn about the ways underpayments happen.
What can we do? – Learn what’s at the heart of this issue.
Proposed Solutions – Learn how we can combat this.
Introduction
Over the past 24 months, the Australian news cycle has been dominated by stories of companies engaging in widespread, systemic wage fraud and worker exploitation.
Surprisingly, the most scandalous of these accusations have not been levelled at small local businesses, but instead at multinationals and household names. These are brands and businesses we all know – so recognisable that you’d be hard-pressed to find an Australian who hasn’t patronised one of these businesses at least once.
That ubiquity is part of why these stories have resonated so deeply with the Australian public. After all, it’s one thing to know that some nameless, faceless individuals are being exploited; it’s another to know that the smiling 15-year-old who sells you a loaf of wholemeal and half a dozen rolls each Saturday is getting paid a pittance for the privilege.
But that familiarity with the brands at the core of these issues is not the only reason people are eagerly hitting the ‘share’ button when these articles enter their newsfeeds and inboxes.
These myriad underpayment scandals have come at a time when wage growth in Australia is at historic lows, but company profits are soaring. Weak, sluggish wage growth has caused consumer confidence to fall to its lowest level since October 2015, which is also well below the long-term average.
For the many Australians, who are feeling the squeeze due to rising house prices, high household debt and weak wage growth, the idea of major national (and international) companies engaging in wage fraud is particularly galling.
The companies behind the most high-profile cases in recent memory – including 7-Eleven, Caltex, Bakers Delight, Dominos Pizza, Pizza Hut and Made Establishment Group (the restaurant group owned by celebrity chef George Calombaris) – have garnered the kind of negativity publicity that makes marketing and PR departments reach for the Xanax.
(It only takes a quick Twitter search to see the kind of anger being directed at these companies by Australians.)
Of course, as you’d expect, most of these companies deny any kind of systemic, deliberate effort to underpay workers. And while it’s certainly easy to assume the worst and throw these brands under the bus, there are many ways that widespread underpayment can occur, and not all of them are created equally.
As people who spend each day entrenched in the complex world of workforce management, we understand that there are many moving parts to this issue – but we also understand that the trend of underpaying workers is one that needs to stop.
That’s why we’ve written a guide to help all Australians – from political leaders to business leaders, managers to casual employees – understand why wage fraud is so prevalent in our society at the moment, and what we can do to stop it.
Glossary
To fully grasp the effects, causes and potential solutions to the growing issue of widespread wage fraud in Australia, there are some key terms you need to understand:
Black economy
The segment of a country’s economic activity that is derived from sources that fall outside of the country’s rules and regulations regarding commerce. When it comes to wage fraud, this generally refers to cash-in-hand and untaxed arrangements.
Cashback scam
A scam that garnered significant media attention in September 2015 when it was revealed 7-Eleven franchisees had been using it to underpay workers. In a ‘cashback scam’, workers are paid the correct amount as per their hours and award – then forced to hand half their pay back to the owner in cash.
Fair Work Ombudsman
Often styled as just FWO, the Fair Work Ombudsman is a national body that provides information and advice, investigates workplace complaints and enforces Commonwealth workplace laws.
Free shift scam
A way for business owners who own multiple businesses to scam free hours out of their staff without detection. In a ‘free shift scam’, an employee is rostered on for, say, 10 hours at one store and paid accordingly. However, they’re then made to work an unpaid shift at the business owner’s other location.
Ghost employee
A ghost employee is someone who is recorded as an employee on the business’ payroll, but doesn’t actually work there. This person may be real or fictitious. Their pay will generally be directed to a bank account belonging to the business owner, or someone close to them.
Half-pay scam
A scam in which employees are paid for only half their hours. In a ‘half-pay scam’, an employee might work 30 hours, but only be paid for 15 hours. The remaining 15 hours are then attributed to a ‘ghost employee’.
WorkChoices
The name WorkChoices refers to federal industrial relations legislation passed by the Howard Government in 2006. WorkChoices made a number of significant changes to the Workplace Relations Act 1996, including changing dismissal laws, removing the ‘no disadvantage’ test for agreements, and changes to minimum employment standards. WorkChoices was repealed in 2009 by the Rudd Government.
Zombie agreements
A commonly-used term for a workplace agreement enacted during the WorkChoices era from 2006 – 2009. While WorkChoices was repealed in 2009, and agreements from that era generally expired in 2012 – 2013, they stay in play until replaced with a new agreement.
How did we get here?
Given that there seems to be a new underpayment scandal breaking each week, it can be difficult to remember that Australia has a long and proud tradition of passing legislation that protects workers rights, and that once upon a time we were a nation known as a ‘worker’s paradise’.
The Conciliation and Arbitration Act, established in 1904, was the beginning of industrial relations in Australia. From there, industrial relations in Australia continued to evolve, moving towards a more equitable, modern system for all of us. Some of the most significant events in Australia’s industrial relations history are detailed in the following graph:
Our industrial relations history is one of that is made up people across all industries, all backgrounds, all political persuasions, fighting for fairness. So why does it seem like we’ve forgotten that?
To understand that, we need to look at how the Australian workforce has changed over the past thirty years.
Increased casualisation
There has been, over the years, an enormous amount of hand-wringing over what’s perceived to be increased levels of workforce casualisation. And anecdotally, many of us would probably agree that it seems it’s more common than ever.
However, in 2016 the Australian Industry Group (Ai Group) made a statement that challenged this assertion – a statement that was then fact-checked by The Conversation, an independent source of news from the academic and research community.
Surprisingly, Ai Group’s initial assertion – that from 1998 to 2015, the casualised workforce rate stayed steady at around 20% – was found to be true.
What the Ai Group failed to take into account, however, is the data from years prior to 1998. And what that data shows us is that between 1984 and 1998, the casual employment share grew by a staggering 70%. Since that enormous jump, rates have held steady at around 20%.
So what happened in the mid-1980s to cause such a jump?
The 1980s saw a push for the deregulation of the labour market, sparked largely by globalisation and what were perceived as structural weaknesses in the Australian economy, including a reliance on primary products and an uncompetitive manufacturing sector.
In 1982, the ACTU and the ALP signed the Prices and Incomes Accord (often just called ‘The Accord’), whereby unions would refrain from making extra claims. In exchange, the ALP promised real wage maintenance over time, social wage increases and union involvement in policy-making.
For several years, the Accord was wildly successful – wages drift was low, days lost to industrial action was low, and job creation was high.
But in 1983 the Australian dollar was floated for the first time. The dollar was devalued by 40% in 1985 – 1986, and in response to that depreciation, real wages were discounted in order to head off an inflation spiral at the pass. Commodity prices fell, increasing the deficit, and the idea of further wage cuts was put forward, but deemed unviable.
The political and economical foundations of a centralised wage fixation system, so strong during the preceding Fraser Government, began to collapse. Employers became vocally critical of labour costs in the face of falling commodity prices and globalisation, and suddenly less likely to acquiesce to a centralised system – as indicated by several high-profile cases in which businesses sed common law remedies to successfully punish striking unionists.
At the same time, wage pressures – and the threat of further wage cuts – were making unions less inclined to offer support to the centralised system.
While the most vocal opponents of the existing system were pushing for complete deregulation – whereby workers sell their labour to the highest bidder, like any other market – this was largely rejected by Australians. However, a 1986 dispute between an NT-based mining company and 1000 workers publicly brought the issue of ‘labour flexibility’ into the national spotlight. And afterwards, three powerful but hitherto separate arms of the Australian labour market – the federal government, unions and the Confederation of Australian Industry – joined forces to incorporate labour flexibility into the wage system.
And, as a result, the number of casual employees in Australia begin to climb upwards.
WorkChoices
Arguably, one of the most controversial shifts in Australian industrial relations occurred in 2006, with the introduction of the Howard Government’s WorkChoices Act.
After the deregulation of the labour market in the 1980s, the Keating Government of the early 1990s passed legislation (Industrial Relations Reform Act 1993) that allowed workplace disputes to be settled by enterprise bargaining between employers and unions, rather than having to go before the Australian Industrial Relations Commission. The Keating Government also established ‘Enterprise Flexibility Agreements’ that could be negotiated without union involvement.
These trends were continued by the Howard Government, who came into power in 1996. One of the key decisions made by this government, was the introduction of Australian Workplace Agreements (or AWAs) in 1996, which were individual contracts between an employer and an employee.
After an impressive win by the Howard Government in 2004, the party held the balance of power in the senate, allowing them to push through legislation previously halted by Senate opposition.
The Workplace Relations Amendment (WorkChoices) Act 2005, colloquially known as WorkChoices, made a number of complex changes to Australian industrial relations law, but the three most important ones were:
WorkChoices was plagued with criticism from the very beginning. In 2007, the Howard Government lost at election to the Australian Labor Party, then helmed by Kevin Rudd. At the time of the loss, 65% of voters opposed WorkChoices.
The Rudd Government repealed WorkChoices in 2009, replacing it with the Fair Work Act. However, unless replaced with a new agreement, agreements made during the WorkChoices are still in effect.
The rise of the gig economy
If you search for the term ‘gig economy’ on Google Trends, you’ll see two interesting things.
One is an inexplicable, small spike of interest in the term in February 2004, long before companies like Uber and Deliveroo were something most of us could even imagine. (The top-selling mobile phone of 2004 was the Nokia 2600 which boasted ‘a colored display, polyphonic ringtones, games, and desktop tools’ – there’s no way we could have imagined the influence apps would have on the economy and society back then.)
The other is that the term didn’t see significant search queries until mid-2015, when the concept of the gig economy started to truly enter the public sphere.
Given its relative youth, the gig economy has already had a significant impact on the way we work. Data is a little thin on the ground so far, but a report by The Grattan Institute, released in April 2016, estimated that 0.7% of Australian workers are regularly seeking work through peer-to-peer platforms. If you take into account all workers who have ever used a peer-to-peer platform to undertake income-earning activities, the figure is around 5%.
While industry groups are always keen to tout the praises of the gig economy – the flexibility, the affordability for consumers, the ability for workers to easily supplement their incomes – the reality is, this kind of peer-to-peer labour leaves workers vulnerable.
On sites like AirTasker, where people list odd jobs and nominate a price they want to pay for it to be done (for example, at the time of writing this, an individual named Dani S is looking for someone to buy and deliver a single red rose with a handwritten note to an office in Fitzroy, for the princely sum of $25), it can be difficult for workers to command a decent rate.
On the other hand, workers don’t get much of a better deal when they work for companies who set the pay rate, rather than the end customer. For example, food delivery service Deliveroo is currently facing legal action for underpaying couriers. One Deliveroo courier, Douglas Williams, has claimed to earn only $9 per delivery. Completing an average of two deliveries per hour, Mr Williams is paid considerably less than the minimum award rate for bicycle couriers. Couriers like Mr Williams also do not earn penalty rates, superannuation or leave entitlements.
Deliveroo’s defense is that the workers are classified as independent contractors. While classifying workers – especially food delivery workers – as independent contractors is nothing new, it’s always been legally tenuous at best. The result of this collective action against Deliveroo could set a precedent with far-reaching ramifications for all companies who engage in this practice.
How widespread is the issue?
It can be difficult to get a sense of just how widespread the underpayment issue truly is, with very little data on the issue at this stage. However, by looking at the data we do have access to, we can start to shape a picture of how prevalent underpayment is in Australia.
Fair Pay Campaign Calculator
In November 2016, United Voice, the Meatworkers’ Union and the National Union of Workers launched an online calculator to help Australian workers compare their pay rates to the federal minimum wage scale and awards in eight different industries.
Within just 3 weeks, the Fair Pay Campaign Calculator received close to 20,000 submissions. And of those submissions, 25% showed that the worker in question had been underpaid.
The chances of being denied minimum pay rates was far higher for casual staff, with over 50% of submissions by casual employees showing underpayment. In contrast, just under 9% of permanent staff who submitted a request to the site showed up as being underpaid.
The worst-hit industry is the restaurant industry, with 60% of employees – across all employment categories – being underpaid. A full 90% of enquiries submitted by casual restaurant employees showed underpayment.
That’s not to suggest that you can simply apply these figures to all Australian employees and businesses en masse – it’s reasonable to surmise that employees who already suspected they were being underpaid were more likely to use the calculator, so consequently we could be seeing far more jarring numbers.
Fair Work audit results
Another metric we can look towards is the results of audits by the Fair Work Ombudsman of businesses suspected of systemic wage fraud.
As with the data from the Fair Pay Campaign Calculator, results of FWO audits seems to vary heavily depending on industry. The restaurant industry, once again, shows up as being particularly rife with underpayment, but it’s a prevalent across almost all industries.
The infographic on the right outlines some of the most shocking figures we’ve learnt from FWO audits over the past few years.
This is just a snapshot of recent FWO findings, but the pattern that is emerging is undeniable – underpayment of workers, particularly in sectors that favour casual employment, is incredibly widespread.
The above examples indicate that anywhere from 30% – 70% of audited businesses are guilty of breaching workplace law and underpaying employees.
Disproportionately affected groups
When Fairfax Media broke the investigation into 7-Eleven’s rampant worker exploitation in August 2015, one of the key themes that emerged was the the fact that a disproportionate number of the employees being wilfully and systematically targeted for exploitation were international students.
On the back of this, Fairfax launched another investigation – this time, to uncover the true breadth of the so-called ‘black economy’ in Australia.
The sheer scale of the black economy, as uncovered by Fairfax, is staggering. Hundreds of thousands of foreign workers – in hospitality, factories, construction, agriculture, beauty and retail – are being paid a fraction of what they’re entitled to. A number of these employees are led to believe that they are not entitled to the same rights or protections as local workers. Some are threatened with deportation to keep them in line.
Fairfax, alongside Monash University, analysed over a thousand job advertisements on sites targeted at temporary foreign workers (primarily from China, Malaysia, Hong Kong and Taiwan), and found 80% of them were offering wages well below the minimum. On these sites, jobs were commonly advertised as offering $10 to $13 an hour, which falls significantly below the Australian minimum wage of $17.29.
Even worse are the networks of ‘middlemen’ who demand payments from foreign workers in order to help them secure paid work. These workers may be forced to pay part of their wages back to the middleman, or to pay a one-off payment of several hundred dollars. In the most extreme cases, workers are paid as little as $4 an hour.
Given that the nature of a black economy means it’s near impossible to get specific data, it’s entirely possible – if not likely – that far more than 80% of temporary foreign workers are underpaid.
How does the franchise model differ?
There’s a common thread that links most of the recent high-profile cases of wage fraud and worker exploitation in Australia, and that is the fact that a significant number of them are franchises.
Of course, it’s not just franchises who have come under fire from the FWO – after all, franchises represent only 4% of small businesses in Australia, and the issue, as we’ve already illustrated, is far more extensive than that.
But it’s impossible to deny that the most high-profile cases – 7-Eleven, Caltex, Dominos, Pizza Hut, just to name a few – are franchise businesses.
So why is that?
Price pressure and pizza wars
In recent memory, two major pizza chains in Australia – Dominos and Pizza Hut – have been exposed for breaching Australian workplace law and underpaying workers.
The fight for the biggest slice of market share in Australia’s takeaway pizza market has escalated significantly in the past five years. Eagle Boys, once the nation’s biggest pizza chain, was a casualty in this war – the company entered voluntary administration in July 2016.
According to IBIS World figures, in mid-2016 Dominos had 25% of the market share in this space. The next biggest share belonged to Pizza Hut (10.7%), followed by Eagle Boys (4.6%), Crust and Pizza Capers (4%) and La Porchetta (1.9%).
Since then, Pizza Hut has acquired the failing Eagle Boys chain, allowing them to add another 100 stores to their books, and compete more aggressively with Dominos.
Over half (53.78%) of the market share in the takeaway pizza space in Australia belongs to the ‘Other’ category – independent and local pizzerias across the country, and it’s this share that Dominos has been looking to chip away at.
In June 2014, Dominos announced plans to offer $4.95 pizzas every day of the week, as opposed to their previous ‘Cheaper Tuesdays’ deal. Unsurprisingly, Pizza Hut responded quickly, offering the same deal, but adding a cap to ‘premium’ offerings.
This aggressive price war has been widely criticised by franchisees from both brands, and in June 2015, Pizza Hut franchisees launched a class action against Pizza Hut parent company Yum Brands, claiming the $4.95 pricing model made their businesses deeply unprofitable.
When news began to break about the widespread underpayment practices at both Pizza Hut and Dominos, a number of franchisees hit back, claiming they’d had no choice – that it was impossible to turn a profit on the back of $4.95 pizzas, and it often became a choice of underpaying employees, or losing their homes or businesses.
If consumers are paying less than ever for a product, and parent companies are making record profits (as is the case for Dominos, who more than doubled net profit between FY2014 and FY2016), then it stands to reason that it’s franchisees and employees who are going to feel the squeeze.
Similar criticisms have been levelled at the 7-Eleven franchise model, with franchisees claiming that head office was well aware of the fact that it was impossible to make any sort of profit from a 7-Eleven franchise, unless you were prepared to underpay workers.
In the Griffith Journal of Law & Human Dignity, consumer advocate Michael Fraser relates the following story:
“I recall an example of one franchisee coming to me after the scandal broke. He told me he had been underpaying for years in order to survive financially, and 7-Eleven never seemed to care until there was national media attention on the issue and he was subsequently breached.
He explained to management the store was not profitable (and never would have been) and was unable to pay staff the legal wage. He was told that these were meant to be family-run businesses: that his wife could work a 12-hour shift every day, and then he could work a 12-hour shift every night, resulting in “no real need” for other staff.
He told Head Office that they had young children and would never see them as a family but management expressed no concern.”
Lack of support
Despite the claims by some franchisees that they’ve been hoodwinked into buying fundamentally unprofitable businesses, that simply can’t be the case for every franchise in Australia – after all, there are approximately 1200 franchise business formats in Australia, employing around half a million people.
The franchise model is not, by any stretch, inherently flawed. It also contributes significantly to the Australian economy – to the tune of $168 million.
In order to find out why some franchises seem to be more prone to wage fraud, we need to look at franchises at the other end of the spectrum; franchises that are highly regarded by franchisees, the public and the Franchise Council of Australia (FCA).
Specsavers entered the Australian market almost 10 years ago, with a franchise model already proven to work in the UK. In 2013, they were awarded Franchise of the Year by the FCA, after opening 100 stores in 100 days.
Franchises in the running for this award are judged on a number of criteria, including financial performance of both franchisees and franchisors, franchisee support, and processes.
In the same year, Specsavers also won an award for Australian Retail Employer of the Year.
So what are Specsavers, and runners-up FoodCo and Snap-On Tools, doing differently to, say, Dominos?
The key, according to franchise consultant and judging panel member Phil Blain, is the level and quality of support and feedback these three businesses provide to their franchisees.
“They keep coming back and updating their support when it’s necessary. They have a good collection of data on all the franchisees and they have benchmarks which allow them to go back to the franchisee with reports and analysis explaining not only how they’re going against their competitors, but how they’re performing against their peers,” said Blain.
‘Big brother’ fears
In a standard, company-owned retail chain, the chain of command goes along the lines of this:
Head office -> Store Manager -> Floor staff
In an arrangement like this, head office will have complete visibility of each store’s operations – from sales data, to footfall to labour costs, and everything in between. Because head office has complete authority over the store, and therefore the store manager, they’re able to analyse data and pass down decisions accordingly.
In a franchise, the chain of command has an extra element added to it, like this:
Head office -> Franchisee -> Store Manager -> Floor staff
This extra level of complexity is at the heart of wildly differing opinions on how much control a franchisor should have over a franchise.
The ongoing issue of wage fraud in the Australian franchise space has raised this question more than once, though never with any kind of resolution. Some franchisees claim that franchisors are not nearly involved enough in helping them grow, build and manage their businesses. Others argue that franchisors already take too heavy a hand in their operations, and that they don’t want that level of interference or oversight from their franchisor.
But in December 2016, 7-Eleven announced that they had signed a Proactive Compliance Deed with FWO, to ensure accountability among its many franchisees. This landmark agreement saw 7-Eleven committing to a number of measures to stamp out what wage fraud, including the installation of biometric timeclock systems and CCTV systems. This complete shift from their previously hands-off approach with franchisees is an indication that in a world where wage fraud is prevalent, franchisors are acknowledging that they need to take a more proactive approach to compliance.
Why is wage fraud so prevalent?
Contrary to what you might be led to believe, there’s no single cause of wage fraud, nor is there one single way of underpaying someone. There as many causes as there are methods, some more unscrupulous than others.
In order to solve this issue, it’s crucial that we acknowledge this, and the fact that not all instances of staff underpayment are equally as problematic.
The majority of staff underpayment scandals that have hit the Australian media in recent years fall into one the four following categories.
Zombie agreements
Examples: Bakers Delight, Grill’d, Pancake Parlour
Zombie agreement is the rather evocative term given the workplace agreements that were created during the controversial WorkChoices era of 2006 – 2009.
Among a number of changes made during the WorkChoices era, the removal of the ‘no-disadvantage’ test was one of the most significant – without it, employers were able to negotiate contracts with employees that would leave them far worse off than they would have been under award.
WorkChoices was officially repealed by the Rudd Government in 2009, and any agreements made during that time nominally expired by 2012. However, unless an application is made to terminate the agreement, they remain legally valid.
The Young Workers Centre says there around 4000 zombie agreements still in operation in Australia – particularly within franchises.
The continued use of zombie agreements in 2017 and beyond is technically legal, but unlikely to garner particularly good press for a brand.
Bakers Delight received significant negative attention in early 2017 after a 15-year-old bakery worker from Melbourne made an application to the Fair Work Commission for her agreement, negotiated in 2006, to be terminated. While Bakers Delight’s lawyers succeeded in thwarting the original bid made by the worker, public pressure eventually forced them to scrap the agreement, and put all employees on the retail award.
Similarly, Pancake Parlour employees successfully challenged a zombie agreement in 2015. The termination of their agreement meant Pancake Parlour staff were now entitled to penalty rates during nights and weekends, as well as greater certainty of working hours, minimum breaks between shifts and laundry costs.
Not-so-independent contractors
Examples: Crust, Deliveroo, Uber
While calling staff ‘independent contractors’ to get around minimum wages and awards is nothing new, it’s a practice that has come under increasing scrutiny in recent years, as more and more of us turn to apps to find drivers, handymen, food delivery, holiday accommodation and more.
As with zombie agreements, the legality of this practice could best be described as ‘tenuously legal’. Another thing this practice has in common with zombie agreements?
Fed-up employees are challenging it in court.
Competing food delivery services, Deliveroo and Foodora, are both facing legal action from bicycle couriers. As ‘contractors’ for the delivery services, couriers are required to register for an ABN, and cover all bike maintenance, mobile phone and insurance costs themselves. It also means they miss out on superannuation, penalty rates, leave entitlements and unfair dismissal protections.
The crux of the case against Deliveroo and Foodora is that these businesses only treat their couriers as independent contractors when it suits them. According to Maria Nawaz, a solicitor with the University of NSW’s Kingsford Legal Centre, the arrangements couriers enter into with Deliveroo and Foodora do not carry the usual hallmarks of independent contract work.
“Deliveroo and Foodora require riders to wear their uniforms, workers can’t bargain with companies nor with customers over rates of pay per delivery. Most workers don’t have existing businesses but are told to get ABNs in order to perform the work, and they don’t provide skilled labour,” said Ms Nawaz.
The result of the legal action, still pending, could have a significant impact on a number of businesses taking fairly liberal interpretation of what it means to be an independent contractor.
In October 2016, a similar case was argued against Uber in the UK. The court rejected Uber’s claim that their drivers were independent contractors, and declared that drivers were entitled to minimum wage, holiday pay and sick leave.
In December 2016, the company launched an appeal against the decision.
Wilful and deliberate underpayment
Examples: 7-Eleven, Yogurberry, NGV
The most salacious – but likely least common – way in which employees end up getting underpaid is a wilful and deliberate attempt by management to not pay their staff that to which they’re entitled.
In order to get away with it, business owners resort to increasingly complex (and, admittedly, creative) methods to underpay staff without detection. A number of these methods came to light after the Fairfax investigation into 7-Eleven in 2015.
The main issue with deliberate underpayment is that it’s harder to detect, and therefore hard to stamp out. No matter how effective the safeguard a business or franchisor puts into a place is, someone truly determined to do the wrong thing will find a way to get around it.
One of the most galling examples of deliberate underpayment of employees actually came about in response to the initial investigation into 7-Eleven by Fairfax. The initial investigation focused on what was called a ‘half-pay’ scam – that is, paying people for half their actual hours worked, thus effectively halving their pay rate.
Once the lid was blown off that particular scheme, another came into play – the so-called ‘cashback scam’. In a cashback scam, employees were paid their full pay for their full hours worked – then made to go to an ATM, and withdraw half that pay in cash, and hand it back to management.
Usually the managers engaging in cashback scams were smart enough to take staff to ATMs outside of their 7-Eleven store, away from security cameras – the scam was only uncovered when the ABC used hidden cameras to capture footage of a cashback scam in action.
Since that expose, more and more beleaguered 7-Eleven employees have come forward as victims of this scam.
When accused of underpaying staff, businesses commonly defend themselves by claiming it as an innocent mistake – awards are confusing, processes are manual and sometimes mistakes get made. But in cashback, half-pay or free shift scams, it’s hard to argue that the underpayment was the result of mere ignorance.
Honest mistakes
Examples: Swimland, MaDE Establishment Group, University of Wollongong
At the opposite end of the spectrum to grimy cashback scams are the instances when businesses underpay employees due to bad processes, manual data entry and human error.
One such example emerged in late 2016, when a Fairfax investigation into Paul Sadler Swimland – a franchise network of over 15 swim schools across Australia – revealed employees had been underpaid, dating back to 2010.
While Swimland declined to reveal just how much money they owed staff, some estimates put the amount in the hundreds of thousands. The underpayments were attributed to “poor manual processes and human error”. Given that a significant proportion of Swimland’s staff are teenagers, and that pay rates for junior employees increase year-on-year until they reach 21, it’s easy to see how poor processes could lead to long-term underpayment.
It’s worth recognising that staff can be underpaid in other ways than just receiving a reduced pay packet. All Australian employees are entitled to superannuation, to be paid into their nominated superannuation fund by their employer each quarter. In April 2017, the University of Wollongong in New South Wales admitted to owing millions to employee superannuation accounts.
Like Swimland, UOW claimed that the error was due to poor processes, as well as ‘longstanding anomalies’ in payroll systems. UOW has pledged to update their payroll systems to prevent any issues occurring going forward.
While we have to accept that in life, accidents happen, businesses have a responsibility to ensure that the processes they have in place are smart, accurate, compliant and as free from error as possible. Not only do honest mistakes like this impact the livelihood of employees, it can also cost the business responsible substantial amounts of money.
For example, UOW has been forced to bring in Deloitte to review the amount owed. The university has so far set aside $10 million tocover unpaid super, any interest owing and potential penalties issued by the ATO. No word yet on what their final fee to Deloitte will be – but we do know that it has not been included in the $10m set aside.
So how do we fix this?
So far we’ve identified that wage fraud and worker exploitation in Australia is prevalent, expensive and well-established. It stands to reason that we need to find a solution.
But like most things, that’s easier said than done – and before we can even consider how to fix this issue, we need to look at the why of it all.
What’s at the heart of this issue?
Greedy business owners. Unprofitable franchises. Poor processes. Human error. Shady cashback scams. Honest mistakes.
Every underpayment scandal is different in its own way, in both method and motivation, which can make it seem like stamping the issue out is a lot like cutting the heads of a Hydra. If you get rid of a half-pay scam, and an even worse cashback scam pops up in it’s place, is there any point to tackling the issue at all?
The answer, of course, is yes. It’s not that tackling the issue is pointless – it’s that the way in which we’re doing it is pointless.
To truly prevent wage fraud and worker exploitation, we need to take a top-down approach, and look at the culture that has caused these problems to grow and thrive.
Since the push for the deregulation of labour in the 1980s, both government and business groups have sought to chip away at hard-earned workers rights in Australia. The campaign to reduce the power of labour unions, the introduction of AWAs, the reduction of minimum conditions, the 1998 waterfront dispute, WorkChoices, and now the LNP’s attempt to cut penalty rates have all coalesced to build a pervasive attitude in the community that fair pay and conditions are not a right but a privilege.
It’s ‘death by a thousand cuts’ – dozens and dozens of attacks, ignored or acquiesced to, compounding until the situation reaches tipping point.
To truly kill the Hydra, we need action from those at the top – politicians and business leaders, willing to change the dialogue, and shift the culture away from a place where worker exploitation is okay.
Proposed government solutions
In March 2017, the Turnbull government proposed changes to the Fair Work Act 2009, in a bid to stamp out wage fraud and worker exploitation in franchises by making franchisors liable for breaches of workplace law by their franchisees.
Labelled the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017, this amendment seeks to:
- Amend the existing Fair Work Act to make it expressly unlawful for employers to ask employees to ‘pay back’ some of their wages as per the 7-Eleven footage
- Increase the maximum penalty for franchisees engaged in systematic underpayments from $54,000 to $540,000
- Strengthen the power of the Fair Work Ombudsman to be able to issue ‘FWO Notices’, which would compel individuals and companies to produce documents and appear before the Ombudsman
- Give the FWO enforceable powers of questioning for the first time ever
It’s a bold move, particularly from a conservative government that generally positions itself as ‘business-friendly’. Politically, cracking down on worker exploitation is a big issue – and the LNP, ALP and the Greens are all competing over who can position themselves as the toughest on the issue.
Unsurprisingly, however, the proposed amendments have been criticised heavily – by workers unions, who say they don’t go far enough, and by business groups, who say they go too far.
National Secretary of the National Union of Workers (NUW), Tim Kennedy, has criticised the measures, saying there was “not much in the policy because it doesn’t even give workers are pathway to enforce these rights”. He also called the proposed increased penalties a mere drop in the ocean compared to the amounts owed in backpay by some of the businesses involved.
As with any hot-button political issue, legislation to stamp out worker exploitation and wage fraud in Australia has the potential to become caught up in negotiations and mud-slinging between invested parties. The amendment is currently before Parliament, and if rejected, it could be years before workers see any real protection.
Potential solutions
Undoubtedly, updating legislation to better protect workers in the evolving landscape that is Australian business in 2017 is a crucial element to putting a stop to wage fraud and worker exploitation.
But action and leadership can’t just come from our political leaders – it also needs to come from our nation’s business leaders. When businesses take a public, proactive approach to ensure fair pay and treatment of their own staff, it helps shift the narrative, and make worker exploitation less acceptable.
Taking a proactive approach to finding solutions is smart. By openly stating a commitment to fair pay and conditions, these brands get to position themselves as part of a new breed of businesses, where employees are valued. End consumers feel better about purchasing from them, while potential franchisees can feel confident that, if they buy into this network, they won’t end up getting dragged through the mud.
Franchisors in particular have a powerful opportunity to act as example, by giving their franchisees the tools they need to manage their workforce effectively and accurately, and creating a culture where wage fraud is never a consideration.
The Franchise Council of Australia estimates that, per capita, we have more franchise systems than any other country – around 79,000 franchise units, representing some 1200 brands. The industry as a whole contributes 14% of GDP, and employs nearly half a million people.
No matter which way you slice it, franchising is big business in Australia, and maintaining the integrity of the sector is a financial imperative. That’s why some of the more progressive business leaders in Australia – franchisors among them – are looking to find new, unorthodox methods to put an end to worker exploitation in Australia.
As more and more stories emerge of systemic wage fraud and underpayment of Australian workers, the internet has become littered with thinkpieces on what the next step should be. And if you can get past the articles that propose solutions that perhaps miss the point a little (reducing the minimum wage, for example, would perhaps take the illegality out of the situation, but it’s hardly addressing the real issue), there are some interesting and truly innovative suggestions out there.
The most interesting solutions hinge on one of three major elements in order to work:
- A workforce that is more informed of both their rights, and who to contact if those rights are violated
- Harsher penalties – social, criminal and financial – for business owners and operators who engage in wage fraud
- Harnessing new technologies in order to prevent worker exploitation before it happens
Let’s take a look at five solutions that have potential to shake up what is (lamentably) fast becoming an indelible part of how Australians are employed and paid.
An independent grading system
Giving things a letter grade or score in order to help consumers make more informed choices is certainly not a new phenomenon.
The Australian Government implemented the ‘Health Star Rating’ for all packaged food in 2014. Baptist World Aid gives fashion brands a letter grade based on how ethical their production and supply chain is. Hawker stalls in Singapore and restaurants in New York City are given a letter grade (that must be displayed) by the health department based on food handling and hygiene.
Given the sheer magnitude of the underpayment problem in Australia, it’s not outrageous to suggest that a similar system – whereby brands are given a score or grade based on compliance with Fair Work Australia – would help. A publicly displayed score or grade would help consumers decide whether to patronise the business, and potential employees decide whether this is where they want to work. It could also act as an incentive for businesses to improve their processes.
There are, of course, barriers to this idea, particularly for franchises. If 30% of a franchise network is guilty of underpayment and worker exploitation, is it fair of the other 70% get saddled with a poor grade as a result?
Then there’s the amount of work it would take to assess and grade every business in Australia. If done by the public sector, what part of the budget would fund this? If done by the private sector, how can we ensure objectivity?
The logistics of such an undertaking may be difficult to work out, but it’s an idea that has definite potential.
Chain of Responsibility
One of the most controversial suggestions to emerge in response to the glut of underpayment scandals is that penalties should fall on all parties involved. In the case of franchises, this would make not just the franchisee responsible, but also the franchisor, and in some cases bookkeepers or payroll staff.
Let’s take a look at the state of heavy vehicle transport and driver fatigue prior to 2012.
In 2010, truck accidents in Victoria killed 50% more people than the previous year. Faced with that alarming statistic, the federal government was forced to act on the long-acknowledged (but never addressed) working conditions of truck drivers in Australia. Often forced to meet challenging delivery deadlines, it was common knowledge that truck drivers often felt pressured to drive while fatigued, and take uppers to combat that fatigue.
As a result, the Heavy Vehicle National Law Act was passed into law in 2012. The act addressed a number of issues, including vehicle standards, mass dimensions & loadings, fatigue management, the Intelligent Access Program, heavy vehicle accreditation and on-road enforcement. And one of the most interesting aspects of the Act was the introduction of the Chain of Responsibility (COR), which made road safety a shared responsibility for all parties involved in the supply chain.
As we mentioned earlier, the Dominos and Pizza Hut underpayment scandals followed after a pizza price war between the two outlets saw them both offer $4.95 pizzas every day. Franchisees claimed that the business model they’d bought was now unprofitable, and that underpaying staff was their only option.
Similar accusations from franchisees with 7-Eleven and Caltex emerged after their own issues with underpayments and wage fraud emerged.
The onus, currently, is on the franchisee to do due diligence before buying a franchise. However, there are some issues with doing due diligence in Australia. The Franchise Code of Conduct is a set a of guidelines, not a requirement. A Disclosure Document from a franchisor will tell a potential franchisee about the franchise they’re looking at, but not necessarily about the parent company, or other entities owned by the parent company. And while you can look up any judgements against the franchisor, you won’t find details on anything settled outside of court.
Ultimately, as it currently stands, undergoing proper due diligence before purchasing a franchise can be difficult, costly and riddled with inaccuracies.
The implementation of a Chain of Responsibility in underpayment and wage fraud cases could incentivise better compliance at all levels of the business.
Technological solutions
At some point, ‘there’s an app for that’ went from a marketing catchphrase to a way of life. Whether you want to learn how to make a brioche, drive to Berwick or buy a new winter wardrobe, there exists an app to make that process significantly easier.
Unsurprisingly, our predilection for tech solutions to non-tech problems have left companies, employees, unions and government agencies seeking out software and tech that can help put an end to wage fraud.
In March 2017, the Fair Work Ombudsman released an app called Record My Hours, which uses geofencing to automatically track and record the hours an employee spends at work. The app lets employees easily maintain a log of their actual hours worked, which can come in handy if they believe they’ve been underpaid and need to prove their hours worked.
In December 2016, 7-Eleven inked a deal with the FWO to combat exploitation in their stores, using a variety of technology, including biometric time clocks and CCTV supervision, to help stamp out cashback scams, and get an accurate record of actual hours worked by staff. Stores will also be required to use a centralised payroll system, which has minimum rates of pay specified, to reduce the opportunity for franchisees to pay staff below the minimum wage.
There’s an enormous amount of opportunity for organisations looking to take advantage of the current issues with underpayments and wage fraud, by building or purchasing software that helps eliminate it.
Give zombie agreements the BOOT
Since 2009, and the introduction of the Fair Work Act 2009, businesses have been required to pass the Better Off Overall Test, or BOOT. This test requires that each of the employees to be covered by the agreement are better off overall than under the relevant modern award.
However, the BOOT only applies to new agreements that are submitted to the Fair Work Commission – it does not apply to agreements made during the WorkChoices era (or zombie agreements), which can exist in perpetuity unless an application is made to terminate them. That’s why thousands of zombie agreements – mostly affecting young or migrant workers – continue to be in action nearly 10 years after the fact.
There are two ways to tackle this issue.
The first is by developing an online tool that compares what an employee is getting paid, and whether it passes the BOOT. Such a tool would make it easier for employees to identify issues, and know whether they should challenge their existing agreement. It would also help employers know whether the agreements they have staff on are unfair.
The second is changing the rules to allow for a complete repeal of current zombie agreements, and putting all affected staff onto the relevant award – without requiring an application for termination first.
National public education campaigns
A common theme that arose after the 7-Eleven story broke was that a significant number of those employed by 7-Eleven simply weren’t aware that they were being underpaid – and that’s, at least in part, because a significant number of those employees are international students and migrant workers.
As we discussed earlier, there are groups of people that are disproportionately affected by these underpayment issues – primarily young and foreign workers.
And that comes down to the fact that these workers lack an awareness of what they should be paid, and what to do if they suspect they have been underpaid.
While the FWO is working to dispel myths about what young workers are entitled to, and the internet is filled with any number of resources for young and foreign workers, finding those resources still requires employees to be aware that something is wrong. An employee who isn’t even aware of their own exploitation is unlikely to stumble upon these resources.
A national public education campaign to educate young and migrant workers on what they’re entitled to as employees would help empower exploited groups, while holding employers more accountable. It could also go a long way in changing the way we perceive worker exploitation – turning it into something that society writ large condemns.
Public education campaigns can be remarkably effective. Look at the effectiveness of anti-tobacco campaigns, or the way TAC road safety campaigns have changed the way the public perceives drunk driving and speeding.
What happens next?
The next Australian federal election is set to occur somewhere between August 2018 and May 2019, and barring some truly catastrophic events before then, it’s reasonable to assume that worker exploitation and wage fraud will be a hot-button issue leading up to it.
Both major political parties, as well as the Greens, have outlined aggressive strategies to stop wage fraud, and the possibility of franchisors becoming more liable for underpayment issues is becoming increasingly likely.
Systemic wage fraud and worker exploitation is endemic in Australia, and it is a social and economic issue that needs to be addressed sooner rather than later. The most recent employment figures suggest our unemployment rate is sitting stable at 5.9%, but that figure does not take into consideration the issue of underemployment – the growing number of temporary, casual, part-time and self-employed individuals who make up the Australian workforce.
Already lacking income security, this group is the most likely to be impacted by businesses engaging in wage fraud. Being a part of this group already has significant flow-on effects – far less superannuation to retire on, the inability to afford health insurance, reduced chances of owning home or supporting a family. On top of that, research from The University of Melbourne has discovered that Australian men with a history of casual work after the age of 35 earned 10 per cent less later in life, and suffer stunted career progression, compared to men in permanent employment. Underpaying them is just the cherry on a pretty disadvantaged sundae.
It is both socially and economically irresponsible to allow rampant underpayment of wages to continue unfettered.
You can’t stop an employer truly determined to rip off employees – there will always be ways to rort the system. However, our society is predicated on the belief that most people want to do the right thing, as long as the right thing isn’t going to make their lives significantly more difficult.
The reality is, paying people correctly can be incredibly complex – modern awards, ages of staff, penalty rates, overtime, accurate record keeping and human error all add complexity to the issue. Tech that helps employers accurately track time, interpret awards and get people paid correctly and on time, every time, is an incredibly valuable tool in the fight against worker exploitation.
By equipping businesses with the tools and the skills to optimise their workforces and manage labour costs effectively, and disincentivising non-compliance by increasing penalties, we can ensure all Australians are paid fairly and equitably.
And in a country that prides itself as being ‘the land of the fair go’, that’s something we should all be able to get behind.
