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Immigration Agents Raid 7-Eleven Stores amid Conflict between Franchisor and Franchisees

While immigration enforcement agents descended on 7-Eleven convenience stores across the country early last Wednesday morning, showing Homeland Security police keeping customers at bay while arresting undocumented workers, 7-Eleven corporate headquarters seemed to have little response to the public relations nightmare.

As the media frenzy erupted, the franchisor issued a statement pointing the proverbial finger at the franchisees in its 8,600 U.S. locations.

"7-Eleven franchisees are independent business owners and are solely responsible for their employees including deciding who to hire and verifying their eligibility to work in the United States.  This means that all store associates in a franchised store are employees of the Franchisee and not 7-Eleven, Inc. 7-Eleven takes compliance with immigration laws seriously and has terminated the franchise agreements of franchisees convicted of violating these laws," the statement declared.

Although unrelated to last week's U.S. Immigration and Customs Enforcement (ICE) raids, the relationship between the franchisor and its franchisees has been growing more contentious each year. While 7-Eleven, Inc. emphasizes that store owners are independent business owners who make their own decisions regarding the operation of their stores, including employment policies, franchisees have now filed legal action against 7-Eleven corporate regarding that very theory.

Last October five franchisee leaders in the National Coalition of Associations of 7-Eleven Franchisees (NCASEF), representing 7,000 members, filed a proposed class action lawsuit against Dallas-based 7-Eleven, Inc. in California federal court. The complaint asserts allegations that the franchisor exerts so much control over its store owners that they are treated more like employees than independent business owners. It contends that to insure its dominance and control over franchisees' operations, the franchisor has all the powers of being an employer and "all the harshest, most overreaching rights of a commercial lender, landlord, and personal property lessor."

The lawsuit also states, "At the core of Defendant's [7-Eleven's] control is its total dominion over every dollar received into or paid out of proceeds generated from every franchise store. Defendant's absolute control over the money insures that Defendant gets paid every single day in full for all matured obligations owed to Defendant before any store creditor, worker or franchisee receives any monetary payment." The complaint alleges that the franchise company's control over the money also is used to impose its will over virtually every aspect of a franchisee operation."

In its counterclaim, 7-Eleven corporate asserts that the franchise agreement clearly states: "You and we agree that this Agreement creates an arm's-length business relationship and does not create any fiduciary, special or other similar relationship." But the franchisee plaintiffs argue that in 7-Eleven's November 1, 2017 amended complaint that 7-Eleven, Inc. admitted in its 2016 Federal Trade Commission (FTC) franchise disclosure document, "We retain a significant financial and marketing advisory role in the franchise business that in most other franchisee businesses." The franchisees stresses that by contractual dictate, 7-Eleven's franchise agreement and incorporated operating procedures "impose more pervasive control over franchisee activity than any other in the United States."

7-Eleven's "Systemic" Wage-Fraud Scandal in Australia

7-Eleven, Inc. convenience store chain in the U.S. is not the only 7-Eleven system going through turmoil involving class action litigation, wage theft and investigations from government authorities. Australia 7-Eleven has also been riddled with scandals and bad press, causing friction between the franchisor and its franchisees and their store employees.

As background, 7-Eleven is a Japanese international chain of convenience stores that operates, franchises and licenses some 56,600 stores in 18 countries. Seven-Eleven Japan Co., Ltd. Is located in Chiyoda, Tokyo, and is held by the Seven & I Holdings Co. Its North American franchisor and subsidiary, headquartered in Irving, Texas, is 7-Eleven, Inc. The 7-Eleven franchise system in Australia was started in 1977 by billionaire Russell Withers and his sister Beverly Barlow. Their wealth was reported to be more than $1.5 billion in 2015.

According to 7-Eleven's Australia website, "7-Eleven Stores Pty Ltd, Australia's first choice in convenience, is a private company owned by the Withers and Barlow family. The company has a license to operate and franchise 7-Eleven stores in Australia from U.S. based 7-Eleven, Inc."

In July 2016 a media investigation uncovered "startling and systemic" wage fraud and employee exploitation across Australia's 7-Eleven chain. The original inquiry into the 7-Eleven system came from Fairfax Media and ABC Four Corners, which resulted in the Fair Work Ombudsman, an Australian government agency that ensures compliance with workplace laws, bringing actions against franchisees before the courts, penalizing them for underpaying and overworking employees.

The Sydney Morning Herald reported on the shocking investigation on August 29, 2015, revealing the widespread underpayment of workers in 7-Eleven stores. The expose' states, "Explosive internal documents reveal that between July and August this year 7-Eleven head office reviewed the payroll compliance at 225 stores and found that 69 stores had ongoing payroll issues. This is equivalent to one in four stores based on one month's review."

A 7-Eleven "company insider" said that the head Australian 7-Eleven office had been covering up the wage fraud by scores of its franchisees for years. "They can't run 7-Eleven as profitably and successfully as they have without letting this happen. The reality is its built on something not much different from slavery," the 7-
Eleven insider said.

After the media investigation, 7-Eleven Australia reluctantly announced it would launch its own inquiry into purported wage fraud in its system, as well as the apparent cover-up at its head office. While the company publicly promised to pay 20,000 workers back for the wages they lost, 7-Eleven Australia later backed out on its promise.

Professor Allan Fels, one of 7-Eleven's most savage critics, was appointed to spearhead the new investigation with a selected panel. At that time, Fels stated, "It seems to me that the 7-Eleven business model will only work for the franchisee if they underpay or overwork employees. I think the fact that so many people not being paid by Australian standards undermines the whole foreign guest worker laws and regulations that we have. If Australian standards are not conformed with, if there is underpayment or if they [workers] are forced to work longer hours than are permitted under the guest program arrangement, it casts a shadow, it puts in a very bad light the foreign guest worker law. This really needs to be cleaned up if the foreign guest program is to continue."

Professor Fels told ABC News there needed to be an independent investigation, but 7-Eleven Australia didn't want it. He said, "The first problem is they're not independent, their wish is to minimize the payout."

Response on last week's 7-Eleven U.S. Raids

After immigration agents raided almost a hundred 7-Eleven stores last Wednesday, arresting 21 individuals, Thomas D. Homan, ICE deputy director and senior official performing the duties of the director, had this to say, "Today's actions send a strong message to U.S. businesses that hire and employ an illegal workforce: ICE will enforce the law, and if you are found to be breaking the law, you will be held accountable. Businesses that hire illegal workers are a pull factor for illegal immigration and we are working hard to remove this magnet."

Franchisees have responded to the raids. One store owner in Florida said he doesn't condone employers hiring illegals. "I know we have to have enforcement. But these tactics seem like we live in a police state. Having businesses "raided" and shut down in front of customers, with no due process, is like a judge granting a search warrant for probable cause. What kind of country do we live in?"

Another franchisee, who did not want to be identified, said, "At 6:00 this morning, four agents were outside one of my stores in (redacted). They entered, shut down the store for a few minutes, checked the identification of all my employees and handed off some paperwork. Of course, we don't have any undocumented workers, nor have we ever had them." He added that the ICE agents just worked a highway corridor in which several 7-Eleven franchisees operate stores. He said their customers at one site were told that the store was closed, and they needed to either wait until the raid was over or find another location. "Not good!"

The approach the agents used had a negative impact to their business. The franchisee said, "I understand the need for enforcement and, I suppose the random aspect of inspection will catch a few operators not doing the right thing. Nevertheless, it really didn't seem right. Something is off." Then he added, "No corporate stores were targeted to my knowledge." 


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About Janet Sparks

Janet Sparks's picture

Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.