They’re the revelations seemingly without end: from pizzas to posh nosh, from convenience stores and corner cafes to supermarkets, on farms and in franchises across Australia, investigations continue to show that workers’ are being paid less than they are legally entitled to.
You could say they are being underpaid, or ripped off – or that they are the victims of wage theft.
What is wage theft?
Wage theft is a term used by unions, but seeping into the mainstream, to describe the practice of paying workers less than they are entitled to under Australia’s workplace relations system.
Its various forms include underpaying wages, penalty rates, superannuation, overtime, commissions and entitlements such as sick, annual or carers leave; or requiring workers to repay money earned or making unauthorised deductions from employee pay.
Wage theft is distinct from the problems involved in casual and insecure work, the gig economy and the government’s policy to reduce penalty rates, because it involves unlawful activity.
Even so, reports in The Age, The Sydney Morning Herald and elsewhere have shown that, in some sectors of the economy, it is not a fringe activity but a business model.
This has wider implications: if one business is paying less than award wages, it makes it difficult for their competitors to compete and even harder to give their staff a pay rise. That has a wider impact as the Reserve Bank is urging employers to lift wages to contribute to economic growth.
Lower wages also mean less income tax and payroll tax for the government.
Pre-election Labor released detailed policies on wage theft while the Coalition gave in-principle support to making it a crime in limited scenarios.
Pressure on the Morrison government to act grew significantly in mid July after George Caalombaris’ restaurant empire paid back staff $7.8 million it had underpaid them as part of an agreement with the Fair Work Ombudsman.
It also made a $200,000 “contrition payment” to the federal government.
Within a week, Prime Minister Scott Morrison said the government was drafting laws “to deal with criminalising worker exploitation.”
It was a development that was unthinkable even a few years ago.
Where does wage theft occur?
From 7-Eleven to Chatime: franchises and wage theft
The $170-billion franchising industry has been exposed in a series of media investigations as a hotbed of wage underpayment, or wage theft.
Companies including convenience store giant 7-Eleven, Caltex, Domino’s Pizza, Pizza Hut, Retail Food Group – which includes brands such as Brumby’s, Michel’s Patisserie and Donut King – and bubble tea operator Chatime have all been caught underpaying workers.
Franchise business models are characterised by high fees and royalties that can add up to 10 per cent or more of sales, draconian refurbishment costs and policies that include having to source products from the franchisor at prices that are sometimes more expensive than if bought elsewhere. RFG was recently caught selling full-price cakes to franchisees that were near or past their use-by date.
These models pour money into the franchisor’s pockets, but push franchisees to cut corners – including ripping off workers to remain afloat.
To reduce the risk of being caught, the franchisees largely employ foreign workers on visas. These overseas workers often don’t understand their rights or are too afraid to speak up for fear of being deported. The franchising sector employs more than 500,000 workers and accounts for almost 8.9 per cent of GDP.
It has added up to a huge problem, not just in terms of the undermining of the labour market with wages as low as $8 or $10 an hour in cash but the number of franchisees left destitute, having bought the dream of running their own business.
A series of inquiries has resulted in recommendations to clean up franchising and worker exploitation but they are yet to be implemented.
No industry in Australia has worse labour conditions – or more flagrant breaking of labour laws – than Australia’s farms.
Farmers are pressured over prices by the supermarket duopoly, workers have little bargaining power and Australia’s visa system is ripe for exploitation.
Only in recent years has there been a real attempt to organise farm workers through the National Union of Workers (NUW).
The results have been dramatic with dozens of cases emerging of workers paid a pittance and of them being abused (and even assaulted) by unregulated middlemen.
Workers from Vanuatu, for example, were being paid as little as $8 an hour on a Shepparton tomato farm and exposed to a chemical stench that led to nose bleeds, The Age revealed last year.
There have been changes to the law by the Coalition to increase penalties for employers that exploit vulnerable workers. But the problems persist.
The Victorian Farmers Federation and the NUW want visa reform so workers from countries such as Malaysia can have a way to work here legally and to be paid award wages.
From cafes to fine dining: hospitality and wage theft
Hospitality is almost entirely un-unionised (although that is changing a little) and many workers are backpackers, students or young people.
The workplace regulator, the Fair Work Ombudsman, is unable (through lack of resourcing or will) to make much of a difference.
The Ombudsman’s surveys have regularly shown around half of all hospitality businesses are non-compliant with labour laws.
There are a variety of rorts.
In restaurants, these often involve full-time staff being paid just above the award wage but being required to do excessive unpaid overtime. That can push the actual wage down to $15 an hour.
That has occurred most graphically at high-end restaurants where The Sunday Age has exposed some of the biggest names in the industry.
They include Neil Perry, Heston Blumenthal, Teage Ezard and Guillaume Brahimi. Then, of course, there is now former MasterChef star George Calombaris.
Elsewhere, the rorts can involve being paid cash in hand or being paid a flat rate without legal penalty rates, which is commonplace.
The problem is so endemic any change will necessarily be slow and painful.
A greater role for unions to inspect books, a stronger Ombudsman and visa reform would be a start, as would the ability to more easily make legal claims for underpayment – at the moment it is often too costly to make it worthwhile.
Wage theft in supermarket and fast-food chains
One of the biggest underpayment scandals was, on the face of it, perfectly lawful and went on for many years with the complicity of a major union.
An investigation by The Age and The Sydney Morning Herald in 2015-16 found that some of Australia’s biggest companies, in deals with the shop assistants union, had struck deals that traded away penalty rates and other conditions with only small increases in hourly rates.
The dividend for the union was that the employer encouraged union membership, which gave them wealth and power in the Labor party’s internal forums.
It is estimated that at least 250,000 workers were underpaid from the deals struck between big business and the Shop, Distributive & Allied Employees Association.
The deals were (incorrectly) approved by the Fair Work Commission despite a legal requirement they only approve agreements that pass the “better off overall test” (BOOT), which is designed to ensure no worker is paid less than the minimum rates of the award.
In 2016, the full bench of the Fair Work Commission found that a deal involving Coles and the SDA failed the BOOT.
As a result of the Coles decision, employers such as Woolworths, Domino’s and KFC have had no choice but to strike deals that pay workers much higher rates. McDonald’s has also been required to pay full penalty rates.
Greens MP Adam Bandt has proposed amendments to the Fair Work Act to tighten the BOOT and to ensure there would be no repeat.
What action is being taken?
Outgoing Liberal Industrial Relations Minister Kelly O’Dwyer gave in-principle agreement to a recent report by former consumer watchdog chief Allan Fels recommending criminalising wage theft.
She said the exploitation of workers “harms individuals, undercuts law-abiding employers and reflects poorly on Australia’s international reputation”.
Criminal sanctions would only apply to employers engaging in “clear, deliberate and systemic” wage theft, she said.
The report also recommended tighter regulations for labour hire firms, the companies that act as the middle-man for companies hiring people but which are sometimes involved in exploitation.
Few expected the Coalition to be re-elected in May and now they have – and on the back of Calombaris and other scandals – this support could become reality.
Employer organisations the Business Council of Australia and the Australian Industry Group both oppose criminal sanctions.
Australian Industry Group chief Innes Willox said: “While, at first glance, this might seem like a good idea, there are many reasons why this is not in anyone’s interests.” It could stifle investment, entrepreneurship and employment, he said, and civil penalties were sufficient.
There is no comprehensive research on the economic or price impact of widespread underpayment, or on what would happen if prices in various sectors were to suddenly reflect the relevant award.
But the prices you pay would most likely need to rise. Meals, for example, would likely increase in price by a few dollars per serve. And to maintain a shop’s profit margin, a standard coffee may need to rise from $4 to more like $4.50.
Australians eat a million Domino’s pizzas every week. But, when you lift the lid, many of its people are struggling to make a crust. So how does this stockmarket juggernaut really operate?
It took Domino’s store manager Azrael Yin three years to pluck up the courage to inform head office that one of its biggest franchisees was exploiting workers. When he finally did, nobody seemed to care.
Yin’s message was simple enough. His boss, franchisee Pamir Dehsabzi, had told him to keep labour costs below 27 per cent of sales by any means.
It meant he often had to go into the store’s payroll system and “trim” the number of hours it recorded as worked by its staff and reduce their pay accordingly.
“If this week [there were] bad sales, labour blows out to 33 per cent of sales, so I receive a call to make it 27 per cent. Then I deduct my own time as well as the other workers,” he told Fairfax Media.
Nine months after complaining to Domino’s head office, Yin is still waiting for a response. Meanwhile, Dehsabzi is held up as a Domino’s success story.
This is the reality of life inside the Domino’s juggernaut. Yin is one of hundreds, possibly thousands, of Domino’s workers and franchisees trying to scratch a living out of the nation’s appetite for ever cheaper pizza.
Part of the explanation, say a procession of insiders, is that franchisees are also hurting.
“I remember I had to use my wife to do deliveries with my two kids in the back of the car,” says Nirmal Patel, who ran the Domino’s store in Mount Colah, a suburb of northern Sydney, for two years from 2012.
The stress of making ends meet took its toll and he realised after just six months the business he had bought into was not viable.
“I lost my trust and faith in Domino’s; they think only about the corporate people.”
“I thought I would stay in the system long enough to recoup my costs first, but the longer I stayed in the system the worse it got.”
Nirmal says he never underpaid employees himself but can’t blame those franchisees who did.
“If I’m cheating my workers and driving a Ferrari, that’s wrong. If I’m driving around in a beat-up old car, who’s really cheating the system?” he says.
His store was bought by Iranian migrant Kamran Talebi who also lasted only two years before selling out.
“It was the worst time in my life,” Talebi said.
“And this is coming from a guy who escaped from a fundamentalist and religious dictatorship, that has seen a lot in his life.”
For Talebi, it’s simple maths: “Since September 2014, the cost of food, labour, rent and fixed costs are on the rise, whilst the prices of pizzas are on decline; we can now buy pizza at the 1990s prices. At the same time, Domino’s profit is doubling. Hence, we have clients winning by purchasing cheap food, Domino’s profit skyrocketing. So, nobody is left to pay for this but the franchisees.”
Franchisees “wearing it”
Domino’s has been hailed as a success story since it was listed on the ASX in 2005 at $2.20. In just over a decade, shares have surged more than 2500 per cent to $60, making it one of the best performers on the market and a lot of people wealthy.
Chief executive Don Meij started out as a delivery driver in 1987 for Domino’s precursor Silvio’s Dial-a-Pizza. Today he owns almost 3 per cent worth, more than $140 million.
Meij was installed as general manager of Domino’s in 1993 by majority shareholder Jack Cowin, who had spent $400,000 on a 50 per cent stake in Silvio’s Dial-a-Pizza in 1985.
Today, Cowin, who is a director of Fairfax Media, is Domino’s chairman and its biggest shareholder, holding a 26 per cent stake, valued at around $1.4 billion, through a family trust.
Fairfax’s investigation shows that the Domino’s business model is based on franchisees growing sales, not profit, with head office taking a royalty from every sale as Australians chomp through one million of its pizzas every week. Stores are bought and sold on a multiple of these sales, not on profit.
For franchisees, it means when labour, food or rent costs increase, or Domino’s introduces a new fee or charge, the franchisees have to wear it.
More stores in the network means more sales are generated, and that results in more profits for head office.
In response to a list of questions, Domino’s denied systemic underpayment of wages, saying it was “embarrassed where an employee has not been paid their appropriate entitlements, whether deliberately or accidentally” and rejected claims that some of its franchisees were getting a rough deal.
It said the average profitability of a franchisee ranges between $138,000 and $145,000 a year.
Domino’s revealed that the break-even level for a store ranges from $15,000 to $21,000 for average weekly sales but said it had “many stores which operate profitably below this level of weekly sales, because of locally relevant business models, particularly in regional areas of the country.”
By this measure hundreds of franchisees appear to be struggling.
Internal figures obtained by Fairfax Media reveal during a week in January almost 190 stores made less than $21,000 a week in sales, accounting for as much as 30 per cent of the national network. Twenty one franchisees are receiving financial support, according to Meij.
Another set of figures for using NSW sales data covering six different weeks from October last year to January shows around 21 per cent of stores made on average less than $21,000 in sales a week. About 4 per cent earned less than $15,000, according to the NSW sales data.
Domino’s insists stores are healthy and that store profitability has increased over the past four years and “the number of currently unprofitable stores has decreased, to 3 per cent.”
“The figures you have received are materially incorrect,” Meij says. Domino’s declined to provide more detailed figures citing the company’s looming half year results.
It’s true the network also has its fans. David Hutchinson, an elected member of Domino’s Franchise Advisory Committee, has two stores in the ACT and they make a “really good” profit because he does “whatever Domino’s tells me to do”.
“I love my job and I love my franchiser,” he said.
Hutchinson says underpayment of wages has been discussed at the committee “because there are people doing the wrong thing”. He says that is detrimental to the brand.
“Domino’s is trying to get rid of the people doing it.”
Consumer advocate Michael Fraser played a key role in Fairfax Media’s expose of rampant underpayment of workers at convenience store giant 7-Eleven in 2015 and has been monitoring Domino’s ever since.
He recently visited 70 stores across the country after receiving a number of calls from workers and franchisees.
He and his colleague Maddison Johnstone described the trip as both “illuminating” and “shocking”.
“Franchisees were very stressed and some were bleeding money in the tens or hundreds of thousands of dollars,” he says. “It became apparent to me that franchisees weren’t making money unless they were cutting corners and/or receiving benefits from head office.”
Fraser’s assessment is shared by Allan Fels who the federal government appointed to head a taskforce looking at the treatment of migrant workers after 7-Eleven removed him from his role running a compensation scheme for its employees.
“On the face of it Domino’s resembles the original 7-Eleven arrangements in the sense that it makes it seemingly impossible for a number of franchisees to survive without underpayment,” Fels says.
He says the “Domino’s situation” highlights the urgent need for new laws making franchisers more accountable and which the Coalition promised to deliver at the last election.
Fraser says, in some ways, Domino’s is worse than 7-Eleven.
“With 7-Eleven, many franchisees said they knew they would have to underpay to make money. However with Domino’s, I think they sell stores to unsophisticated buyers who genuinely believe Domino’s is a highly profitable business. Then when they don’t make money, Domino’s blame them for just being bad at business,” he said.
Fairfax Media too has spoken to a number of current and former franchisees who described a system that is “dictatorial”, where Domino’s calls the shots and wields its power to make more and more financial demands of its franchisees.
They warned that things would only get tougher, as competition intensifies with rival Pizza Hut revitalising its brand and offering half-price pizza during the month of February. At the same time they will have to battle rising labour costs with the impending rollout of a new enterprise agreement, and food costs continue to rise. Food and labour represent more than half the costs of running a store.
Some franchisees accuse Domino’s of unfairly pushing some smaller franchisees out of the system and giving special treatment to certain multi-franchisees, including offering them stores at prices below market rate.
Franchises are traditionally sold for 26 to 28 times average weekly sales, but some stores are being sold well below that.
Keeping purchase prices low ensures a constant pipeline of prospective buyers. For some who are terminated or managed out, it isn’t a good deal but Domino’s says it has never forced franchisees to sign business agreements.
Sometimes these stores end up in the hands of “favoured franchisees”.
The Fair Work Ombudsman recently instigated its own inquiries into the franchise network, conducting a number of “site visits” at stores across the country. It is compiling a report following the expiry of a two-year compliance deed it entered with Domino’s in September 2014.
During that time Fair Work says it received just eight complaints that Domino’s resolved internally.
However, Fairfax Media has compiled a database comprising hundreds of workers who claim to have been underpaid, as well as external audits commissioned by Domino’s that also allege underpayment.
Domino’s said many instances of underpayment were just “simple misunderstandings” and warned against conflating “deliberate and accidental employee underpayments”.
But a series of external audits of a range of stores over the past 18 months that were commissioned by Domino’s and seen by Fairfax, allege “a strong likelihood of unlawful and fraudulent behaviour”, including shift hours manipulated by the franchisee, failure to provide payslips, shifts worked by employees deleted, the underpayment of super contributions, not paying overtime, not paying the correct hourly rate, employees not paid through payroll, employees with records of time worked but no record they were paid, delivery allowance not paid, deliveries manipulated and workers breaching their visa conditions.
The audits included stores across NSW, Queensland, Victoria and South Australia. Fairfax Media has confirmed some of these franchises were not terminated despite underpayment of wages and likely fraudulent behaviour. Domino’s refused to say whether any of these stores had been reported to the regulator or police.
The company says over the past three years it has conducted 450 spot checks of franchisees and some have been followed up with external audits. It says since 2015 four franchisees operating seven stores have been terminated for wage fraud. It refused to answer how many stores spot-checked or audited were found to be underpaying staff. It also refused to say how many workers it had found were underpaid or the aggregate amount in dollars.
“Not every spot-check results in an audit, nor is a spot-check a finding of fault,” it says. “Not all instances of underpayment are wilful, but all are addressed.”
It says it had not seen any connection between franchise profitability and the deliberate underpayment of wages.
“This behaviour does not discriminate, and is driven by greed.”
Capturing the “after school” market
Using a variety of sources, Fairfax Media has established how a franchise store’s financials break down.
Alongside a store’s purchase price, which can range from less than $300,000 to more than $1.5 million and stamp duty, there’s a $60,000 franchise fee for the right to use the Domino’s brand, a $20,000 training fee for a six-week course and a $5500 administration fee for the preparation of documents.
Each store pays a 7 per cent royalty on gross sales each month and a maximum of 6 per cent of sales to an advertising fund and an additional local store marketing fee, an e-store management fee and Domino’s phone number charge. An estimated 50 per cent pay a weekly book-keeping service fee of $165 plus GST.
Domino’s also makes money from the raw food it sells to franchisees.
It also charges for other services. In October last year, franchisees were told they had to buy from Domino’s an $18,500 thick shake machine – roughly one week’s sales for a break-even store – to try and capture the “after-school” market. Around the same time franchisees were told they would need to buy new digital menu boards, with an option for in-store music, at a cost $10,429 upfront along with a monthly charge of $190.
In 2015 Domino’s rolled out its GPS trackers which cost $2717 upfront plus a monthly subscription fee to Domino’s of $34.50 for 48 months in addition to a monthly licence fee of $25 per store per month.
Franchisees are currently being encouraged to buy new quick-cooking ovens from Domino’s at a cost of around $60,000 a pair to help them meet the target of quick pizzas.
Domino’s offers loans to help with these purchases with interest rates seen by Fairfax varying from zero to 15 per cent.
Some franchisees, such as Darren Ramm, who owns three stores in Queensland, argues that new technologies grow customer numbers.
When profits are tight, franchisees look for different ways to flout the system.
When he was working as a delivery driver and cook, Rob Goodwin remembers being told by a franchiser to scrimp on core ingredients like flour.
“You can only make 42 bases out of a bag of flour but we were making upwards of 50 – they were getting around 10 more pizzas out of each bag then they were supposed to,” he says.
Former Queensland franchisee Rohit Malhotra said he was aware of some franchisees using raw ingredients that fell off unbaked pizzas.
“They put it into a container and put it back into the cold room to reuse them. That’s how much you have to cut corners,” he said.
Malhotra lost four stores following an audit that found underpayment of wages. He had to repay more than $200,000 in unpaid wages and superannuation and admitted to not always paying staff by the book. He says it was standard practice across many stores.
Goodwin claims there are many franchisees “doing dodgy stuff”.
“It is not just one-off people, they can’t make money without it,” he says.
Like most of the cases of underpayment of wages uncovered during spot checks or audits, it was handled by Domino’s with the regulator none the wiser. If it isn’t a complaint, they don’t have to tell the regulator.
Devanshi Panchal says running a Domino’s store threatened her health, relationships and financial wellbeing. In 2013, after three years managing stores in and around Sydney, she decided to buy her own store in Bathurst on the NSW central tablelands.
She worked at the store six days a week, clocking off at 3am some nights.
In early 2016, Domino’s conducted a payroll audit which found she had underpaid staff by more than $80,000. She found discrepancies in the audit and says she negotiated it down. She disputes underpaying staff, but says the stress of dealing with Domino’s and the meagre profits wasn’t worth it.
“A lot of people I’ve known have had mental breakdowns because there is so much you have to do, and so many restraints … I was seeing doctors. I had anxiety and cardio problems caused by all the stress,” she says. Panchal sold her store just before Christmas.
“If you haven’t run a Domino’s you don’t understand it.”
She was no novice. Before she became a franchisee she worked at a Domino’s store at Kings Langley in NSW for three years. In March 2016 she wrote to Domino’s saying she had been ripped off, working up to 30 hours a week for a flat rate of $12 an hour.
She herself eventually received $25,000 in back pay. The franchisee is still working in the system. “A broader investigation did not identify any ongoing breaches of employment obligations,” Domino’s said in a statement.
Pamir Dehsabzi runs 10 stores on the outskirts of Sydney. He also represents Domino’s franchisees on the powerful Franchisee Advisory Committee and has even been put forward to Fairfax Media by Meij as a satisfied franchisee (Meij forwarded an unsolicited email Pamir had written that outlined his passion for Domino’s and how the company had achieved what franchisees could never have dreamed about.)
Dehsabzi told Fairfax Media he has fostered a “loving” relationship with his staff.
“I am not a dictator, I just want my staff to be happy. I want them, when they come, they are not scared of me … they are very hardworking, I love them and they love me. Happy staff work better than unhappy staff,” he said.
But not all his staff agree. Azrael Yin, his former store manager, remembers long hours in suffocating heat, with no air conditioning.
“I was so stressed all the time,” he says. “I was working 60 hours a week without a break and sometimes I was the only person in the shop, to save on labour costs. I would have to make the pizza, run to customers if they came into the shop, take phone orders, deal with complaints, go out the back and make the pizza, pack the pizza, train staff, order stock and do the payroll.
“I had to bring in a fan because it was so hot working close to a 200-degree oven … North Ryde was the same, bad air conditioner and wages.”
Yin says his job involved systematically underpaying employees to meet Dehsabzi’s 27 per cent labour-cost ceiling. Every week Yin would send Dehsabzi payroll reports which listed employees working less than their actual hours.
Dehsabzi vigorously denies allegations that he underpaid workers. The Fair Work Ombudsman says it has a record that 12 workers were underpaid by one of his businesses.
He admitted the payroll figures didn’t always match the hours recorded on internal “sales reports”, but blamed his employees for the discrepancies, claiming they often clocked in early or clocked out late.
“People are not signing out on time or they are going out on a delivery and not coming back … I’ve seen it with my own eyes, people coming in late. Even the store manager, I have caught them many times,” he said.
“A lot of the time people are coming to work not [to work] but they are coming for fun – they are having lunch or come to see their friend.”
Yin said he worked between 50 hours and 60 hours a week but that his pay slips often showed he worked 35 hours as anything above 38 hours would attract penalties.
But they also credited him with payments for deliveries he never made. This had the effect of denying him overtime payments for extra hours he worked. In one week he was credited with making 140 deliveries as well as working 35 hours as store manager. Some weeks the entire delivery of pizzas at the store was 250.
Dehsabzi says store managers can work 50 hours but he never asks them to work more than 38 hours a week. He said sometimes store managers deliver pizzas and this accounted for the pay-slip differences. He says he always paid overtime correctly.
Yin reported Dehsabzi to head office shortly after he quit his job in April 2016. The long hours, poor pay and heat exhaustion finally got to him.
He never heard back from Domino’s and never received back pay.
Domino’s says “the complainant, who advised they were a current employee, was adamant they did not want to be identified in relation to their complaint.”
It says an investigation identified a “limited number of discrepancies with our management policies, which were rectified.”
Meanwhile, on January 19, 2017 another worker in another store wrote to Dehsabzi asking him to “please pay them [staff] on time and correctly”. He said “last week our labour is 27 per cent but you deduct lots of our staff salary … today is my day off … But after I know you hold our pay, I have to come back to the store and spend more than an hour to write this email.”