Convenience store giant 7-Eleven will establish an independent panel to review damaging allegations that its franchisees doctor payrolls and systematically underpay workers in Australia.
A joint investigation by the Australian Broadcasting Corporation and Fairfax Media uncovered evidence that many of the 620 franchisee stores nationally were involved in exploiting workers.
Allan Fels, the former head of the Australian Competition and Consumer Commission, claimed that under the 7-Eleven model the only way franchisees could make a living was by ripping off their workers.
"My impression, my strong impression, is that the only way a franchisee can make a go of it in most cases is by underpaying workers, by illegal behaviour. I don't like that kind of model," he told the two media groups.
Under the franchise agreement, the head office takes 57 percent of gross profit and the franchisee gets the rest, according to the ABC.
Out of its cut, the head office pays the rent -- although it owns some stores -- and supplies equipment, fittings, and utilities.
From their 43 percent takings, the franchisee pays a raft of other running costs including all staff wages, a big expense for a store open 24-hours, seven days a week.
In a statement late Monday, 7-Eleven Stores Ltd said it would set up independent panel, chaired by a yet to be named eminent Australian, to examine underpayment claims and franchise agreement terms.
"The key factor here is that the panel will receive, review, and process any claim of underpayment, and authorise repayment where this is appropriate," said chief executive Warren Wilmot.
"The viability of the 7-Eleven system is in no way, never has been and never will be, dependent on franchisees underpaying their staff.
"This doesn't let off the hook any franchisees doing the wrong thing, because we will pursue them to repay any money owed to former or present staff."
Australia's Fair Work Ombudsman said 7-Eleven stores, which often employ young, potentially vulnerable employees, including international students, had been on its radar for years.
Ombudsman Natalie James said its current investigation was looking into whether the head office was complicit in the fraud.
"That is something that we're looking at, at the moment," she said.
Wilmot said 7-Eleven would work with the ombudsman "to assist in establishing the terms of reference of the independent panel and its mode of working".
But he disputed Fels claim that the franchisee system was unviable, saying each store made an average annual net profit of Aus$165,000, with year-on-year growth of more than nine percent.
Despite this, the group said it would buy back stores from any unhappy franchisees.
"What has happened, has happened on our watch, and we are a company with a proud heritage and a strong reputation, we cannot allow the few to taint the achievements of the many," Wilmot said.