How Red Rooster tackled franchisee wage rorts

Inside Franchise Business: Red Rooster head office took action to halt franchisee underpaymentFast food franchise chain Red Rooster has taken over seven franchise restaurants in Queensland following the termination of franchise agreements after employee underpayments and working visa issues.

Channel 7 Brisbane ran a recent story highlighting the wage exploitation at the seven stores but the franchisor reports action was taken to halt the underpayments once claims came to light late last year.

Chris Green, CEO of Red Rooster, shared with Inside Franchise Business how the chicken chain acted swiftly to rectify the situation.

How it happened

The business received a complaint from an employee in October 2016. Immediately the company began an internal investigation into the four franchisees operating seven outlets with the goal to ensure the best possible result for the employees.  

The investigations found evidence of employee underpayment and breaches of working visa conditions. Specifically, there were instances of Student Visa Holders working more than 20 hours and not being paid correctly for all hours worked.

This was a clear breach of Red Rooster’s franchise agreement and one of the chief grounds for the December 2016 terminations, Green says.

Taking action

Green or another member of the executive team then visited each store, addressed employees and advised them of an independent hotline set up specifically to deal with this issue.

Green says that while management remained available to employees at all times, complete transparency was important in reaching backpayment settlements with employees. As a result, in some of the restaurants where many employees were impacted, the franchisor required each franchisee to appoint an independent facilitator to oversee this process.  

He explains that it was important to put a strong process in place to rectify the underpayments.

As part of this, the culprit franchisees were given the opportunity to continue running the restaurants for a set period under an agreement with Red Rooster to allow them to repay the outstanding wages.

This took place in three stages, first of all to ensure current employees were correctly paid, then to settle back-pay, and finally to ensure former employees received their dues.

Green confirms these costs were purely funded by the franchisee.

“Not only can I confirm that all but one employee came to a back-pay settlement agreement with their franchisee but that 149 employees will be offered employment with Red Rooster effective immediately,” Green says.

Brand protection

But as one franchisee’s temporary arrangement had expired, and the other three failed to meet stipulated commitments, the franchisor recently took possession of the restaurants and will continue to operate them, paying off creditors, until new buyers can be found.

Red Rooster is not aiming to scoop profits from this process, Green says.

“The reason we terminated these agreements was to protect the other franchisees in the system who are doing the right things,” says Green. “The vast majority are, and we didn’t want to tarnish their businesses.”

Despite the time and resources costs of the exercise, Green confirms the process has been positive for the system, “a call to action”.

“It demonstrates that if people don’t comply we will take action.”

And the larger Red Rooster community has backed the moves, Green says.

“I’ve had a number of franchisees responding, saying ‘spot on, we’re glad you’re standing up and protecting those of us who are doing it right’.”

Green distances the brand from the high profile cases of widespread payroll abuse in convenience stores.

“There’s never an excuse to underpay staff. These were profitable restaurants, this is a clear case of franchisees doing the wrong thing.

“We value people and expect franchisees to pay correctly. Prospective franchisees like to see a system that takes a stand."