A SWEEPING audit of Pizza Hut stores has uncovered “widespread” exploitation of young delivery drivers, including underpayment and sham contracting arrangements.
According to the Fair Work Ombudsman, which investigated 34 franchisees in November 2015, 24 out of 26 completed audits so far have uncovered noncompliance with workplace laws.
Out of the 24 non-compliant franchisees, seven were found to have misclassified delivery drivers as independent contractors rather than as employees, and three were found be underpaying staff, with more than $12,000 in underpayments owed to workers.
Some underpayments were a consequence of the franchisee applying the wrong award or failing to increase rates in line with Fair Work Commission minimum wage decisions, the FWO found.
According to the Ombudsman, the three franchise operators found to be underpaying staff had paid their workers on a per-delivery basis at rates ranging between $5.70 and $8, and all three employers failed to issue pay slips and keep proper records.
Enforceable undertakings have been signed by Romaro Holdings Pty Ltd (Penrith, NSW), Arora Business Investment Pty Ltd (Mango Hill, Queensland) and Surmin Pty Ltd (Surry Hills, NSW) as a result of the investigation.
“Romaro Holdings Pty Ltd, trading as Pizza Hut Penrith, was found to have underpaid four male drivers a total $3284 when paying a rate of just $5.70 per delivery,” the FWO said.
“Arora Business Investment Pty Ltd, operating Pizza Hut Mango Hill, was found to have underpaid five delivery drivers, all men and including one student visa holder from India, a total $3276 when paying rates of $6.50 and $8 per delivery.
“Surmin Pty Ltd, operating a Pizza Hut outlet on Elizabeth Street, Surry Hills, incorrectly classified three male delivery drivers from India, as independent contractors. Record-keeping and pay-slip laws were also contravened.”
The FWO has issued 11 compliance notices for underpayment, 11 infringement notices for record-keeping contraventions totalling $6300 in fines, and 17 formal letters of caution.
The FWO said it was “considering” litigation against one franchisee, and “given the extent of noncompliance” with respect to delivery driver arrangements, is in preliminary discussions with Pizza Hut about a “proactive compliance partnership”.
Fair Work Ombudsman Natalie James said delivery drivers were often very young, making them vulnerable to exploitation. “Thirty-two per cent of the 170 workers we dealt with as part of this activity report were under the age of 24,” Ms James said in a statement.
“We know that younger people, who have less experience in the workplace are more likely to be unaware of their rights. Through the course of our activity, we found a number of outlets engaging drivers as independent contractors rather than employees.
“In some instances, drivers were paid as little as $5.70 per delivery while also being made to cover fuel and vehicle operating costs. The FWO will continue to monitor Pizza Hut outlets and will follow up with those identified through this process to ensure that areas of noncompliance are being addressed.”
Pizza Hut Australia chief executive Lisa Ransom said the Pizza Pan Group, which took over as master franchisee of Pizza Hut in September last year, “takes its responsibilities as the new franchisor and employer very seriously”.
“Pizza Hut does not tolerate noncompliance and is committed to ensuring all franchisees meet their legal obligations,” she said.
“The Fair Work Ombudsman report, completed in 2015 and released today, audited 26 out of more than 270 stores and identified three franchisees with workplace breaches regarding driver pay. One of these, Romaro Holdings, is no longer a franchisee and Pizza Hut has taken over management of the store.
“Since acquiring the business we have worked directly and proactively with all franchisees and the Fair Work Ombudsman and engaged the services of experts in the area of industrial awards.
“We have engaged a third-party payroll provider which our company-owned restaurants all utilise and have offered this opportunity to our franchisees to assist them in meeting employer obligations.
“We have also worked diligently to reinforce to franchisees their obligations as employers, ensure all the appropriate tools are in place for them to calculate rates of pay, and facilitate access to the Fair Work Ombudsman online training tools.
“We have been proactive in developing and finalising a compliance deed with Fair Work Ombudsman and greatly appreciate the support we have received from them.”
Ms Ransom said any employees who were concerned or had questions about their rights and pay were encouraged to call 1300 556 637.
Last year, private equity fund Chester Moynihan bought the Pizza Hut master franchise from US-based Yum! Brands, subsequently snapping up 50 of 100 the failed Eagle Boys stores, bringing its store network to around 320, making it the nation’s second-largest pizza chain behind market-leader Domino’s which has more than 600 outlets.
Market research firm IBISWorld was sceptical of the deal, warning the acquisition would be a costly move unlikely to address the underlying problems that have seen Pizza Hut lose market share to Domino’s over the past five years.