A group of 7-11 franchisees have been sentenced — in one case to to seven years in prison — and forfeiture of their businesses and personal assets over violations of laws relating to workers. This follows the recent heavy fines for pizza franchise owners in the Northeast, specifically for labor laws.
The 7-11 case, as you might expect from the prison time, is more dramatic than the pizzeria cases. The franchisees smuggled in illegal immigrants and provided them with stolen Social Security numbers, housed them together in buildings owned by the franchisees, and took their wages to pay for the housing, “in effect creating a modern-day plantation system,” as the prosecuting attorney put it. They have also been convicted of wire transfer fraud in addition to the identity theft and wage theft charges.
The smuggled people must at some point have agreed to break the law, but they were confined in what the government is describing as “unregulated boarding houses,” and most of the money they should have been paid was taken from them by the people who arranged to smuggle them into the country. Since they were using stolen identities, they were not able to complain about their mistreatment to the authorities.
Clearly, slavery is not part of the 7-11 system, and it has not been suggested that the franchisor is at fault. As the attorney put it, “The defendants used 7-11 as a platform from which to run elaborate criminal enterprises.”
But the case has sparked a nationwide investigation of all 7-11 stores, and franchisees will have to cope with that. It’s a fair bet that a federal investigation with both the Financial Fraud team and ICE (Immigration and Customs Enforcement) will involve some inconvenience.
There’s also quite a bit of bad press. Not only are stories repeatedly identifying the miscreants with 7-11, but the statement from U.S. Attorney for the Eastern District of New York Loretta E. Lynch is studded with phrases that focus on 7-11 as a brand. “From their 7-11 stores, the defendants dispensed wire fraud and identity theft, along with Slurpees and hot dogs,” she said. “The 7-11 franchises seized today will be better known for their big fraud than their Big Gulp.”
In these cases, it is not the franchisors or the franchise system that caused the problems. It’s certainly not innocent franchisees running their businesses correctly. But they will all probably suffer. The case has been in the headlines off and on for the past year and a half, and the franchise’s logo has been featured above words like “disgusting plot” and “The 7-11 corporation was mired in scandal.”
It’s probably hard for 7-11 to appeal to franchisees right now, but before the scandal broke, it would have been very hard to foresee the problem. When you’re looking at franchise business opportunities, you can’t search for clues that some other franchisees might be carrying on criminal activities… or that they might do so in the future.
However, you can ask how the franchise deals with the treatment of workers, how they stay on top of franchisee compliance with rules and regulations, and how they cope with bad press.
