Sep 14 2018
   Financial Review

Caltex pays $5.7m to workers for underpayments


Petrol giant Caltex has paid out more than $5.7 million to workers for underpayments since "serious" exploitation in its franchise network was uncovered last year.

Chief executive Julian Segal told a parliamentary inquiry into the franchising code of conduct on Friday that the company had so far found 250 of its franchisee employees were being underpaid, with the average underpayment at $20,000 and the highest up to $92,000.   

The total compensation is about a quarter of the $20 million Caltex set aside for underpayments last year but half its 650 franchisee sites are still to be audited.

Mr Segal said that $2.5 million, or almost half the compensation, centred around a network of sites controlled by a particular family.

Despite Caltex preferring not to allow franchisee owners to operate more than four sites, Mr Segal said the family had "without our knowledge" taken control of 43 sites.


"Out of these 43 sites, we calculated that 15 specifically have a profitability of about $1.2 [or] $1.3 million after paying the proper wages and salary to the operator," he said.

"But when we started looking at wage underpayment in this particular web - 62 per cent of the claims were from workers working in this web of 43 sites."
Underpayments took me 'utterly by surprise'

The Fair Work Ombudsman released an investigation into Caltex in March that found an "alarmingly high" 76 per cent of 25 audited sites were in breach of workplace laws. 

The regulator found evidence of underpayments, non-payment of overtime and penalty rates, poor record keeping, pay slip breaches and in some cases deliberate falsification of payroll records.

The lack of records in particular "suggests serious and systemic non-compliance", the FWO said.

Mr Segal told the inquiry the franchisor had discovered underpayments were taking place in 2015 when it launched wage audits following media coverage of underpayments at 7-Eleven.

After later launching a whistleblower hotline, he said Caltex heard franchisees paying proper wages were later forcing workers to pay back a portion of their wage in cash.

"It took me totally and utterly by surprise," Mr Segal told the Senate inquiry.

"It's fair to say Caltex has a very ethical reputation and our number one value is caring for people... For us to find something like that was appalling."
'Tremendous drop' in breaches

Caltex is currently conducting a wage audit of its entire franchise network, with more than half of its sites or about 360 now audited.

Out of that audit, Mr Segal said 100 sites were cleared or had made "some honest mistake" in wage payments while 66 franchisees were terminated due to serious breaches.

He said since April, there had been "a tremendous drop" in non-compliance discovered in the audits.

The company has refused the FWO's proposal to enter a proactive compliance deed to guard against further underpayments and its submission to the inquiry questioned whether such deeds were a solution.

"As is evident from the experience of other franchise networks who have entered into deeds, the deeds do not appear to have been effective in detecting and eradicating underpayment," it said.

This year, Caltex announced it was exiting the franchise model to move to a company operated model.

However, Mr Segal rejected the reason for the shift was underpayments or because its franchise model was not viable.

Caltex chairman Steven Gregg said independent analyses had found "the business model stacks up" and allowed franchisees to make "a good profit as well as pay wages to staff and to themselves".

The Senate inquiry also heard from 7-Eleven chief executive Angus McKay, who said the company had so far paid out $160 million to 4,000 employees since underpayments were exposed across its network three years ago.