Caltex’s motivations for bringing its franchise network in-house are becoming clearer with news that three-quarters of audited retail sites have been failing basic compliance requirements.
The fuel maker and retailer announced in late February that its 810-strong network of retail sites will all become company owned in the next few years, ending its franchisee program.
At the time, Caltex justified the move as allowing it to have more control over its brand as it embarks on a new growth strategy. However, reports that three-quarters of its sites have failed workplace compliance checks suggest at least part of that decision has been to break a cycle of failures by site owner and operators.
In announcing the findings of its detailed review into Caltex, the Fair Work Ombudsman (FWO) found a non-compliance rate of 76 per cent across the network.
“In light of this alarmingly high level of non-compliance across its retail fuel outlets, I am not surprised by Caltex’s announcement to the ASX last week that it will transition franchise sites to company operations,” Ombudsman Natalie James said.
“FWO’s report shows Caltex Australia has been presiding over a non-compliant and unsustainable operating model.”
The FWO found extensive evidence of wage underpayment and even non-payment, as well as false documentation, undeclared cash payments and threats of termination to any workers who complained.
Its investigation, which began in late 2016, examined 25 petrol stations in Sydney, Melbourne, Brisbane and Adelaide that were operated by 23 franchisees. Just six were found to be compliant with workplace laws.
As a result, nine penalties were handed out as well as a further 27 compliance notices and formal cautions, and wages amounting to $9,329.85 were recouped for a total of 26 workers who were found to have been underpaid.
Ms James suggested Caltex was no innocent bystander in all of this, nothing that 17 of the 23 franchise operators investigated were from non-English speaking backgrounds and had little awareness of Australian workplace laws.
“Caltex should have recognised this in its business model by ensuring franchisors properly understood their obligations and conducted monitoring to assure itself that obligations were being met,” she said.
“While Caltex claims it had a practice of carrying out annual reviews and audit processes to ensure compliance with the law, it is clear these checks were inadequate and failed to properly consider the dynamics at play in its business.”
Caltex hit back at the FWO’s claims, petitioning that the small sample is not indicative of its broader retail network.
“These 25 sites that were investigated by the FWO is not a representation of the network of approximately 1900 Caltex owned or affiliated sites across Australia,” the company said in a statement.
“Caltex is concerned about the comments made by the FWO, as our view is that the regulator and industry – and others – need to work constructively if we wish to eradicate wage underpayment. Caltex has a strong record of good engagement with other regulators and believes constructive engagement between industry and our regulators is important.”
A spokesperson for Caltex supplied My Business with a factsheet labelled “A tale of two audits”, comparing the FWO’s audit of 25 franchisee sites over one month to the company’s own ongoing audit of 292 franchisees over two years.
“Since mid-2016 Caltex has put considerable resource and effort into our audit program, to systematically examine our franchise network for mistreatment of vulnerable workers, and to stamp out wage underpayment.”
This audit contrast, nevertheless, revealed a similarly worrying trend of non-compliance. According to the Caltex audit, 193 franchisees have been “exited” from the network after 161 workers were shortchanged to the tune of $3.9 million – with the average repayment being $25,000. The highest payment to a worker was a staggering $98,100.
“Since instances of wage underpayment in our franchise network first emerged in 2016, Caltex has been very clear – unlawful behaviour would not be tolerated and we will act decisively to remove the practice from our franchise network,” the company said.
“This work continues.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.