The Caltex network has an “unsustainable operating model” where three out of four service stations underpay their workers, says the Fair Work Ombudsman.
An investigation by the regulator couldn’t determine “the true extent of wage rip-offs” because there were so many deficiencies in the records kept by the service stations.
Many of the the underpaid workers were young and from non-English speaking backgrounds.
The Ombudsman started investigating following reports of non-payment and underpayment of wages, cash payments made off the books, false records and threats of termination or visa cancellation for any workers who complained.
“I am not surprised by Caltex’s announcement to the ASX last week that it will transition franchise sites to company operations,” says Fair Work Ombudsman Natalie James.
Caltex last month announced a $621 million full year profit, a 19% rise on a replacement cost basis, excluding significant items, on the year before. The company has established a $20 million Franchisee Employee Assistance Fund.
At last report, Caltex Australia had 314 retail sites and another 496 sites were operated by franchisees or third parties.
Fair Work inspectors visited 25 retail fuel outlets operated by 23 Caltex franchisees in Brisbane, Sydney, Melbourne and Adelaide.
Just six of the sites were found to be compliant with workplace laws, a non-compliance rate of 76%.
Inspectors found evidence of underpayment of wages, non-payment of overtime and penalty rates as well as record keeping and pay slip breaches.
The regulator issued nine infringement notices, 11 compliance notices and 16 formal cautions to non-compliant franchisees.
A total of $9,329.85 in back-pay was recovered for 26 workers who were underpaid during a one-month assessment period.
Inspectors also had concerns about the accuracy of some time and wage records with legal action being taken against two franchisees for allegedly keeping falsified records.
The Fair Work Ombudsman has started proceedings against the former operator of the Caltex Five Dock service station in Sydney, Aulion Pty Ltd, and has also against Abdul Wahid and Sons Pty Ltd, the former franchisee of a number of Caltex outlets in Sydney.
In both cases, the Fair Work Ombudsman alleges that the absence of accurate time and wage records prevented inspectors from completing audits and determining whether employees had received their lawful entitlements.
“There’s no question that if these findings indicate the norm in this network, and if these underpayments are replicated throughout the business month after month, we are quickly looking at millions of dollars of underpayments over the course of a few years,” says James.
“A large number of employees at the audited sites are young and migrant workers, cohorts that we know to be particularly vulnerable to workplace exploitation and reluctant to complain about mistreatment.
“60% of the 194 employees the Fair Work Ombudsman obtained records for were visa holders and nearly 26 per cent under the age of 24.”
The investigation also found that a contributing factor to the high rates of non-compliance was that 17 of the 23 franchise operators were from non-English speaking backgrounds with minimal knowledge or experience of Commonwealth 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,” says James.
“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.”
James says her office had offered Caltex the opportunity to enter into a compliance partnership but Caltex had failed to commit to the proposal or discuss it in any detail.
She has has called on Caltex to engage seriously in the offer of a compliance partnership so that the regulator and the Australian community can be confident Caltex is operating openly and honestly.
“The Australian public expects nothing less from such large and reputable companies, and recent changes to the law mean that in some circumstances franchisors or holding companies can now be held liable for breaches or underpayments by their franchisees,” she says.
Caltex says it has been consistent in its commitment to stamping out wage underpayment, including conducting 292 audits of sites since mid 2016.
“The Fair Work Ombudsman has an important role to play in ensuring compliance with Australian workplace laws, and has powers to take action where they find non-compliance with those laws,” Caltex said in a statement.
However, Caltex says the 25 sites investigated are not a representation of the network of 1900 Caltex-owned or affiliated sites.
“The Caltex audit program is working and we are committed to continue,” a spokesman says.
“Wage underpayment is declining, underpaid workers from exited sites have access to our employee assistance fund and over 875 people have now come to work directly for Caltex.
“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. This work continues.”
The Caltex Employee Assistance Fund has so far received a total of 269 claims in relation to 84 sites. The average employee payment is around $25,800.
Of the 269 claims received, 155 are approved, 81 are in progress and 21 have been rejected.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.