John Ibrahim knows the Caltex franchise business better than most. He also knows that underpayment of wages is getting worse.
He started running Caltex franchise sites in 1992 when he opened the M4 Motorway at Eastern Creek. He now runs six but makes it work because he is also a property developer.
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Caltex wage fraud: the system is broken
First it was 7-Eleven. Now, petrol station chain Caltex is under the spotlight for rampant wage fraud through out it's franchise network- as Fairfax's Adele Ferguson explains.
Along the way he has witnessed a lot of wage fraud, including at 7-Eleven, Caltex and Shell franchise operations.
"I have firsthand knowledge of worker exploitation because over the years I've employed a lot of those exploited people."
He also buys his petrol from other stations and asks the workers how much they are being paid. The answer is often $10 an hour cash.
"I know from a lot of my staff, because they tell me."
Damage control
Caltex is in damage control as it tries to bat off speculation that wage fraud is rampant across its network. To this end it has cranked up an investigation into its network of 650 franchised sites – more than doubling the number of stores it is investigating to 50.
It also ended a 10-day strike with Caltex workers at a site in Lytton, Queensland, that manufactures lubricants for motor oils. Members of the National Workers Union (NUW) had gone on strike indefinitely after Caltex workers were threatened with a 15 per cent cut in wages.
Caltex is listed on the ASX with a market capitalisation of $7.8 billion. It is a well-known brand, with more than 1900 Caltex-branded or affiliated sites around Australia.
About 650 of those sites are operated by franchisees, the rest carry the Caltex brand. More than 500 Woolworths sites are managed independently of Caltex.
Recently it made a bid to buy Woolworths stores, which are up for sale. If it is successful it would make it the biggest operator in the country, with a market share of 34 per cent, followed by Wesfarmers, which controls an estimated 22 per cent of the market.
In the past year Caltex has investigated eight franchisees and terminated five of them. Instead of compensating the underpaid workers, eight people have been offered ex gratia payments.
The model is marginally better than break even, but that isn't something to brag about.
John Ibrahim, Caltex franchisee.
The decision to ramp up its investigation followed an investigation by Fairfax Media this week which revealed that workers were being underpaid and that the Fair Work Ombudsman was conducting a raid of sites across the country.
No excuse
But when it comes to its business model it is adamant that the wage fraud is not related.
In a statement it said: "Caltex provides assistance to franchisees experiencing difficulties in their business. These mechanisms are available to all franchisees. There is no excuse for wage underpayments by franchisees."
Given the flood of emails and phone calls in the past year, some would disagree.
Ibrahim believes that while the Caltex franchise model doesn't force franchisees to cheat, it could cause some good people to feel enough financial pressure to cut corners, including offer cash.
"The model is marginally better than break even, but that isn't something to brag about."
The sites are run 24 hours a day which requires a minimum of three to four staff. This doesn't come cheap if workers are being paid properly.
The part-time adult rate for service station workers who work behind the counter is $19.56 an hour, rising to $29.34 for the first three hours of overtime. On Sundays, the equivalent part-time adult rate starts at $29.34 and on public holidays it starts at $39.12. The casual rate is $25.65 an hour rising to $33.34 on weekends.
Issue flagged
Caltex says that 70 sites are currently receiving financial support, which is equivalent to 10 per cent of the franchise network. That in itself suggests there might be an issue.
There is a strong feeling that over the past 20 years things have changed in this country, not just with Caltex but other franchisors, with the inflow of desperate franchisees. 7-Eleven was exposed last year for systemic wage fraud across its network of franchisees, putting the spotlight on the dark underbelly of the labour market.
What it showed was the work force was dominated by students on visas controlled by fear and a culture of silence via threats of deportation if they stood up.
Like 7-Eleven, many Caltex sites employ foreign workers who similarly are too scared to speak out.
This week a worker who had agreed to speak out, had armed goons turn up at his family home in Pakistan to heavy him into withdrawing from the story. His sister, who is pregnant, was hysterical.
Even if a franchisee was caught red-handed underpaying workers, the worst they could expect was a small fine and forced to pay back the money owed.
In some cases they would pay the money back – to prove to the ombudsman that they had done the right thing – then tell the worker to give it back or lose their job.
In the past year Caltex has terminated five franchisees who operated 13 sites. Workers were not paid compensation. Eight were offered an ex gratia payment and counselling was made available.
Caltex may think because it doesn't manage the payroll it is arm's length from being on the hook for compensation.
Legally that might be correct. But from an ethical, moral and reputational point of view they would do well to step up.
The Turnbull government has promised to beef up the powers of the FWO and lift the penalties. This should be a high priority. Worker exploitation has been like boiling a frog. That frog has now boiled.
Do you know more: aferguson@fairfaxmedia.com.au
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