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Caltex accused of squeezing service station operators and workers

"These aren't fake, they are real bullets," the robber yells as he presses the loaded pistol into the forehead of a Caltex service station attendant. Sohaib Irshad, the attendant, can feel cold steel against his skin and is desperately trying to stay calm as the robber shouts and pounds on the counter demanding cash.

One wrong move and he is dead. The robber, getting angrier and angrier, reaches over and grabs hundreds of dollars of cash, shoves the gun in his pocket, then vanishes down the lonely streets of early-hours Adelaide.


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Do Caltex franchisees need wage fraud to survive?

Investigations are being carried out as to whether Caltex franchises are financially viable and if this results in Caltex franchisees underpaying staff.

The police arrive, file their report and then leave. Sohaib closes the store and crouches in the dark at the back of the shop, heart thumping, head pounding as fear washes over him. Less than 24 hours later he must return to the store and work his next shift. "I tried to remain calm," he says. "My boss was very casual about it and told me it happens."

Sohaib is one of thousands of Caltex service station workers who work night shifts, putting themselves in harm's way for as little as $13 an hour, which is less than half the legal rate.



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A Fairfax Media investigation can reveal petrol giant and service station operator Caltex faces allegations of systemic worker exploitation right across its network.

That includes not only the stores it controls through the franchise network but out into other operators such as the Milemaker Petroleum Group, which had 45 Caltex-branded sites and was recently sold to Caltex for $90 million.

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The Fair Work Ombudsman confirmed it has been contacted by a worker in relation to this group but couldn't comment further due to the "wider compliance activity relating to Caltex franchisee outlets".

Woolworths, too, which is selling more than 500 Caltex-branded sites for more than $1 billion – and which Caltex has put in an offer to buy – is also facing worker exploitation allegations. The investigation has unveiled a brutal franchise structure which some operators claim leaves little option but to defraud workers. It is a structure within which some unscrupulous operators have thrived while others have been sent to the wall.

Some franchisees have joined forces and formed an alliance to fight for a greater share of the profits.

Damage caused

Photo: Sasha Woolley

For workers like Sohaib the psychological damage can be crippling. A star employee, who had on four occasions been singled out for praise after scoring 100 per cent in the All Star Mystery Shopping Program, Sohaib was never offered any counselling or compensation after the robbery.

"[The franchisee] was really [only] concerned about customers – they didn't give a shit about us," he says.

It is inevitable that this will get out. It is only a matter of when, not if. What damage will this cause to the Caltex brand?

Email to Caltex head office

Text messages seen by Fairfax Media show Sohaib, before he was robbed, pleading with his boss, to increase his pay.

"It's been seven months I have been working on the $13 rate. I need to collect $20,000 for five subjects before November in order to clear my degree at Uni Adelaide and I am finding it really difficult to save money. Please accept my request to raise my pay back to $16, I don't know what else to say to convince you."



When his pay was finally raised to $16, which is still well below the legal minimum, he asked for a tax return so he could lodge it with the Tax Office. Instead he says he was threatened and suffered a pay reduction just for speaking up.

"I asked for a tax return in 2014, but instead of giving me my tax return ... he pushed against me and came to the store and says 'I am is bringing down your pay from $16 to $13 cash'," he says.

"I was told if you want your tax I'll give you it but I am reducing your pay."

Sohaib would later be diagnosed with post-traumatic stress disorder by a counsellor at Adelaide University, where he was studying a master's of computing. Nightmares, insomnia and sensitivity to light are just some of the symptoms he has had to battle since the robbery in 2013. "I still haven't told my mum about it as I don't want to scare her," he says.


Warnings ignored

His exploitation is not an isolated case. Emails obtained by Fairfax Media reveal that Caltex head office was repeatedly told franchisees were underpaying workers but did little about it.

When the 7-Eleven scandal broke in August 2015, one franchisee wrote an email warning: "It is inevitable that this will get out. It is only a matter of when, not if. What damage will this cause to the Caltex brand?"

The company did take some action, including auditing some franchisees for suspicions of wage fraud. It then made contact with the Fair Work Ombudsman and separately investigated eight franchisees and terminated five of them, equivalent to 13 sites. Workers were not paid compensation. They were offered counselling and a job that paid correct wages.

Eight workers were offered an ex-gratia payment. It is currently investigating 50 sites, including 27 connected to the Rana family, which runs one of the biggest franchise networks in Caltex.

This building, if belated, scrutiny has provoked complaints from franchisees that the system is designed to deliver profits to head office while squeezing those below.

A number of former and current franchisees have come forward alleging the Caltex franchise model is flawed, forcing underpayment of wages.


Life support

Forty-five sites out of 650 are receiving financial assistance such as rent relief from Caltex head office but franchisees say the number would be higher if proper wages were being paid.

After paying royalties, rent, wages, StarCard fees, merchant fees, accounting and electricity bills, coffee machine leasing fees some argue that little, if anything, is left.

Caltex still argues there is no excuse for underpayment.

"Our model has flexibility to ensure that each franchised site provides a fair return to the franchisee," it says in a statement.

For those found to breach Caltex's rules the consequences can be dire.

Fairfax Media can reveal that if a franchisee is terminated due to a breach of the franchise agreement (which can occur for wage underpayment as well as other reasons) the value of the business is returned to Caltex with the franchisee receiving only the value of any stock or other owned assets.


In one case, a franchisee was terminated from seven stores, which he estimates were worth an estimated $5 million if he had been allowed to sell them on the secondary market to another franchisee.

He told Fairfax Media he lost everything. In another case the franchisee was terminated which meant he lost his four stores, which he says cost him $1.5 million and he believes would be worth at least that if he was allowed to sell them.

Caltex says "the franchise agreement is clear that on termination the franchisee is not entitled to receive any payment or compensation from Caltex. Franchisees know this when they enter into agreements with Caltex."

'Unduly harsh'

Professor Allan Fels.

Professor Allan Fels. Photo: Alex Ellinghausen

It is a clause that Professor Allan Fels says on the face of it looks "unduly harsh" especially if taking into account the modern times where the value of retail activities at service stations have been rising.

This week Caltex chief executive Julian Segal published an opinion piece in Fairfax Media where he revealed the company would review the franchise model, including the franchise agreement, the financial returns as well as the ongoing governance and compliance arrangements.

"This goes beyond the forensic review of financial statements and wage records we have already conducted since the issues of wage fraud were first raised in 2015," he wrote.

"The findings of this review will determine whether any change is made to how we operate."

A decision is expected in the first quarter of 2017.

The arrangements seem to be working well for Caltex. According to its annual report, Caltex generated a net profit of $522 million for the year to December 2015 and $184 million in non-core income, which includes convenience store income, franchisee income, royalties, property, plant and equipment, rentals, StarCard income and share of profit from distributor businesses. Its current sharemarket valuation is $8 billion.

At the same time as conceding the model warrants review Segal told Fairfax Media "non-compliance with workplace rights is totally unacceptable, abhorrent and against the culture and values of Caltex Australia".

He says, "where there are allegations of non-compliance with workplace rights, Caltex Australia will use every method available to it to investigate, and where appropriate, sanction, including co-operation with the Fair Work Ombudsman".

'Common mistakes'

Caltex CEO Julian Segal.

Caltex CEO Julian Segal. Photo: Pat Scala

An internal Caltex document presented to franchisees in August on workplace obligations outlines "common mistakes". The list includes not paying an employee for trial/training shifts, not recording and rostering the hours worked by the franchisee and not having these records available and not checking if visa requirements are up to date.

One of the more egregious "common mistakes" was "not paying wages … on a regular basis/on time and not having required records of wage payments (especially when cash wages are paid)".

In a statement Caltex described the "common mistakes" as examples "provided by way of illustration and do not reflect Caltex's behaviour". It says the company had always made it clear to franchisees that they are required to operate their businesses in full compliance with all laws, including the Fair Work Act.

But it will not commit to a compensation scheme where it finds exploited workers who have been systematically ripped off, similar to the scheme set up by 7-Eleven, which has so far paid $50 million in back pay to workers.

Instead, it points the finger at franchisees, saying "franchisees are responsible for ensuring their employees are correctly paid. Caltex is providing practical support to those employees such as helping them secure ongoing employment if possible as well as assisting them to pursue a claim against their former employer".

But it isn't as simple as that. If a franchisee is terminated and loses the value of the goodwill, it is hard to chase them down to repay workers as some of them will have nothing left except a big bank loan to repay for a business loan they took and no income to repay workers.

In addition, many workers are too afraid to come forward for fear of retribution.


Retribution fear

One worker was forced to withdraw his consent to have his name and photo published and his story told when he received a late-night visit from an associate of the franchisee threatening him not to speak up.

The next day his family in Pakistan were visited by four armed men. He is now fearful of speaking out to authorities or the media in case the threats of violence against his family are carried out.

He says, "In Pakistan, it costs $50 to kill someone. Life is cheap."

Professor Fels says the Turnbull government's proposal to amend the legislation to impose accessorial liabilities on franchisors will cause Caltex to reconsider its "hands-off" approach.

"The proposed law imposes a significant degree of accessorial liability on the franchisor when their franchisees underpay workers," he says.

As the Fair Work Ombudsman continues to raid stores across the country, franchisees and former franchisees are coming forward alleging the business model is being increasingly stacked against them as Caltex grabs more and more in fees and rentals.

Certainly there is evidence from the emails obtained by Fairfax and the interview with former franchisees that Caltex was made aware of wage fraud issues over a number of years.


Systemic problems?

Illustration: Simon Bosch

Illustration: Simon Bosch

One email seen by Fairfax Media by a former site owner to a senior manager complained he had flagged similar issues to those at 7-Eleven to another senior manager in June 2011.

The former site owner says the common thread between Caltex, 7-Eleven and a number of other franchises is "the deal was and is so disadvantageous to the franchisee/operator that they had no choice but to cheat".

Another former Caltex franchisee, Kevin Crossey, who operated a number of sites between 1998 and 2014, says he repeatedly told head office there was a problem with wage fraud.

"I was on the NSW state franchise council and national franchise council representing franchises over a number of years," he says.

"It was discussed at these meetings by members of the council but Caltex management held their official line that correct award wages were to be paid and were being paid and did not look into it.
"

Crossey says he sold two sites in 2014 because it was getting increasingly difficult to make a living. "It got to a point where we couldn't be compliant and so I decided I wanted to be able to sleep at night so we sold out."


He says Caltex is motivated by profits and little else.



One franchisee, John Ibrahim, who has owned Caltex sites since 1992, says while he doesn't believe the Caltex franchise model forces 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."


He told Fairfax Media the average site fluctuates between a profit of $20,000 a year and a loss of $20,000 a year.

Former franchisee Lebba Chakkour, who became a franchisee in 1993 and was terminated in 2013 after being breached over allegations unrelated to wage fraud alleges he told executives at head office there were serious issues with some of the franchisees underpaying workers.

When Chakkour was terminated he lost seven stores.

"They took seven stores worth $5 million and I didn't get a cent," he says. "It was devastating."

Caltex says it wasn't in a position to comment on the termination as it was subject to an ongoing investigation.

System changed

Canberra Allhomes, Domain. May 24, 2016. The Caltex service station in Crawford Street, Queanbeyan has sold

Photo: Sonja Koremans

Chakkour says the culture of Caltex changed after the introduction of the Star Agreement a few years ago, which included centralised logistics, a new system of royalties and base rent.

He says before then franchisees could negotiate directly with distributors and the model was fairer.

One franchisee, who asked not to be named, says the centralised system can be to the detriment of the franchisees. He used the example of Coca-Cola products, which he can source from Woolworths and Coles at a far cheaper rate. He says a franchisee can pay $1.12 for a can of coke that sells at the supermarket chains for as little as 63¢.

Caltex says in a statement that the centralised logistics program delivers about 75 per cent of the dry goods sold on site.

"Caltex supplies a basket of goods multiple times a week. This provides efficiencies and fair payment terms for the franchisee. The pricing on a basket of goods is regularly benchmarked in the marketplace."

Chakkour says the various changes to the Caltex system over the years resulted in a lot of older, predominantly Anglo, franchisees exiting the system and new, mostly Indian and Pakistani franchisees coming in.

They often pay big money for the sites on a secondary market, which is calculated on a number of factors including the remaining term of the franchise, the historical volume of sales from the site, inventory and any "value of franchise payment" negotiated with the existing franchisee.

Over the past few years franchisees have bid up the price of the "value of franchise payment" to lofty heights. One Queensland franchisee is asking $400,000 for a site, plus $50,000 for stock, with only four years left on the term of the franchise.

Large group

Caltex franchisee Rizwan Rana had to repay wages.

Caltex franchisee Rizwan Rana had to repay wages. Photo: Supplied

Some of Chakkour's stores ended up with the Rana family, which has at least 27 stores in NSW and South Australia.

Fairfax Media recently revealed that Aurangzieb Rana, who operates eight sites in South Australia, is under investigation.

Fairfax has obtained numerous timesheets and pay records that appear to show employees at Aurangzieb Rana's sites being paid as little as $13 an hour, in cash.

Aurangzieb Rana has denied any allegation of wage fraud. He says he was estranged from other members of his family and otherwise had no connection to companies within the Rana group.

"This is totally incorrect and wrong ... We comply with the law in regards to wages," he says.

In 2012 another Rana family member, Rizwan Rana, who operates stations in NSW, was forced to pay 20 employees $18,367 in back pay by the Fair Work Ombudsman. A later audit in 2015 found minimal issues.

Stewart Levitt, a lawyer, who is acting for several members of the Rana family, said the family denies any wrongdoing. He said if all the franchisees in Australia were audited in 2012 they would have found payroll issues.

"Underpayment was rife with the tacit complicity of the franchisors," he says.

Workers wear risk

Saqib Riaz 23yrs a former Caltex employee. Sydney. 22nd November, 2016. Photo: Kate Geraghty

Former Caltex employee Saqib Riaz. Photo: Kate Geraghty

A former Caltex worker, who requested anonymity, says in the store he works, he is paid $13 an hour to do the work of three people.

He says the franchisee, who he requested not be identified, operates a side business which involves sponsoring workers at a cost of $40,000 per sponsorship fee.

He says if a worker is sick or gets injured on the job, they aren't covered. He says some of the stores employ Australian workers who work the morning shift and are paid correctly.

"It is not only me who wants this to be raised as an issue but I am representing almost all the staff who are going through this but they don't raise their voices due to the fear of either deportation or job loss," he says.

Another worker Saqib Riaz, says he worked at one of the Caltex-branded Woolworths sites between 2011 and July 2014. He says he worked 50 to 60 hours a week for $13 an hour in cash, doing 12-hour night shifts at a site in Sydney's western suburbs.

"I did 10 unpaid shifts as a trainee and my pay was $13 an hour. I eventually left because they weren't paying me well enough," he says.

Riaz says everyone in the store was underpaid.



He came forward because he was sick of international students being ripped off.

"These things should be fixed," he says. "This should not be happening."





Do you know more? Contact Adele Ferguson at aferguson@fairfaxmedia.com.au

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