Caltex cleans up in worker compo 'hoax' - Blue Mountains Gazette

Project Oyster is exploring Caltex's role in the competitive and underdeveloped $20 billion convenience store sector.

Caltex is accused of ripping off workers. Photo: Simon Bosch

Amid the fracas of a wage fraud scandal tearing through Caltex, more than 200 franchisees and senior executives jetted into Tokyo in late March for a three-day conference at Tokyo's swish Hilton Odaiba, overlooking Tokyo Bay.

Instead of the usual pomp and excitement of previous annual shindigs, the mood was sombre. Dozens of franchisees had been left off the invitation list after refusing to comply with a mandatory workplace compliance audit and those who had accepted came in the hope they would get some clarity on their future.

As the franchisees piled into the auditorium to listen to Caltex boss Julian Segal and the general manager of retail operations Karen Bozic, silence enveloped the room when they were told the future of the retail operating model – including the franchisee model – was still under review.

"We understand this will cause some angst until you get clarification," the room was told.

Yet, almost six months later, franchisees are still in the dark about their future. There is a sense of foreboding that the wage fraud scandal and two separate projects – project Oyster and Project Reef – will collide and franchisees will be the collateral damage.

Project Oyster is exploring Caltex's role in the competitive and underdeveloped $20 billion convenience store sector as Caltex grapples with the longer term trend of declining income from fuel, and the more immediate hole it has to fill in the wake of the Woolworths decision to end a long-term strategic alliance with Caltex and sell its 500-plus Woolworths-owned fuel and convenience store sites to BP.

Project Reef is looking at the underlying business structure to see if the franchise model – or a corporate model – is the best way to support its convenience store strategy, which is seeking to tap into changing tastes including fresh food and other convenience options at stores.

At the same time Caltex, which has a market value of more than $8 billion, is conducting mandatory audits across its network to ensure workplace laws aren't being breached.

Through those audits, Caltex can seize hundreds of stores. Stores which franchisees have paid at least a combined $1 billion to buy Caltex can take and pay little or no compensation if workplace laws are violated at any level.

Shrinking network

Between November and July, the franchise network shrunk from 650 to 500 stores while Caltex corporate sites expanded from 150 to 230. In the process Caltex converted about 80 franchised sites to corporate sites. Caltex says it already owns the stores and so there will be no impact on Caltex's balance sheet.

For franchisees, termination means financial devastation.

On top of the audit process, franchisees whose five to 10-year franchise agreements are due to expire are being put on short-term contracts while the retail operating model review is in progress.

All this uncertainty is pushing the market value of Caltex sites down. Some franchisees say the market value has halved in the past year.

Caltex CEO Julian Segal Photo: Pat Scala

Quite how far the audit process has gone is revealed in a note Caltex wrote to franchisees saying: "So far decisions have been made or audits are in process for about half the franchise network."

The note, obtained by Fairfax Media, said so far 30 stores "have been found to be complying with workplace obligations or are working with Caltex to remedy breaches".

To date 116 stores have been issued termination notices or have prematurely ended their contracts after refusing to participate in a compulsory workplace audit.

Audit boycott

In some cases franchisees are refusing to do the audits because they have been underpaying workers, in other cases they fear Caltex will use technicalities to terminate them.

Ash Vatsa bought two stores in April 2015 and has been juggling two jobs to pay the bills. He says he is on financial assistance from Caltex because his stores are losing money.

He owes the bank $350,000 and is worried that an audit will be used to remove him from the system.

Ash Vatsa stands by the Caltex petrol station in Merrylands where he is the franchisee. Photo: Jessica Hromas

Vatsa says he has always paid his workers correctly but he is worried he might not have all the paperwork the audits require. When he bought into the network in 2015 the records weren't rigorous and he says it can be hard to keep track of students on visas, including when they are on holidays from university.

He is currently on an assistance program from Caltex because he is struggling to stay afloat.

"It is hard to get them and you go through so much and then six months later do it again," he says.

"I should have applied last year but I was scared to apply."

He says even with assistance he has to work a second job.

"My second job is in hospitality. I'm working at least 80 hours a week," he says.

"It is very stressful not knowing what is happening, we owe $350,000. How do we pay that, where do we get the money to pay for that."

Process 'fair'

In a statement Caltex insists it follows a "fair and rigorous process" before ending a franchise agreement.

Franchisee Sanjeev Kumar, who has a store in Woodridge West, Brisbane, is also refusing to take part in the Caltex-funded audit.

Kumar's store was audited by the Fair Work Ombudsman in October and received a notice in April from the regulator saying there had been a minor compliance issue which required the repayment of $13 to one employee and $40 to another.

He wrote to the company discussing his financial and mental plight.

"My health problem has become more severe that I have developed back and frozen shoulder severe pain due to increased stress level."

Kumar wrote that he "humbly" requested Caltex to refund his franchise fees of $160,000 on pro rata basis.

On July 31 Caltex wrote: "We are mindful of the health issues you have outlined below, however as I indicated in our meeting ...Caltex is not willing to consider a buy-back or surrender of your franchise at this time. A surrender of your franchise agreement does not fit within Caltex's current strategic plans."

So far 43 franchise sites have refused to take the audit. They hired law firm Lander & Rogers, which negotiated a settlement with Caltex, the terms of which are confidential.

According to Tean Kerr, it now represents a further 50 additional Caltex franchise sites in dispute with Caltex despite "many of them having already passed wage reviews by the Fair Work Ombudsman".

"They are in dispute with Caltex because they believe that Caltex are intent on stealing their stores and the franchise fees they have paid."

Kerr says the 7-Eleven scandal made Caltex management realise "Caltex is to blame for creating a franchise model that makes money for Caltex but exploits franchisees and pressures them into cutting corners to make ends meet".

Professor Allan Fels has blasted the Caltex compensation scheme. Photo: Alex Ellinghausen

Caltex says in a statement that "initial investigations and audits were focused on stores where Caltex received allegations of wage underpayment or identified a high risk of non-compliance".

It argues then that the high "run-rate" of breaches so far should not be seen as representative of the whole network.

It says its independent experts had found the model is sustainable, allowing franchisees to draw a wage, make a profit and pay employees lawful wage rates.

Caltex refuses to reveal the average profit, saying "the appropriate bottom-line profit for each store is highly variable depending on many business factors".

But it is understood the average figure is about $60,000, which franchisees argue isn't enough to pay bank loans and live.

Many say it is getting harder as they get squeezed to pay more to head office including royalties, rent, wages, Star Card fees, Star Boss, coffee machine leasing, drive-offs, where customers fill their tanks with petrol and drive off without paying, uniforms, accounting, electricity and bank card fees.

Draconian rules

Former ACCC chairman Allan Fels, a former head of the 7-Eleven compensation scheme, said the terminations were unduly harsh. "These sorts of actions are draconian and exploitative of franchisees," he said.

Professor Fels said with a "terribly" weak bargaining position, it demonstrates the need for more than just the newly minted Protecting Vulnerable Workers Act, which beefs up penalties for wage fraud and makes franchisors jointly responsible for workplace abuses if they have a "significant degree of influence or control" or influence over their franchisee's affairs.

It is this control over franchisees that Professor Fels believes will result in a parliamentary inquiry into the $170 billion franchise sector.

Caltex has taken over the running of more than service stations. Photo: Sasha Woolley

Under Caltex's franchise contract if a franchisee is terminated due to a breach of the franchise agreement the value of the business is returned to Caltex with the franchisee receiving only the value of any stock or other owned assets. Goodwill and other rights belong to Caltex.

"You acknowledge and agree that except expressly provided under the agreement or as may be required by law, at the end of the franchise you are not entitled to receive any payment or compensation from Caltex," reads the relevant clause in a franchise agreement agreement.

After Caltex seized the store in late May, Hanna has been trying to find work so he can repay his business loan. He believes the termination process is a "heap of crap".

Another franchisee who had three highly profitable sites worth an estimated $1 million each, believes Caltex used its might to take back highly sought after stores.

"They are acting like the police," the franchisee says.

The stores were seized after an audit found a series of issues including wage fraud, not paying super, not of good character and various other

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