Petrol giant Caltex has paid out $5.7 million to workers for underpayments after a series of compliance breaches and exploitation were uncovered in its franchise network last year.

At a public hearing for the parliamentary inquiry into the Franchising Code of Conduct held on Friday, chief executive Julian Segal said that upon investigation, the company had so far found 250 of its franchise employees were being underpaid, with underpayments averaging at $20,000 and the highest reported at $92,000.

While the $5.7 million compensation is far from the initial $20 million figure that Caltex set aside to cover underpayments last year, with just under half of the network’s 650 franchisee sites are still to be audited.

Earlier this year, Inside Franchise Business reported that the Fair Work Ombudsman’s investigation into Caltex’s operations had found that three-quarters of the 25 audited sites had serious breaches of workplace law.

The investigation found systematic non-compliance, including falsified wage records and poor record-keeping, which Segal told the parliamentary inquiry took him “totally and utterly by surprise”.

The hearing also heard that almost half of the total compensation ($2.5 million) centred around a network of sites controlled by one particular family.

In an embarrassing reveal for the brand, Segal told the inquiry that while the Caltex prefers not to allow franchisees to operate more than four locations, the family had “without our knowledge” taken control of 43 sites.

“Out of these 43 sites, we calculated that 15 specifically have a profitability of about $1.2 [or] $1.3 million after paying the proper wages and salary to the operator,” Segal said.

“But when we started looking at wage underpayment in this particular web – 62 per cent of the claims were from workers working in this web of 43 sites.”

Audits are set to continue for Caltex, with the brand revealing that of the 360 audited franchise sites, 100 had been cleared or had made an “honest mistake” in regards to wage payments, while 66 franchisees had been terminated on the basis of serious breaches.

Segal told the inquiry that since audits began in April, there had been a “tremendous drop” in non-compliance throughout the network, however the brand would be continuing its push to effectively end its franchise model.

The brand announced earlier this year that it would be moving away from the franchise system in favour of operating company-owned sites, a decision that caused much controversy among franchisees and observers.

Extracted from Inside Franchise Business