Oil giant Caltex has hit back at franchisee claims that it benefits from booting store owners out of its network when it uncovers wage fraud.
Caltex has been battling dual claims since late last year that its model squeezes franchisees and that those franchisees routinely underpay their staff.
The company has vowed to stamp out underpayment and at its profit announcement on Wednesday said it had already started action to remove store owners who broke the rules from its system.
But some store owners claim that when Caltex forced out an owner it could do so without paying compensation beyond assets such as stock, which means it could gain back stations almost free and profit from their resale or merge them into its corporate-owned store network.
In one case revealed by Fairfax Media last year, a franchisee was terminated from seven stores, which he estimates were worth $5 million on the secondary market if sold to another franchisee.
Chief executive Julian Segal told Fairfax that terminating franchisees was a costly exercise and even when it did occur, franchisees were remunerated for their assets.
"This is not a 'no cost' exercise and it is not what we want to be doing," he said.
"When a franchise is terminated, an independent valuation of the franchisee's assets is undertaken and, in general, the franchisee is paid accordingly for their assets....The process for refranchising a site is also very costly and takes considerable time and corporate resources."
He said the company would not accept franchisees who acted unlawfully and "blatantly disregard the franchise agreements they have entered into".
Caltex reported that its full-year core net profit fell to $524 million, down 17 per cent, as it faced questions about franchisee profitability amid accusations of widespread wage fraud. The company is auditing every store in its network to stamp out the practice, pledging to kick out those caught underpaying workers.
Sandeep Pandher ran six stores in NSW until he was kicked out of the system for wage fraud last September. He denied underpaying workers, but believes the practice is common.
Caltex took his stores from him at a fraction of their market price because he was found to have breached his franchise agreement.
"They are saying that the franchisee is a thief and they are the good guy who are saving the community from corrupt people," he said.
"The truth is they want the stores back to make them into company stores and that is the best way to do it – they are going to get their stores back for free."
Mr Segal used an opinion piece on Tuesday to announce the outcome of an independent review that he said "confirmed our model allows franchisees to draw a wage, make a profit and pay employees in accordance with lawful wage rates".
Within hours of the piece being published, however, one store owner, who did not want to be identified because he is still in the system, fired off an angry email to other franchisees attacking Mr Segal and claiming that "no site with weekly shop sale of about 30K to 35K ... can be profitable in your current model by fulfilling its [workplace] obligation".
The company has been conducting payroll audits of its stores since late last year. Mr Segal would not say how many audits had been conducted or how many franchisees had been terminated, but said there was no excuse for any store to underpay its workers.
"All that I can tell you is that a significant amount of sites have been audited. We have decided to terminate some of the agreements with our franchisees," he said.
Tuesday's results also revealed that Mr Segal's remuneration package fell more than 40 per cent in 2016 to $7.8 million due in large part to an extra $4 million in long-term incentives vesting in the prior year.
The share price closed up just 1.7 per cent at $30.13. Fears about the company's future profitability have weighed on the price ever since December, when it failed in its bid to purchase 527 Woolworths-owned service stations.
In early morning guidance Citi Research said the company had failed to show how it would make up for the profit impact from the failed bid despite flagging partnerships with street-front eaterys such as Guzman Y Gomez and Sumo Salads.
"This is a little disappointing given the outlook for profitability is where the market is caught on this stock."
