Legal Matters

by Simon Lord

last updated 01/11/2017

Auckland franchisees repay $125,000 in missing wages

by Simon Lord

last updated 01/11/2017

26 October – The Franchise Association and the Labour Inspectorate are urging franchises to check their systems after faulty payroll practices caused some Caltex franchisees to underpay hundreds of staff
Poor payroll systems were behind the underpayment of over 232 staff at 17 Caltex stations in Auckland

Caltex franchisees in Auckland have had to pay more than $125,000 in arrears to 232 former and current employees following an investigation by the Labour Inspectorate of the MBIE that revealed ‘substantive’ minimum wage breaches and other systemic breaches. Poor payroll systems in place at 17 Caltex stations had meant that holiday pay and minimum wages were not correctly paid.

The 17 stations were owned by six companies with a single set of directors, Sanjai Bagia and Dipak Bagia. The companies entered into an enforceable undertaking with the Labour Inspectorate that has seen their systems corrected and all of the $125,659 in arrears paid.

The problem appears to have resulted from genuine errors rather than the systemic frauds by individual franchisees which have affected some franchise brands in Australia in recent years, including Caltex.

Dipak Bagia said their automated payroll systems did not calculate holiday wages correctly and he did not intentionally try to withhold money from workers.

‘We regard ourselves as good employers and responsible employers ... We're gutted,’ he told Jessie Chiang of Radio NZ. ‘All our guys are paid the minimum wage, we do employ people legally ... It's just very unfortunate all the systems did not comply with some of the provisions.’

Z Energy, which bought the Caltex brand in New Zealand in June 2015, said that it was satisfied the owners acted in good faith.

Inspectorate wants stronger hand from franchisors

As a result of the Labour Inspectorates investigation, an Enforceable Undertaking was issued ordering the directors to conduct an audit dating back six years. This was signed in October 2016 and full compliance was achieved by September 2017.

According to regional manager Loua Ward, ‘This investigation found breaches through incorrect applications of the training wage, which is 80 percent of the minimum wage. Minimum wage breaches spanned 105 employees, totalling more than $17,500, and holiday pay breaches affected 186 employees totalling more than $105,000. No further penalties or fines were applied.

Loua Ward called for large brands and franchisors to take a stronger hand in ensuring those at the bottom of their supply chain receive what they’re owed.

‘Failing to seek sufficient assurances can open the door to operators who don’t take care to meet all their obligations, like paying the correct minimum wage – a poor look for any business.

‘Businesses which choose to loan out their brand for profit, such as franchisors, should use their position to resolve these kinds of employment issues before they happen.

‘These kinds of cases can cast a cloud over a business long after the workers have been paid back, as ultimately it meant employees associated with your brand were left out of pocket.

‘It’s always surprising and disappointing to find well-established and high-profile organisations failing to ensure such basic compliance is occurring.’

Updated - another Labour Inspectorate investigation the week after this story led to a New Zealand franchisor having to pay nearly $200,000 for employment breaches, including $99,000 in penalties.

Association urges action

The Chairman of the Franchise Association (FANZ), Brad Jacobs, points out that it’s not just large businesses but all the small businesses which make up franchises over many types of industries which need to ensure staff are being paid correctly. ‘The Association has already held sessions in Auckland and Wellington, including presentations from the Labour Inspectorate and HR experts, to help ensure the franchise sector is aware of its responsibilities under the law.

‘As a result, we are aware of several of our members who are already working pro-actively with the Labour Inspectorate to review their own systems and introduce their educational resources to franchisees. FANZ has already shared these resources with all its franchisor members and will be doing so again in the near future.

‘Caltex is not a member of the Association so I can’t comment on this particular case, but in general franchisees who underpay staff are not only breaking the law but are in breach of their franchise agreement and could be terminated as a result.

‘Franchising is a hugely popular way of doing business in this country. The recent Survey of Franchising revealed that the franchise sector has a turnover of $27.6 billion, even without fuel retail and motor vehicle sales, which take the total to $46.1 billion. There are 37,000 franchised units employing over 124,000 New Zealanders, making it a massive contributor to our economy.

As the Labour Inspectorate has noted, the actions of one franchisee can damage the businesses of others operating under the same brand, and the reputation of franchising as a whole. FANZ therefore urges its members to be aware of the risks involved and to work with the Labour Inspectorate to take immediate action to investigate and resolve any such issues within their systems.’

Kiwi businesses struggle with payroll

MYOB New Zealand General Manager Carolyn Luey says New Zealand has complex payroll compliance requirements that many Kiwi businesses grapple to understand.

‘Last year, the MYOB Business Monitor survey of more than 1000 small-to-medium-sized enterprises revealed 75 percent say they feel pain around employing staff, and around a third find payroll challenging.

‘Payroll is a function that neither the employer or employee ever wants to get wrong, but the payroll requirements require interpretation and understanding in their application as opposed to being “black and white”.

‘At MYOB, we alleviate payroll pain by helping simplify payroll for businesses. Each of our cloud-based payroll solutions make it simpler to comply with payroll requirements; we liaise very closely with Inland Revenue to talk about what’s coming up on the horizon, and we’re very active around the compliance changes that are coming.’

More on wages issues in franchising

Employment fraud a risk for franchises

Fair Work changes pass in Australia

Tips for staying on top of payroll

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