24/09/2025
Fair Work Ombudsman – Supermarket Underpayments: Lessons for Employers
In the recent consolidated proceedings of Fair Work Ombudsman v Woolworths Group Limited; Fair Work Ombudsman v Coles Supermarkets Australia Pty Ltd; Baker v Woolworths Group Limited; Pabalan v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092, the Fair Work Ombudsman and class action lawyers pursued actions against supermarket chains Woolworths Group Limited (Woolworths) and Coles Supermarkets Australia Pty Ltd (Coles) in respect to the underpayment of wages for store managers.
Background
The judgment contains four separate actions, two of which were against Woolworths and the remaining two against Coles.
In each case, both supermarkets allegedly underpaid store managers who were on written employment contracts providing for annual salaries. Allegedly, employee entitlements for overtime hours were not accurately recorded or paid, resulting in wage underpayments.
The employment contracts included set-off clauses which were intended to “set-off” the salary against entitlements under the General Retail Industry Award 2010 (the Award) for overtime payable.
Findings
While this very lengthy judgment contains several findings, two of the findings are particularly poignant for employers and common employment practices.
Set-offs
As is not uncommon with many employers, Coles and Woolworths paid its store manages annual salaries instead of hourly wages. And as is also not usual, the store managers’ written contracts of employment contained express set-off provisions whereby the annual salary was designed to be high enough to also cover over-time worked by store managers when averaged out (over six months for Woolworths).
Apart from a few specific exemptions, such salary arrangements for award covered employees had generally been regarded as acceptable. However, such arrangements appear to now be of limited scope as the temporal effect of section 323 of the Fair Work Act was considered for the first time in respect of annualised salaries. Fundamentally, Perram J has determined that over-award payment of salary can only be applied to award entitlements in each pay period. In other words, significant salary over payments during quieter times of the year cannot be set-off against over-time entitlement during busier times of the year. Each pay period must be assessed separately.
Given that many employers have operated by averaging over-ward salaries over multiple pay periods, this judgement is likely to be problematic for many employers.
Employer Record Keeping
A second notable finding in the judgement was the degree and detail to which employers must keep employee records. More specifically, Perram J determined that it is not sufficient for employers to keep information about employees to prepare requisite employee records (e.g. entry and exit logs etc..), but that they must create the specifically required employee records from the information into formats readily reviewable.
Lessons for employers
This judgment highlights a number of lessons for employers including:
- knowing whether any of your salaried staff are covered by an award;
- determining whether the salary paid to staff is sufficient to cover award entitlement in each respective pay period;
- ensuring adherence with the applicable award; and
- the importance of proper record keeping including pay records and overtime records in a format that is readily accessible for inspection by an employee or the Fair Work Ombudsman;
If you would like more information on how this may impact you or your organisation, you can contact our team of employment experts.