Court ruling against Coles and Woolworths – more in the basket of goods
Posted on November 27, 2025
In September, the Federal Court handed down a landmark decision in four separate actions heard in parallel against Coles Supermarkets and the Woolworths Group regarding the underpayment of approximately 30,000 employees.[1]
The decision provides important lessons for employers.
The decision
Each action concerned alleged underpayments by Woolworths and Coles of managerial employees covered by the General Retail Industry Award (Award). All relevant employees were employed under contracts of employment that provided for an annual salary.
Set-off clauses
The employment contracts provided for the set-off of Award entitlements across payment periods, with the pooling of employee entitlements across a six month period for Woolworths’ employees, and equal payments in satisfaction of all entitlements otherwise payable for Coles’ employees.
In the decision, the Court ruled that payments made to satisfy Award entitlements could only be used to offset the entitlements falling due within that same payment period. That finding is due in large part because section 323 of the Fair Work Act 2009 (Cth) (Act) requires an employer to pay an employee in relation to the performance of work in full, in money and at least monthly. Work performed in one pay period which is not paid within that week or fortnight (as required by the Award) or at least monthly (as required by the Act) but is paid in some earlier or later pay period by the equalisation of salary payments does not discharge this obligation.
Record-keeping
The Act and Fair Work Regulations 2009 (Cth) (Regulations) require employers to keep certain records relating to their employees. For employees entitled to be paid allowances, penalties or loadings, the records to be kept must set out details of the payment, loading, rates, allowances or entitlement. Where there is an entitlement to a penalty or loading for overtime, the records must specify the number of overtime hours worked each day and when the employee started and ceased working overtime hours.
The Court determined that the annual salaries and set-off clauses did not relieve Coles and Woolworths of these record keeping obligations.
Woolworths published rosters and used a clock in clock out system. The Court also determined that the published rosters together with the clocking data did not constitute records for the purpose of the Regulations.
Next steps
There are still a number of matters to be resolved before the Court can make final orders. A further case management hearing has been listed for 20 March 2026.
It has been estimated the underpayment bill for Coles and Woolworths could exceed $780 million. The quantum of penalties is yet to be determined.
Implications for employers
Employers with award and enterprise agreement covered employees who receive annualised salaries but are entitled to receive penalties, loadings and overtime for the performance of work should take particular note of this decision and take action to ensure compliance with the Act and applicable industrial instruments.
Annualised salary arrangements and contractual set-off clauses should be reviewed and amended as necessary, recognising that a set-off clause is only effective within the same pay period.
Employers should also review the way their records are kept. The hours worked each day by employees covered by an award or enterprise agreement, including salaried employees, must be recorded, including the start and finish times.
We anticipate an increase in underpayment claims in light of this decision. The penalties a Court can order for non-compliance are considerable and often exceed the quantum of any underpayment.
Fair Work Ombudsman guidance
The Fair Work Ombudsman’s website has been updated to reflect the decision and states:
Employers who use contractual offsetting arrangements still need to pay their employees:
- in full (except for permitted deductions)
- for each pay period as required by their award or enterprise agreement, and
- at least monthly.
If an employer pays their employee more than the minimum amount required by the relevant instrument in one pay period, they can’t generally use this to satisfy a less than minimum amount paid in another pay period.
Employers using contractual offsetting arrangements still have obligations to make and keep certain kinds of records relating to award or agreement entitlements and overtime hours. For more information, go to Record-keeping.
Further information
Please contact our workplace relations team if you require any advice about employment contracts, set-off clauses or record keeping.
[1] 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.
