A recent ruling uncovering significant underpayments by Coles and Woolworths has sent ripples beyond the supermarket sector, affecting industries – including the real estate industry – where employers are paying employees under annual salaries or flat rates.
The decision highlights that the long-standing practice of using annual salaries to “smooth out” entitlements across pay periods may breach the Fair Work Act 2009 (Cth) (FW Act), potentially exposing employers to underpayment claims.
The Federal Court jointly considered four underpayment applications, finding that Woolworths and Coles underpaid salaried managers covered by the General Retail Award 2010 (Award) by failing to pay enough to capture Award entitlements (such as overtime, penalty rates, loadings and allowances) and to maintain adequate employment records.
Woolworths and Coles sought to rely on common law off-set (or ‘set-off’) in defence of the underpayments, arguing the amounts paid to the employees over a six- or 12-month period were sufficient to meet the entitlements due under the Award.
However, the court found that employers cannot ‘pool’ wages over a six- or 12-month period or rely on overpayments in one pay period to rectify underpayments in another pay period.
Rather, under the FW Act, employers must pay an employee in full for all the entitlements owing under the relevant industrial instrument, at least monthly (or more regularly in line with the industrial instrument’s pay period).
The supermarkets mistakenly believed that payment of a salary via a ‘set-off’ clause removed the requirement to keep records of each entitlement payable under the Award.
The Federal Court found this practice fell short of record-keeping requirements under the FW Act, including that records must:
Justice Perram found that systems which “clock in” employee hours, in conjunction with scheduled rosters, were insufficient record-keeping for the purpose of the FW Act.
Records must have sufficient detail for an employee to understand the basis of the entitlements which they have earned (which, presumably, would require additional detail about the actual hours worked and any penalty/loading attributable to those hours).
Importantly, inadequate record-keeping not only breaches the FW Act, but also activates a reverse onus of proof in underpayment claims, requiring the employer – rather than the employee – to prove no underpayment occurred.
The Court also considered the circumstances where an employer and employee can agree to vary provisions of a modern Award. Here, employees were entitled to a 12-hour break between shifts under the Award or a higher rate of pay if the break was not provided. However, this could be reduced to a 10-hour break if agreed by both parties.
Justice Perram found there could not be genuine agreement unless the employee was aware of their right or entitlement. It is not enough that the employee agrees to work in accordance with this flexible term, the employer must show the employee knew the entitlement under the Award and agreed to forgo it.
It remains to be seen whether the supermarkets will appeal the decision.
Even though this decision was not directly related to the real estate industry, it doesn’t mean that it won’t have a significant impact on real estate employers and employers. Some examples of how this decision might manifest in a real estate context include:
To reduce the risk of underpayments and breaches of the relevant industrial instrument/FW Act, employers should proactively review:
At Business Law WA, our team of workplace relations experts can assist your business in ensuring compliance and reducing the risk of underpayment. We can provide legal advice on:
Contact the Business Law WA team on 08 9365 7746 or at businesslawwa@cciwa.com for further information.
See also: For the full decision 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, it is available via the following link: Decision Link.
This article is authorised by Business Law WA, an incorporated legal practice and wholly-owned subsidiary of CCIWA. The contents of this article is general in nature and is not legal or professional advice and should not be relied upon as such.
CCIWA, Business Law WA and REEFWA has taken all reasonable care in preparing this document. The contents of this document do not constitute legal advice and should not be relied upon as such. Specific advice for your situation should be sought from CCIWA, Business Law WA or a professional adviser before any action is taken. Neither REEFWA, CCIWA nor Business Law WA accept responsibility for any claim that arises from any person acting or refraining from acting on the information contained in this document.
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