Oh No…Not Again…But Employment Agreement Setoff Clauses (IFAs) Must offer Excess Remuneration in Every Pay Cycle

Posted on 18/09/2025 at 11:46 am

By admin

We have all heard about recent Federal Court case involving Coles and Woolworths center’s highlighted the underpayment of thousands of supermarket managers and may cost the companies more than $1 billion in repayments and penalties.

OH NO…Not Again…

Apparently its all a new precedent and set to sufficiently change the IR landscape. Far from “new” but it serves as a warning to wake up the people who are responsible for this and similar types of occurrences.

The judgment found that both brands failed to keep accurate wage records and improperly managed contractual arrangements around overtime, penalties, and allowances, violating the Fair Work Act and the General Retail Industry Award.

Background of the Case

Claims of underpayment affected nearly 30,000 employees, many of whom were salaried managers working beyond their rostered hours without receiving appropriate overtime or penalty rates. The case was brought by the Fair Work Ombudsman and through class actions filed by Adero Law, highlighting systemic issues in the supermarkets’ pay practices stretching back to 2013.

Key Legal Issues:

A major issue was the use of “set-off” provisions, where higher base salaries were intended to cover all award entitlements; however, the court found these arrangements do not justify failing to pay overtime, penalty rates, and allowances as they arise in each pay period.

The law requires these entitlements to be paid weekly or fortnightly, not retrospectively offset by a previously higher salary. But this is nothing new. Otherwise, what would happen if an employee did 12 x 55-hour weeks in a row then leaves the Company. Does the Company normally just turn a blind eye on the excessive overtime (204 hours) that was worked up to termination (because it was going to be averaged out annually and later right???) and the employee leaves the business being totally underpaid??? Well…if that’s a standard practice in the past for BIG business – then sure surprised me !!!

Findings and Court Rulings

Justice Nye Perram ruled both Coles and Woolworths did not comply with their obligations to properly record hours worked and fairly compensate overtime and penalty allowances. The court declined to award specific compensation yet citing the complexity and inadequate connection between legal issues and factual evidence, but remediation payments have already been made in the vicinity of around $31 million by Coles and $330 million by Woolworths and, with a whole lot more to come.

Reiterating Implications

This case reminds employers to keep detailed payroll records and pay award entitlements in the correct pay cycle. Again, nothing new. Has businesses not been keeping such record for 7 years or now minimum 5 years. I mean…who’s idea was it to throw out all the payroll records???

The Ruling

The ruling is not really forcing major changes but reminding us of all of the long history that seems to have recently been forgotten, eroded and/or short cut. More specifically there are only really 3 likely causes:

1. The board and management knew all about it but preferred to ignore it all hoping it would just one day disappear,
2.   The poor implementation of technology and related “SMART” systems that were implement by people who have no understanding of Payroll, Employment Agreements, Awards and Employment Law,
3. The HR and Industrial Relation people have know idea on what they were doing and need to go back to School. I am hoping it’s the two former and not the latter.

Next Steps:

The case continues, with a case management hearing scheduled for October 27, to determine the process for compensation and any final orders for affected employees. Both Coles and Woolworths have apologized and implemented new payroll safeguards, vowing not to repeat these errors.

This again reiterates the legal, financial, and operational consequences now facing Coles, Woolworths, and Australian employers following the Federal Court’s findings on systemic wage underpayment and flawed pay structures.

As Always:

• Over Award Entitlement must be justified over a weekly or fortnightly pay period they are earned, not attempting to average it out over a 6 month or 12-month period with a higher base salary (including for the reason given above).

• Employers must define Ordinary hours in Employment Agreements and keep proper records of actual hours worked by employees (including allowances and loadings) or risk breaching their obligations under the Fair Work Act.

• Accurate payroll records are crucial to demonstrate payments for all legislative and Award entitlements, i.e. all hours worked. You must be able to provide evidence for any person questioning the Company’s pay practices – including your own employees. Wake UP !!!

Paul Marshall

Partner | HR Chief | FCPHR

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