What the Woolworths and Coles underpayment cases really mean for employers
Late last year, the Federal Court of Australia handed down its long-awaited decision in underpayments proceedings brought by the Fair Work Ombudsman against Woolworths and Coles.
The judgments are lengthy and technical but their practical message is clear, including:
1. Salaried employees can still be award-covered
Being paid an annual salary or having a written employment contract does not exclude modern award coverage. Award coverage is determined by the work performed, not by how remuneration is labelled. Private agreements cannot contract out of the award system, except in limited circumstances such as valid guarantees of annual earnings for high-income employees.
2. A salary must absorb all award entitlements every pay period
Employers can pay award-covered employees a salary, but that salary must meet or exceed all applicable award entitlements based on actual hours worked. This includes overtime, penalties, allowances and leave loading.
3. Set-off clauses are limited tools – not a safety net
Both Woolies and Coles relied on contractual set-off clauses stating salaries were paid in satisfaction of award entitlements. Justice Perram confirmed these clauses can operate but only if, in each pay period, the salary actually covers the award minimums. Attempts to “average” or “pool” salary over longer periods was found to be inconsistent with section 323 of the Fair Work Act 2009 (Cth), which requires minimum entitlements to be paid in full each pay period.
4. Record-keeping failures shift the risk squarely to employers
The Court was highly critical of time and wage record practices and reinforced the strict requirements under the Fair Work Regulations 2009 (Cth). Where proper records are not kept, the burden of proof is reversed, meaning employers may need to disprove allegations, which is extremely difficult without accurate records to rely on. Importantly, this record-keeping requirement applies even to salaried, managerial and white-collar employees.
5. Hours worked still matter
The Court rejected arguments that detailed overtime records are impractical for award-covered, salaried staff. Where hours exceed what a salary was intended to absorb, liability follows. With flexible work and remote access now the norm, unmonitored hours present a compliance risk for employers.
Tips for Employers
The decisions reinforce that in order to comply with their obligations, employers should:
- Regularly review award or enterprise agreement coverage and classifications for salaried roles.
- Stress-test salaries against realistic working-hour scenarios.
- Tighten employment contracts, particularly any set-off provisions.
- Implement practical systems to record actual hours worked, including overtime.
- Consider guarantees of annual earnings where appropriate.
- Use individual flexibility arrangements carefully and lawfully.
- Require pre-approval of overtime and capture after-hours and remote work.
The key tips for employers to take away from these cases is that a salary does not equal safety and automatic compliance for an employer. Employers are still bound by record-keeping requirements and compliance with the underlying industrial instrument even when an employee is engaged under an employment contract.
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