On 5 September 2025, the Federal Court of Australia handed down its long-awaited decision in Fair Work Ombudsman v Woolworths Group Limited; Coles Supermarkets Australia Pty Ltd [2025] FCA 1092. The decision primarily considers whether contractual set off clauses for salaried employees can be used to offset above-award payments in one period against any shortfall arising in another period.
Critically, the Court found that the set-off clauses used in the employer’s contracts could only operate to discharge the employer’s obligations under the General Retail Industry Award 2010 (Retail Award) in a single pay period. The employers could not rely on over-award payments in one pay period to satisfy an award shortfall in another pay period.
The Court also clarified the extent of employers’ record keeping obligations in respect of their award-covered employees on annualised salary arrangements.
In this Insight, we unpack the practical implications of this decision and outline key recommendations for employers.
Background
In 2021, the Fair Work Ombudsman commenced separate legal proceedings against major supermarkets Woolworths and Coles in relation to the alleged underpayment of their salaried employees. Concurrently, employees of Woolworths and Coles commenced two class action proceedings against the companies, Baker v Woolworths Group Limited and Pabalan v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092. Due to the proceedings covering similar issues, the matters were heard together.
The proceedings considered whether both Woolworths and Coles had failed to ensure managers’ annual salaries were sufficient to cover their award entitlements for all hours worked, taking into account various overtime rates, weekend and public holiday rates, and allowances under the Retail Award.
Decision
The Court held that Coles and Woolworths were required to record overtime hours of up to 28,000 salaried managers who were allegedly underpaid from 2013. It found that relying on rosters or clocking in and out times was insufficient record keeping for the purposes of the Fair Work Regulations 2009 (Cth) which require employers to maintain employee records that specify remuneration details such as penalty rates, loadings and overtime records for the number of overtime hours worked each day and the start and finish times of any period of overtime. The Court found that even if the number of daily overtime hours worked by an employee as well as the start and finish time of those overtime hours could be deduced from the ‘clock in’ and ‘clock out’ time of the workers, it did not constitute a sufficient “record” to meet the requirements, because the data should:
- be easily accessible by employees; and
- clearly outline the specifics of the relevant modern award entitlements including overtime hours worked and the basis for their calculation.
In other words, the presentation of raw data which needed to be analysed or interpreted to obtain the relevant information was not sufficient to meet their record keeping obligations.
The Court also found that the contractual set-off clause in the relevant employment contracts were only effective to discharge modern award obligations within a single pay period.
Practical implications and recommendations
Employers must keep accurate and detailed employee records of all hours worked by salaried staff covered by an award including details of any overtime or hours that would otherwise attract penalties, loadings or allowances. This information must be kept in a form that is readily accessible to a Fair Work Inspector and “available” to an employee. Simply relying on multiple data sources to compile the relevant record is not sufficient.
Set-off clauses in employment contracts must also be carefully reviewed. The Court’s decision confirms that such clauses are limited in scope: an employer cannot use overpayments in one period to offset underpayments in another. This highlights the importance of ensuring correct award payments are made in each individual pay cycle.
Key takeaways
It is too early to know if the decision will be appealed but, in the meantime, it is critical for employers to carefully consider their current practices for all award covered staff on annualised salary arrangements, including in relation to record keeping processes. This includes:
- ensuring accurate, detailed and accessible records of all hours worked in each pay period in payslips or another form that is readily available to employees;
- reviewing set off clauses in employment contracts to ensure they are clearly drafted and legally effective;
- considering using individual flexibility agreements where appropriate; and
- reviewing payroll systems and processes to ensure that reconciliations occur in each pay period and an employee is paid for all relevant award entitlements in each pay period.