On 5 September 2025, the Federal Court of Australia delivered a detailed judgment in consolidated proceedings involving the Fair Work Ombudsman (FWO), Woolworths Group Limited (Woolworths), Coles Supermarkets Australia Pty Ltd (Coles), and class actions brought against the two retailers by employees.1
The proceedings addressed alleged breaches of the Fair Work Act 2009 (Cth) (FW Act) and the General Retail Industry Award 2010 (GRIA), in respect of salaried managers who worked in Coles and Woolworths stores, whose employment was covered by the GRIA.
While the Court made important findings in relation to FW Act and GRIA interpretation issues affecting employer obligations, the decision did not include declarations, or a determination of compensation or penalties, the final quantum of which is still to be determined. Media reporting on 8 September 2025 suggested that the further remediation costs for both supermarkets could be up to $1 billion.
The Court has directed the parties to return for a case management hearing to determine how the outstanding issues will be resolved.
In this article, we set out our observations on the judgment and key implications for employers both in the retail industry and more broadly.
Key observations
1. Set-off clauses
The Court considered whether set-off clauses in employment contracts for Woolworths and Coles were effective to set-off amounts paid in excess of an employee’s GRIA entitlements in one pay period against any shortfall arising in another pay period.
This is a complex issue, which has been much debated but not previously decided.
The reason for the complexity is that section 323(1) of the FW Act requires that an employer must pay an employee amounts payable in relation to the performance of work in full (with limited exceptions for permitted deductions), in money, and at least monthly.
Additionally, clause 23.1 of the GRIA requires that employers “pay” employees the amounts which are due either weekly or fortnightly.
In the case of Woolworths, its set-off clause provided that, “as far as possible”, remuneration and other benefits paid pursuant to the employment contract were paid in satisfaction of an employee’s GRIA entitlements over a 26-week period. The employees were paid a fixed amount each fortnight.
The Court found that this “accounting abstraction” envisaged by Woolworths' set-off clause (under which there was an imaginary pool of money created by combining the payments made over a 26-week period) did not satisfy Woolworths' obligations to “pay” each employee the amount they were entitled to “in full” each pay period, which in this case was a fortnight.
The Court applied a similar analysis to the five different set-off clauses used by Coles in its employment contracts.
Ultimately, the Court concluded that each employer’s contractual set-off clauses were only effective to discharge obligations under the GRIA within a single pay period. In other words, the employers could not rely on an over-award payment made in one pay period to satisfy an award shortfall in a different pay period.
In non-binding commentary, Justice Perram also observed it was unlikely that even careful redrafting would allow the pooling of entitlements over more than one pay period (as was attempted in Woolworths' set-off clause). This was because it was “unlikely that payments which have occurred in past pay periods can be characterised as payments for the purposes of the [GRIA]”, and vice versa for payments to be made in the future. While non-binding, this commentary casts doubt on whether it would ever be possible for an employer to overcome the difficulties posed by section 323(1) of the FW Act and the GRIA to allow set-off over more than one pay period through careful drafting of a contractual set-off clause.
2. Record keeping obligations of employers
The judgment also provides helpful commentary on the general obligation for employers to maintain “employee records” under the FW Act and Fair Work Regulations 2009 (Cth) (Regulations).
The Regulations set out various documents employers must keep as “employee records” under regulations 3.31 to 3.44. These include (among other things):
- pay records, such as the rate of remuneration and gross and net amounts paid, any deductions, and — “if the employee is entitled to be paid” any incentive-based payment, bonus, loading, penalty rate, or other monetary allowance or separately identifiable entitlement — the details of the payment, bonus, loading, penalty rate, allowance or entitlement (regulation 3.33); and
- overtime records, including the number of overtime hours worked each day and the start and end times of any period of overtime (regulation 3.34).
Importantly, employee records must be kept in a “form that is readily accessible” to a Fair Work Inspector and “available” to an employee or former employee for inspection or copying on request.
Both Woolworths and Coles argued that they had no obligation to retain certain employee records (such as details relating to payments for overtime and allowances) for salaried managers. In essence, the employers argued that, as remuneration was paid on an “all-inclusive” basis, the employees were not “entitled to be paid” those allowances, meaning the requirement to keep those records was not triggered.
The Court rejected this line of argument. Justice Perram found that there was an “entitlement” for the employees to be paid certain amounts under the GRIA. This was the case even if those entitlements were paid through an all-inclusive payment under a contractual set-off arrangement.
Justice Perram also found that, “if an employee is entitled to be paid at a penalty rate the record must contain sufficient information for the employee to understand why that penalty rate is being paid and how the payment has been calculated”. As an example, in the case of a penalty rate which is calculated by reference to the ordinary hours worked by an employee, an employer must record the ordinary hours, the identification of why the penalty is payable, and sufficient information to allow the employee to understand how the figure has been arrived at.
Additionally, the Court found that keeping a record of employee rosters and “clock in” and “clock out” data was not sufficient to discharge an employer’s obligations to keep overtime records under regulation 3.34. His Honour found that, even if the number of daily overtime hours worked by an employee and the start and finish time of those overtime hours could be deduced from this data, it could not constitute a “record” of the information required by regulation 3.34. That is because the process of accessing the two data sets and interrogating them to deduce the information required by regulation 3.34 was not “readily accessible” to a Fair Work Inspector or “available” for inspection by a requesting employee.
His Honour’s findings provide a clear reminder to employers that proper record-keeping must be in place, even where an employee is receiving a salary in satisfaction of their award entitlements such as overtime rates and allowances.
3. What constitutes “agreement” between an employee and employer?
As with many other industrial instruments, an employee may “agree” with an employer to relinquish certain rights and entitlements under the GRIA.
In this case, the FWO alleged that Woolworths and Coles had not maintained adequate records of agreement with employees about a range of matters, including in relation to:
- an “agreement” to take time off in lieu of overtime;
- an “agreement” to take a rest break of 10 hours between shifts, rather than 12 hours;
- an “agreement” to alter an employee’s roster prior to the employee arriving for work; and
- an “agreement” to be compensated by way of an additional day off instead of receiving payment for working on a public holiday.
Justice Perram held that where an employer seeks to rely on an “agreement” with an employee to forgo a certain right, it must be objectively clear that the employee understood that they were aware of the entitlement and agreed to forgo it. By way of example, in respect of public holiday arrangements, Woolworths argued that its published policy which stated that employees who worked public holidays would automatically have time banked as “time off in lieu” (or TOIL) was sufficient to constitute “agreement”. This argument was rejected by Justice Perram, as it was not clear from the policy alone that an employee would understand that they were forgoing a right to penalty rates for working that public holiday.
Justice Perram reached similar conclusions in relation to agreements to vary a part-time employee’s pattern of work.
4. Do leave and rostered public holidays not worked count as hours worked?
Briefly, another issue that was considered was whether authorised leave and public holidays rostered but not worked by an employee (for example, because the employee took personal leave) constitute “hours worked” for the purposes of roster and overtime provisions in the GRIA.
An example is where a full-time employee working a 38-hour weekly roster takes a day of annual leave. Does the day of annual leave count towards the 38 hours, or does the employee need to make up the day elsewhere in the roster? Justice Perram held that the leave day does count for the purposes of roster and overtime provisions. Were this not the case, these entitlements would be “chimerical” (i.e. illusory) because the hours would need to be made up by the employee. Justice Perram considered that interpretation would lead to outcomes “which are both outlandishly unfair and worse impossible”.
While this provides clear guidance on the approach to this issue under the GRIA, Justice Perram accepted that the position may be different in other instruments, depending on the words used.
Key implications for employers
- Set-off clauses: Set-off clauses in employment contracts may only lawfully operate to cover entitlements under an industrial instrument (such as a modern award) within a single pay period. Overpayments in one pay period cannot be used to cover a shortfall in other pay periods. Employers who use contractual set-off clauses should ensure employees are paid their full minimum entitlements each pay period.
- Record-keeping obligations: Employers must keep accurate employee records of hours worked, including for salaried staff who may work overtime or hours that would otherwise attract penalties, loadings or allowances. This information must be available in a record that is readily accessible – relying on multiple data sources to compile the relevant record will not be sufficient.
- Agreements regarding working arrangements: Employers cannot rely on policies or like documents to evidence agreement with an employee to forgo entitlements under an industrial instrument. The objective circumstances must show that an employee understood that they were aware of the entitlement and agreed to forgo it.
- Leave and rostered public holidays - “hours worked”: Under the GRIA, time on authorised leave and public holidays which is rostered but not worked will count as “time worked” for the purpose of roster and overtime provisions.
What's next?
These proceedings are far from over, with a case management hearing listed on 27 October 2025 to discuss next steps. In particular, Justice Perram has asked the parties to identify in respect of each conclusion a person for whom that conclusion has a concrete effect, so that his Honour can make declarations in respect of that person and their entitlement. The resolution of these issues is likely to take some time.
Woolworths has said that, given the outstanding issues, it is too early to determine whether it will appeal the decision. Coles has not indicated whether it intends to appeal, noting only that the decision is complex and its review will take some time.
In the meantime, employers should carefully consider the implications of this decision for their own workforce practices, including in relation to set-off clauses and employee record-keeping obligations, and seek advice if necessary.
For further information, please contact our experienced workplace relations and safety team.
1Fair 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
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