Landmark Fair Work Case: What the Woolworths Decision Means for Employers

Landmark Fair Work Case: What the Woolworths Decision Means for Employers

On 5 September 2025, the Federal Court handed down its decision in Fair Work Ombudsman v Woolworths Group Limited & Ors [2025] FCA 1092.

The case centred on underpayments to salaried store managers at Woolworths and Coles. Both companies had already made remediation payments totalling more than $300 million, but the Fair Work Ombudsman (FWO) continued proceedings to clarify key principles under the Fair Work Act.

The decision resolved three major questions:

1. Can employers “pool” or “average” salary overpayments across multiple pay periods?
2. Do annualised or “all-inclusive” salaries remove record-keeping obligations?
3. When can an employee’s agreement alter their Award entitlements?

What the Court Decided

(1) Set-Off Clauses Must Be Confined to the Same Pay Period

The Court ruled that employers cannot use overpayments in one pay period to offset shortfalls in another.

Under section 323 of the Fair Work Act and clause 23.1 of the General Retail Industry Award, wages must be paid in full for each period worked. Employers cannot use “pooling” or “averaging” across longer timeframes.

Justice Perram described Woolworths’ 26-week offset model as an “accounting abstraction” that did not satisfy statutory or award obligations. This sets a clear precedent for all annualised salary arrangements.

(2) Record-Keeping Obligations Still Apply

Even where employees are on fixed salaries, employers must maintain detailed records of hours worked, start and finish times, overtime, penalty rates, allowances, and loadings.

The Court found that using rosters or clock-on data alone is insufficient. Records must be complete, accurate, and readily accessible.

If adequate records are not kept, the employer carries the burden of proof under section 557 of the Fair Work Act; meaning the employer must disprove any alleged underpayment.

(3) Agreements to Vary Entitlements Require Clear Consent

Employers can only rely on an employee’s agreement to vary Award entitlements if the agreement is informed, voluntary, and clearly documented.

General HR policies or internal communications are not enough. The Court held that if the employer cannot show that the employee knowingly consented, they cannot rely on that variation.

(4) Leave and Public Holidays Count as Hours Worked

The Court confirmed that authorised leave and rostered public holidays, even when not worked, count as hours worked for calculating overtime and roster thresholds.

This ensures employees are not disadvantaged for taking approved leave.

What Employers Need to Do Now

Review Contracts

• Remove or amend any set-off clauses that allow averaging across multiple pay periods.
• Ensure contracts clearly identify the relevant Modern Award.
• Confirm that pay and entitlements meet Award requirements within each pay period.

Audit Payroll Systems

• Ensure payroll calculations are based on individual pay cycles, not annual totals.
• Build in automatic checks to identify shortfalls and correct them promptly.
• Integrate time and pay data into a single, easily auditable system.

Strengthen Record-Keeping

• Record actual hours worked, including overtime and start/finish times.
• Keep records for at least seven years, in a format that can be accessed easily.
• Remember: if records are incomplete, you will need to prove compliance.

Document Agreements Properly

• Obtain clear, written consent for time-off-in-lieu, public holiday substitutions, or other variations.
• Avoid relying on informal understandings or unsigned policies.
• Keep signed acknowledgements for each affected employee.

Review Rostering and Leave Practices

• Treat rostered leave days and public holidays as hours worked for overtime thresholds.
• Check how your payroll system currently calculates those hours and update if needed.

Why This Matters for Not-for-Profits

While the case came from the retail sector, its implications extend to every industry – especially charities and not-for-profits with flexible staffing or grant-funded positions.

Budget constraints and grant conditions do not excuse non-compliance. Boards must plan for wage compliance costs and demonstrate governance oversight.

The key message is simple: every pay period must meet Award minimums on its own. Averaging over time is not permitted.

Looking Ahead

The case may still be subject to appeal, and final compensation amounts are yet to be confirmed.

But for now, the direction from the Federal Court is clear. Every pay period must stand on its own. Every entitlement must be documented. And every variation must be properly agreed.

Staying compliant means staying transparent, and that starts with strong governance, detailed records, and proactive payroll management.

How We Can Assist

The Breakthrough Office works with organisations to embed fair, compliant, and sustainable payroll and governance systems.

We can help by:

• Reviewing employment contracts and remuneration policies to ensure they meet Fair Work and Award requirements.
• Conducting payroll compliance audits to identify and correct underpayments early.
• Designing record-keeping systems that align with legal standards and are easy to maintain.
• Providing governance guidance to boards and leadership teams to manage risk and uphold accountability.

Our approach is collaborative and practical, working with you to build systems that not only meet legal requirements but strengthen organisational culture and trust.

If your organisation would benefit from a compliance health check, get in touch.