There has been a big employment law case in the media lately involving Woolworths and Coles.
On 5 September 2025, the Federal Court of Australia handed down its decision in Fair 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.
The case involved thousands of salaried employees covered by the General Retail Industry Award and considered whether employers could rely on annual salary arrangements to offset Award entitlements over an extended period of time.
Whilst this hasn’t resulted in a change in legislation, it is a significant example of how employment laws are tested and interpreted by the Courts in practice.
It’s resulted in a change to our understanding of obligations when paying Award-covered employees an annual salary.
If you pay staff on annual salary you may identify with this common assumption:
“As long as my employee is better off overall on their salary, I’m compliant.”
The Federal Court has now made it clear that this isn’t necessarily the case.
The Woolworths and Coles proceedings considered whether employers could rely on annual salary arrangements to offset Award entitlements over an extended period of time.
In Woolworths’ case, this was generally over a 26-week period. In Coles’ case, it was effectively over the course of a year.
The argument was straightforward:
If an employee should have received an additional $200 in overtime in one fortnight, but was paid thousands more than the Award over the course of the year, does that matter?
According to the Federal Court—it does.
The Court found that employers cannot generally rely on overpayments in one pay period to make up for underpayments in another.
Instead, employees are entitled to receive at least their minimum Award entitlements in each pay period.
That distinction is arguably the most significant aspect of the decision.
Following the decision, the Fair Work Ombudsman released guidance titled “Offsetting and Record-Keeping for Salaried Employees.”
Importantly, the Fair Work Ombudsman did not announce new laws or introduce additional obligations.
Rather, it sought to explain the practical implications of the Federal Court’s decision.
In its guidance, the Fair Work Ombudsman reinforced that:
This decision has the potential to impact employers across many industries—not just retail.
If you have Award-covered employees on annual salaries, it may be worth asking:
Many organisations will discover they have nothing to worry about.
Others may find they have been relying on a “better off over the year” approach that no longer aligns with how the Courts interpret the law.
The Woolworths and Coles decision is not a legislative change.
No new laws have been introduced.
However, it is an important reminder that paying an annual salary is not the same as removing Award obligations.
The Federal Court has clarified that compliance is generally assessed pay period by pay period—not by looking back at the end of the year and asking whether the employee was better off overall.
For employers, now may be the right time to review salary arrangements and ensure they would stand up to scrutiny if tested.
