The recent Federal Court decision of FWO v Woolworths Group Limited; FWO v Coles Supermarkets Australia Pty Ltd resulted in both supermarket giants being held liable for significant underpayments. It also provided important guidance to employers regarding salaries and record-keeping amongst other matters.  

The case involved alleged underpayments to salaried managers and supervisors and one of the key questions to arise was whether “offset” clauses in contracts for salaried employees could be averaged out over long periods of time e.g. 6 months. There has been some contention on this point with the prevailing opinion, including that of the Fair Work Ombudsman (FWO) being you could not whilst others argued it could.  

Some Awards and Enterprise Bargaining Agreements (EBAs) have specific annualised salary clauses or clauses stating where someone is in receipt of a salary a certain % above the award rate, certain provisions are taken not to apply. Where no such clauses exist or are utilised however, a contract may still be entered into with a specified annual salary and an offset clause, detailing what entitlements the salary is intended to cover.  

The FWO argued that a salary had to be sufficient to offset entitlements each pay period and could not be averaged over an extended period. That is, the FWO argued salary payments that were above the Award or EBA minimums in one period could not then be used to cover payments that were under the minimums in another period.  

Coles and Woolworths argued their staff were paid above award overall, and clauses in their employment contracts allowing for off-setting of entitlements over a 52-week and 26-week period respectively, were valid and meant the employees were not underpaid. 

Ultimately the Court agreed with the FWO and ruled that offset clauses could only be utilised to cover monetary entitlements under an Award in a single pay period.  

The Court primarily relied on the fact the Award in question for this case (the General Retail Award) and crucially section 323 of the Fair Work Act 2009 (Cth) requires employers to pay employees their entitlements “in full” within “each pay period”.  

To be clear, this cases circumstances and salaries via a contractual clause are different to the usage and rules for utilising an Individual Flexibility Arrangement (IFA). 

The decision also provided clarity on record-keeping obligations for employers paid salaries. Woolworths and Coles argued they were under no obligation to retain records relating to such things as overtime and allowances for salaried managers and supervisors. They argued as these employees were paid an all-inclusive salary that intended to cover this, they were not therefore “entitled” to overtime, allowances etc and so records did not need to be kept. 

The Court rejected the above argument and held they still had an entitlement to these even if it was covered by the salary. Records must also be detailed, and readily accessible/available and it was held keeping a record of rosters and “clock in” and “clock out” data was not sufficient as it could not be deemed readily accessible due to someone needing to work out/deduce overtime hours from the data. 

Lastly, the Court also clarified what constitutes an “agreement” between an employer and employee regarding where an agreement can be made to relinquish certain rights and entitlements under an Award or EBA. For example, an “agreement” to take time off in lieu of overtime (TOIL), to alter a roster etc. 

The Court stated that to rely on an agreement it must be objectively clear that an employee was aware of the specific entitlements and agreed to forgo it. In this case Woolworths policy that simply stated employees who worked public holidays would automatically have time banked as TOIL was not sufficient.  

The decision will likely be subject to an appeal but for now it provides important guidance to employers and clubs should consider their own practices when it comes to salaries, record-keeping and agreements with their employees.