Australia’s two biggest supermarket chains have been handed the wooden spoon for workplace compliance. In a landmark Federal Court ruling, Justice Nye Perram found Coles and Woolworths failed to keep proper records of staff hours and entitlements, leading to the largest wage underpayment scandal in Australian history.

Tens of thousands of current and former employees, from store managers to department heads, are owed money. The final bill is looking to be north of a billion dollars.

So how did the country’s grocery giants get themselves into this mess? More importantly, what should small business owners take away from it?

What the court said

The case has been running for years, kicked off by a class action from Adero Law and Fair Work Ombudsman investigations in 2019 and 2020.

Justice Perram’s 204-page judgment boiled down to a pretty simple point: Coles and Woolies put their salaried managers on annual packages but didn’t bother to track whether those salaries actually covered all their legal entitlements under the retail award.

“The basic problem common to each action is that the employees in question were employed under written contracts providing for an annual salary,” Justice Perram said.

“Woolworths and Coles did not keep track of the entitlements of these employees under the award and hence, in many cases, did not pay entitlements which the employees properly had.”

In other words, no proper record keeping, no proper pay.

The court also rejected the supermarkets’ attempts to “balance out” underpayments in one pay period against overpayments in another. Perram gave a hypothetical example: if a worker was entitled to $2000 in base pay plus $1500 in overtime in a fortnight, they had to get the full $3500. No ifs, buts or accounting tricks.

“The employee is to be restored to the position he or she would have been if the contraventions had not occurred,” the judge ruled.

That’s a fancy way of saying: if you didn’t pay them right, you’ve got to cough up.

How much are we talking?

Plenty.

The Sydney Morning Herald reports Woolies has already paid back more than $486 million since 2019 and has set aside $547 million in total. Coles has repaid $30.1 million and earmarked $50 million. But after the ruling, analysts say the final tab could hit $1.3 billion for Woolies and $300 million for Coles.

As ABC News reported, Woolies told the ASX the decision would “require significant and widespread changes to accepted retail practice for Woolworths Group and Australian businesses, large and small.”

Coles, meanwhile, is still examining the judgment.

“Coles is now reviewing the judgment to understand its implications,” it said. “Given the complexity of the judgment, it may take some time.”

The fallout for all businesses

Legal experts say the ruling won’t just sting the supermarkets, it’s going to send shockwaves through workplaces across the country.

Woolworths called the judgment “lengthy and complex” and said it’s considering the findings.

“Our team members are the heart of Woolworths… We are focused on resolving these underpayment issues. We are committed to ensuring that our team members are paid correctly,” CEO Amanda Bardwell said in a statement.

Coles said it is reviewing the decision to understand the implications and will provide updates “as appropriate.

Translation: If you pay staff on a salary and assume it covers overtime, weekend penalties and other entitlements, you’d better double-check your payroll system.

Fair Work Ombudsman Anna Booth told ABC News it’s an “important decision,”. Booth emphasised that “annualised salaries must meet all employees’ minimum lawful entitlements.”  She said the FWO will continue to pursue orders requiring both supermarkets to rectify outstanding underpayments and will seek penalties.

A case management hearing is listed for 27 October to map the next steps and, ultimately, determine the remediation sums.

Bad news for small biz retailers

Unsurprisingly, business lobby groups are less than impressed.

Australian Retailers Association boss Chris Rodwell said the case shows the system is broken.

“With 994 different pay rates across almost 100 pages, the General Retail Industry Award 2010 is incredibly difficult for employers to understand,” he said in a statement to media.

Speaking to Inside Small Business, Rodwell went further, warning the ruling could make salaried roles “practically unworkable.”

He argued the fallout could force retailers to get even senior employees to “clock on and clock off, measure breaks and be given no discretion or autonomy to decide when they need to work extra hours.”

That, he said, would be “a significant compliance burden” and strip away flexibility that some workers actually prefer.

In other words, the award is so complex it takes a team of lawyers to untangle it, and now even high-paid managers might end up punching the time clock like casuals.

Lessons for small business

It’s easy for small business owners to shrug and say, “that’s a Coles and Woolies problem.” But that’d be a mistake.

The same wage rules apply to your small business as a large corporation.

So,how can you avoid falling foul of the law?

Keeping immaculate records should be your first port of call. It sounds dull, but keeping proper rosters, start and finish times, breaks and overtime logged and stored is the golden rule. Justice Perram’s ruling made it clear, if you can’t prove it, you’ll wear the consequences.

Then there’s the common misconception that paying someone “above award” is a free pass. It isn’t. A salary doesn’t cancel out the need to check each pay period against entitlements like overtime or penalty rates. Each cycle still has to stack up.

Payroll systems are another area where corners can’t be cut. Relying on old software, manual timesheets or worse still, memory, is a recipe for trouble. Affordable digital tools are available that can automate award interpretation and flag risks before they become compliance issues.

While no one expects small business owners to memorise the 994 different pay rates in the retail award, knowing when to seek advice is crucial. Fair Work, industry associations and workplace lawyers can all provide guidance when things get murky.

Finally, transparency really does pay. Open conversations about pay and conditions don’t just build goodwill they help prevent disputes before they start.

Why the judgment matters

The judgment is a huge win for workers. The thousands of people who put in long hours running Australia’s biggest supermarkets will finally see money they were owed.

For businesses, big or small, it’s a wake-up call. Underpayment scandals trash reputations, tie up management in years of legal headaches, and make customers question whether they want to keep shopping with you.

“This judgment makes it clear that retailers can no longer hide behind incomplete or inaccurate payroll records, said Adero Law’s Rory Markham, who headed up the class action against the supermarket giants.

The warning is true for Coles and Woolies, but it’s just as true for a café with three baristas, a tradie with a small crew, or a family shop. If the courts are willing to chase down billion-dollar companies, you can bet they won’t blink at coming after smaller businesses, too. It’s time to get your affairs in order.

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