The Federal Court’s decision in FWO v Woolworths Group Limited; FWO v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092 has raised significant questions about the validity of contract-based annualised salary arrangements and record-keeping practices. Justice Perram’s judgment, delivered on 5 September 2025, has implications for employers relying on set-off clauses to meet Award obligations and may prompt further legal scrutiny.
Key findings
1. Set-off limited to same pay period
It has been longstanding and very common practice for employers to rely on contractual clauses that “pool” over-award payments across multiple pay periods. In short, employers will set-off over-award payments over the course of a year against any shortfall in a particular pay period. This is often accompanied by a form of regular reconciliation process, so that an employer can (if and as needed) provide evidence that the employee was no worse off under this common law set-off arrangement than if paid in accordance with the relevant award on a pay period to pay period basis.
The Federal Court’s recent decision runs contrary to that long standing practice. Justice Perram ruled that salary payments can only offset award entitlements within the same pay period, and that employers cannot rely on overpayments in one period to cover shortfalls in another. Justice Perram also expressed doubt that any redrafting of contractual set-off clauses could achieve compliance.
2. Record-keeping obligations
The Court found that both Woolworths and Coles breached their record-keeping obligations, by failing to maintain accessible records of overtime hours worked. Rosters and clocking data were deemed insufficient, because they required reconciliation to determine overtime hours. Justice Perram emphasised that records must be readily accessible to Fair Work inspectors.
Watch this space: the Corporate Air Charter case
This decision comes against the backdrop of the Full Court of the Federal Court’s recent ruling in Corporate Air Charter Pty Ltd v Australian Federation of Air Pilots [2025] FCAFC 45. In that case, the Full Court found that an employer could offset over-award salary payments made over a year against award payments in a particular pay period – that is, the same kind of arrangement that Justice Perram has now found to be unlawful.
The Corporate Air Charter decision did not make reference to the Fair Work Act requirement to make payments “in full” within each pay period. However, the discrepancy in these decisions (noting Justice Perram’s judgment does not make reference to the Corporate Air Charter decision) leaves the law in a state of uncertainty. Until the legal position is clarified (such as by way of an appeal), employers should adopt a cautious approach to set-off clauses and salary arrangements.
Next steps for employers
Employers should act promptly to:
- Review salary arrangements to ensure compliance with the Fair Work Act and awards: Obtain specific advice in relation to your salary arrangements.
- Strengthen record-keeping systems: Maintain accurate and accessible records, to meet regulatory requirements.
- Seek legal advice: Consider alternative mechanisms, such as individual flexibility arrangements or award-based annualised wage arrangements.
Conclusion
This decision underscores the importance of compliance with award obligations and record-keeping requirements. Employers should monitor developments closely and seek legal advice to navigate this evolving area.
For further information or to discuss how this decision may impact your business, please do not hesitate to contact the Emplawyer team.
