Penalties & Annualised Salaries – Assessing Your Risk & Avoiding Litigation
- Mar 11
- 4 min read
Updated: Mar 12
Two major decisions in the workplace relations arena in 2025 were:
the Coles and Woolworths store managers underpayments litigation. (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 109); and
the penalties following the Qantas ground staff outsourcing case (Transport Workers’ Union of Australia v Qantas Airways Limited (Penalty) [2025] FCA 971).
The issues in dispute and the legal principles enunciated in these two cases concern distinct issues, however the combined effect of these two decisions for future industrial relations litigation is strategically significant for both the unions (and law firms bringing similar class actions) and for medium to large employers having to defend them.
This article briefly explains why, and why employers should, in our view, be considering these issues and their risk profile. To quickly recap:
The Coles/Woolworths Litigation -
The various proceedings related to approximately 40,000 Coles and Woolworths store and department managers who allege they had been underpaid. The managers were employed on annualised 'all-in' contracts which stated their annual salary provided for all entitlements they would be entitled to under the Retail Award, including allowances, penalty rates and overtime.
The basis of the store managers' underpayment claim is that whilst they received relatively high 'all in' annualised salaries, they alleged they had worked so much overtime that they were paid less than what they were entitled to paid be under the Retail Award.
Critically, Coles and Woolworths, due to the nature of the 'all-in' annualised salaries, did not keep records of all hours actually worked by the store managers (only rosters were kept). Nor did Coles and Woolworths keep records of all entitlements owing to these employees under the Award. (For more on the impact from these cases see our article here).
The Court held:
Due to the reverse onus of proof under s557C of the Fair Work Act 2009 (Cth), the onus was on Coles and Woolworths to disprove the employees worked the alleged additional / overtime hours. Without any records of actual hours worked, Coles and Woolworths were unable to do so.
The employment contracts authorised all overtime in advance; and
Employers can only 'set off' contractual payments against Award entitlements within a pay period, not across a longer period (such as 6 or 12 months).
The Qantas Ground Staff Litigation -
This litigation followed the court’s earlier ruling that the outsourcing of Qantas’s baggage handling services in 2020 was unlawful, with 1820 contraventions found, a penalty was imposed of $90m. The critical aspect of this litigation was the court’s decision to order $50m of the penalty be paid to the Transport Workers’ Union of Australia, the party bringing the proceedings.
The TWU had estimated it had spent $4.1m and considerable internal time and risk bringing the proceeding (which the court recognised). There has, however been much commentary since on whether $50m was still an unjustifiable windfall and the effect such windfalls have on litigation (and the threat of it) against employers.
Insight from the cases -
It is the combined power of these cases that is the real go-forward threat to employers, particular in underpayment and similar disputes. That is the convergence of the following:
the significantly increased penalties available, coupled with a lowering of the test for ‘serious contraventions’ under the Act. Penalties for underpayment contraventions can be as high as $4.95m per contravention for a corporation. (For more on this aspect see our article here).
the discretion of the court to award penalties, or a good part of them, to a party bringing the proceedings, creates a real incentive for unions and others to bring proceedings in a no-cost jurisdiction, and conversely may have a chilling effect on employers who may otherwise defend the issues;
the risks from the fact that contractual annualised salary arrangements, like those in Woolworths, can only be set off against award entitlements within a given pay period, and further that pay records, e.g. of additional hours worked in such arrangements, need to be addressed, given the reverse onus of proof on record keeping. These rulings have undermined long held assumptions and the supporting practices and systems employers had for these arrangements.
Given the risks at stake and the tilt in favour of those bringing/threatening proceedings, it is likely that more large actions will now be brought to test employers' resolve.
Key consideration for employers -
Whether the combined effect of these cases creates a heightened risk for a particular employer, and the size of that risk, requires an analysis of the employer’s workforce, their industrial relations framework or context and their current systems and practices.
Medium to large sized employers concerned about the combined impact from these recent cases should actively consider their risk profile, including whether their current processes and requirements for annualised arrangements, pay record keeping and pay practices more generally, are sufficiently mitigating the increased litigation and claims risk.
If you would like to know more about the issues raised in this article, including whether these risks affect your business and workforce, and how to help prevent them, please contact our partners:
Mark Flaherty +61 423 576 052
Grace Brunton-Makeham +61 424 839 981
This is commentary published by Makeham Flaherty for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories.
Makeham Flaherty 2026.
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