Woolworths and Coles, two of Australia’s largest supermarket chains, may need to pay over $1 billion to address historical underpayments to thousands of salaried managers. This follows a recent ruling by the Federal Court that found both companies failed to meet their obligations regarding employee entitlements.

The court's decision, delivered by Justice Nye Perram, highlighted that Woolworths and Coles did not maintain accurate employment records. The ruling affects nearly 30,000 employees who were underpaid from 2013 onward. The companies had been using a "set-off" arrangement, which allowed them to pay above the award rate without properly calculating actual entitlements for each pay period.

Woolworths has estimated that it could incur additional costs ranging from $250 million to $470 million, with interest, superannuation, and payroll taxes potentially adding another $200 million to $280 million. This could bring Woolworths' total pre-tax liability to as much as $750 million. After taxes, the figure could be around $530 million. The company described these estimates as preliminary and noted significant uncertainty surrounding them.

Coles, on the other hand, anticipates needing to pay between $150 million and $250 million to comply with the court's findings. This is in addition to the $31 million it has already repaid. Coles has also issued an apology regarding the underpayment issues.

The Fair Work Ombudsman (FWO) initiated the class action against Woolworths and Coles, representing managers from various locations in Sydney, Melbourne, and Brisbane. The FWO's investigation revealed that the companies did not ensure that annual salaries were sufficient to cover actual hours worked, including overtime and penalty rates.

FWO Anna Booth emphasized the importance of the ruling, stating, "Annualised salaries must meet all employees' minimum lawful entitlements." The FWO is continuing to seek court orders to rectify outstanding underpayments and impose penalties on both supermarkets.

A case management hearing is scheduled for October 27 to discuss the next steps and compensation for the affected employees. Woolworths has indicated it is too early to consider an appeal of the complex decision, which spans 82,000 words.

Legal experts have noted that this ruling could have broader implications for other industries that utilize annualised salaries, such as hospitality and construction. Ian Neil SC, an employment and industrial law barrister, stated, "The central problem is that both companies paid annualised salaries to thousands of employees without maintaining the detailed records needed to ascertain that entitlements such as overtime, penalty rates, and shift allowances had actually been met."

The ruling is expected to prompt a shift towards stricter compliance and auditing standards across various sectors in Australia.