Set-Off Clauses and the Importance of Record Keeping: Insights from FWO v Woolworths Group Ltd and Ors [2025] FCA 1092

The Federal Court’s decision in Fair Work Ombudsman v Woolworths Group Ltd and Ors [2025] FCA 1092 provides critical guidance on the operation of set-off clauses in employment contracts for employees covered by Awards. It also highlights the ongoing importance of robust record keeping under the Fair Work Act 2009 (Cth) and Fair Work Regulations 2009 (Cth).

 

Set-Off Clauses: Limited to Individual Pay Periods

A central issue in the case was whether Woolworths (and similarly, Coles) could rely on set-off clauses in their employment contracts to offset annual salaries which were above the Award against underpayments across extended periods (such as six months or a year).

The court held that such pooling or “annualisation” of entitlements is not permissible under the Fair Work Act or the General Retail Industry Award 2010. Rather, the clauses are only effective to discharge obligations under the Award within a single pay period. Overtime or penalties that are owed in one pay period must be paid in that pay period - an overpayment cannot be retrospectively or prospectively applied to absorb an underpayment.

 

Record Keeping: Non-Negotiable Obligations

The decision also underscores the strict record keeping obligations imposed on employers. Woolworths and Coles argued that paying an “all-inclusive” salary relieved them of the need to keep detailed records of hours worked, overtime, and penalty rates. The Court rejected this confirming that record keeping obligations apply, regardless of salary arrangements.

The decision has broad ramifications for all employers whose employees are covered by Awards. Employers must maintain accurate records of hours worked, overtime, penalties and entitlements - even for staff paid above Award rates - so that compliance with Award conditions can be readily verified. 

Our article on record keeping obligations can be found here: Read Now

Failure to keep proper records exposes employers to civil penalties. It also reverses the onus of proof in underpayment proceedings: where records are lacking, the employer must disprove the employee’s claims regarding hours worked and entitlements.

The case is significant, clarifying that set-off clauses cannot be used to “average out” entitlements across multiple pay periods for Award-covered employees and that meticulous record keeping is essential, regardless of how employees are paid. Contractual set-off clauses do not relieve an employer’s record keeping obligations.

Employers who engage Award-covered employees should seek tailored advice regarding Award coverage and obligations, set off clauses and record keeping obligations to ensure they are meeting minimum Award entitlements.

 

If you need advice on the implications of the decision for your business, please reach out to Tracy Rafferty or Heather Richardson.