Unpacking the hidden cost of wage theft at Coles and Woolworths

Earlier this month, the Federal Court issued a major decision in proceedings against Coles and Woolworths concerning alleged underpayments of salaried staff.The ruling has been described as a potential “time bomb” for employers.The proceedings began in June 2021 when the Fair Work Ombudsman filed Federal Court action against Woolworths based on a sample analysis of 70 salaried managers that identified $1.17 million in underpayments. In court, the case focused on 32 managers across five stores.In December 2021, the FWO took action against Coles, first citing 42 managers, before later amending its claim in December 2022 to cover 7805 employees and $113.8 million in alleged underpayments, with about $107 million still outstanding.Coles and Woolworths aren’t strangers to scrutiny. In recent years, the supermarket giants have been cast as both saviour and villain, delivering groceries at rock-bottom prices while shouldering accusations of squeezing suppliers and underpaying staff. The recent ruling reignites those tensions and subsequently raises questions about whether the convenience and affordability Australians prize are being delivered at too high a human cost.Both retailers have described the judgment as “complex” and are reviewing its implications. Still, there are critical learnings for the sector. Here are four that have wide-reaching implications for retailers, investors, employees and regulators.The price of convenienceSupermarkets have perfected the art of efficiency, and Coles and Woolworths are evidently masters at keeping shelf prices low. But this relentless drive for efficiency has had unintended consequences.Evidence before the Court and the FWO’s pleadings centred on whether annual salaries failed to capture overtime/penalty entitlements and whether required records were kept.The irony is that Australians expect their supermarket shops to be affordable and fast, but the very mechanisms that make groceries cheap may be eroding fair pay for the workers who enable it.The underpayment revelations land awkwardly beside soaring profits. Both Coles and Woolworths recently posted billion-dollar earnings in their FY25 results. That juxtaposition of frontline staff fighting for withheld wages while the supermarkets boast substantial results presents a reputational challenge. Supermarkets have long marketed themselves as community anchors, proudly emphasising jobs created and communities supported. Yet the optics of “super-sized” profits alongside wage theft scandals chip away at that carefully curated image.Investors, too, are most likely watching. The financial risk of backpay liabilities is one thing, but the longer-term brand damage may prove more costly.ESG crossroadsEnvironmental, social and governance considerations are increasingly reshaping investment behaviour. Companies have been forced to clean up their environmental practices and demonstrate diversity and governance credibility. Now, underpayment scandals are emerging as the next ESG flashpoint.For investors, wage integrity is becoming just as crucial as carbon neutrality as a benchmark for corporate health. If Coles and Woolworths’ objective is to retain their social license to operate, ensuring accurate pay will be non-negotiable. Just as climate risk disclosures became mainstream, analysts may soon demand transparency in a company’s payroll.A cultural reckoningCharacterising the issues that the ombudsman alleged as payroll mistakes risks downplaying the duration and scale identified in the proceedings. The judgment shows these problems were not one-off mistakes but systemic failings across years and thousands of workers, pointing to a deeper cultural blind spot on the undervaluing of frontline labour.Unions have argued that a corporate culture focused on cost minimisation leaves little room for investment in robust payroll systems. The Australian Council of Trade Unions (ACTU) Secretary Sally McManus said, “Coles and Woolworths lead the world with their profit margins and have shown themselves to care not one bit when their customers have been under pressure. Of course, they will oppose laws to stop price gouging. They had plenty of chances to ‘do the right thing’ and hoped they could dodge their way through it and blame everyone but their own business practices.”This reckoning extends beyond supermarkets. The two most sophisticated retailers in Australia are getting payroll so wrong, which may cause a ripple effect for smaller operators. The ruling is a wake-up call for the entire retail sector that “errors” in payroll aren’t just IT glitches but reflections of how companies view labour itself.Meanwhile, the Australian Retailers Association (ARA) said that that systemic underpayment cases reveal not only operational failings, but also structural flaws in the industrial relations system itself.ARA CEO Chris Rodwell said the ARA would continue pushing for simplification and modernisation of the award, warning that “if it requires teams of lawyers and HR experts to interpret the GRIA on issues such as when overtime is payable, it’s clear the system is broken, and it is setting up businesses to fail.”What’s next?A case management hearing is scheduled for 27 October this year to determine further steps, including how compensation will be calculated for the affected, an estimated 27,700 employees, and whether any fines will be imposed on Coles and WoolworthsThe ruling sets a precedent. With unions emboldened and regulators sharpening tools, wage integrity is likely to dominate the retail landscape for years. For Coles and Woolworths, the immediate task is calculating backpay and restoring trust. For competitors, it’s a critical warning that payroll can no longer be relegated to the back office.For supermarkets and the broader sector, the scandal serves as a reminder that affordability for shoppers and fairness for workers must move in step. Convenience loses meaning if it is not underpinned by transparent and compliant pay practices.