The Federal Court has delivered a scathing judgment against Coles and Woolworths, finding both supermarkets failed to properly record overtime and entitlements for tens of thousands of salaried managers in what is now the biggest underpayment scandal in Australian history.

Justice Nye Perram described Coles’ lack of overtime records as a “calamity,” warning that the ruling will have consequences for every employer paying staff on annual salaries.

More than 27,000 current and former managers could be entitled to additional back pay, with remediation costs already topping previous corporate wage scandals.

Woolworths has repaid more than $330 million to staff since self-reporting the problem in 2019, while Coles has set aside $50 million but may face liabilities many times higher after the judgment.

The case revealed widespread failures in keeping accurate employment records, with the court rejecting retailers’ reliance on roster sheets and clock-in data. One manager’s phone records were found to be a more reliable indicator of hours worked than Coles’ own systems.

The Australian Retailers Association (ARA), while not a party to the case, said the decision highlighted the unworkable complexity of the General Retail Industry Award (GRIA), which spans nearly 100 pages and sets out 994 different pay rates.

“This case demonstrates the challenges businesses across the retail sector face in complying with the profoundly complex General Retail Industry Award,” said ARA CEO Chris Rodwell.

“Employees deserve clarity too. Workers have the right to understand their pay and conditions clearly and simply.”

The ARA and National Retail Association are urging the Fair Work Commission to simplify and modernise the award system, warning that smaller operators without HR or legal resources cannot reasonably be expected to comply.

The judgment also increases the risk of penalties for Coles and Woolworths, as underpayments must be calculated each pay period rather than offset over longer timeframes.

Legal experts say the decision opens the door to tougher claims against any employer relying on annualised salaries.

A case management hearing will take place in October to determine compensation for affected workers.

Both retailers say they are reviewing the judgment, with Woolworths pledging it is “committed to ensuring that our team members are paid correctly.”