The Legal and Financial Risks Facing Coles and Woolworths in Australia’s Underpayment Litigation: A Corporate Governance and ESG Exposure Analysis

Australia’s supermarket giants, Coles Group Ltd. and Woolworths Group Ltd., face mounting legal and financial risks stemming from protracted underpayment litigation. These cases, spanning employee wage theft and deceptive pricing practices, have exposed systemic governance failures and ESG vulnerabilities, raising critical questions for investors.

Corporate Governance Failures: A Pattern of Non-Compliance

The underpayment scandals reveal a troubling disconnect between corporate governance structures and operational accountability. In 2022, a Federal Court rejected a proposed settlement for Woolworths’ employee underpayments, citing unfair terms and conflicts of interest among legal representatives [1]. This decision underscored weaknesses in Woolworths’ compliance mechanisms, particularly its failure to address employee entitlements proactively. Similarly, Coles’ ongoing legal battles—such as the $200 million potential payout for salaried manager underpayments—highlight lapses in board oversight. A 2025 court ruling against Coles emphasized that its payment structures were incompatible with the General Retail Industry Award, leading to excessive working hours and systemic underpayment [2].

The Federal Court’s decision to merge multiple underpayment cases into a single proceeding—covering nearly $500 million in unpaid wages—reflects judicial frustration with fragmented corporate governance [4]. Both companies have been criticized for reactive rather than preventive compliance strategies. For instance, Woolworths’ 2025 $1.2 million fine for underpaying long service entitlements in Victoria demonstrated a pattern of regulatory neglect, despite its publicized sustainability initiatives [4].

ESG Exposure: Labor Practices Under Scrutiny

While Coles and Woolworths tout environmental and social governance (ESG) commitments, their labor practices have drawn sharp criticism. Sustainalytics’ 2025 ESG Risk Ratings rank Woolworths at 89 out of 182 in the Food Retailers industry, signaling moderate risk management, while Coles scores higher at 55, indicating stronger ESG performance [1][2]. However, these ratings mask persistent social governance flaws.

Woolworths’ 2025 sustainability report emphasizes circular economy strategies and waste reduction but omits detailed metrics on labor practices [6]. In contrast, Coles’ 2025 ESG report highlights a 34% reduction in emissions and supplier engagement initiatives but fails to address ongoing underpayment litigation [3]. The disparity between environmental achievements and labor governance failures suggests a misalignment with ESG principles, particularly in the “Social” dimension.

The ACCC’s 2025 investigation into deceptive pricing practices—such as “Prices Dropped” promotions—further complicates ESG assessments. By inflating prices before offering discounts, both companies risk eroding consumer trust, a key stakeholder metric [5]. This practice, coupled with wage theft allegations, undermines claims of ethical corporate citizenship.

Financial Implications and Investor Risks

The financial toll of these litigations is substantial. Coles’ 2023 $17 million provision for underpaid staff and Woolworths’ 2019 $300 million admission illustrate the scale of exposure [5]. With potential payouts for the 2025 class action lawsuits ranging from $200 to $1,300 per shopper, the financial burden could escalate further [5].

Investors must also consider reputational risks. The Federal Government’s Closing Loopholes Bill, which criminalizes wage theft with severe penalties, signals a regulatory tightening that could amplify legal costs [2]. For instance, Woolworths’ 2025 fine for underpaying Victorian staff—$1.2 million—serves as a cautionary precedent [4].

Conclusion: Governance and ESG as Investment Barometers

For investors, the Coles and Woolworths cases underscore the importance of scrutinizing corporate governance and ESG frameworks. While both companies have made strides in environmental sustainability, their labor governance shortcomings—evidenced by repeated underpayment scandals—pose significant financial and reputational risks. Strengthening board oversight, enhancing compliance transparency, and aligning labor practices with ESG commitments will be critical for long-term resilience.

As the Federal Court prepares to address merged underpayment proceedings in October 2025, stakeholders must remain vigilant. The outcomes will not only shape the legal trajectories of these retailers but also redefine industry standards for corporate accountability in Australia.

Source: [1] Settlement rejected in underpayments action against ... [https://www.mauriceblackburn.com.au/blog/class-actions/settlement-rejected-in-underpayments-action-against-woolworths/] [2] Coles | Salaried Manager Underpayment [https://www.aderolaw.com.au/class-action/retail/coles/] [3] Appendix 4E & 2025 Annual Report - Super Retail Group Limited, [https://www.listcorp.com/asx/sul/super-retail-group-limited/news/appendix-4e-and-amp-2025-annual-report-3229606.html] [4] 'They have to pay': Coles and Woolworths in court accused ... [https://www.theguardian.com/business/2023/jun/05/coles-woolworths-court-accused-of-underpaying-workers] [5] $1,300 cash boost for Woolworths, Coles shoppers as major ... [https://au.finance.yahoo.com/news/1300-cash-boost-for-woolworths-coles-shoppers-as-major-class-action-lawsuit-launched-033301390.html] [6] Sustainability Report - Woolworths Group Limited (ASX:WOW), [https://www.listcorp.com/asx/wow/woolworths-group/news/sustainability-report-3233287.html]