Supermarket giant Coles will create a $500,000 fund to back-pay collectors of its supermarket trolleys as part of an enforceable undertaking with the employment watchdog that will put an end to a two-year legal battle.

The Fair Work Ombudsman first raised concerns about the treatment of trolley collectors employed by sub-contractors of Coles in 2011, before launching legal action against Coles and two sub-contractors operating at several Coles sites over the treatment of 10 trolley collectors, who were allegedly underpaid more than $200,000.

The employment watchdog alleged Coles was aware the trolley collectors were not being paid correct minimum wages and conditions and the company failed to ensure its sub-contractors were complying with workplace laws.

In a statement today, the ombudsman said Coles has accepted it has an “ethical and moral responsibility to ensure all entities and individuals directly involved in the conduct of its business comply with the law and meeting community and social expectations to provide equal, fair and safe work opportunities”.

As part of the undertaking, Coles will back-pay the 10 employees almost $221,000, as well as establish the $500,000 fund, which will be used to back-pay any other trolley collectors who are subsequently found to have been underpaid.

The undertaking means the ombudsman will not pursue its legal action.

Coles has also agreed to randomly audit the wages of at least 20% of the trolley collectors employed by its primary trolley collection provider, United Trolley Collections, and Coles managers will undergo workplace training.

In a statement issued to SmartCompany, Coles said it has been working to re-structure its trolley collecting operations “away from a traditional contracting model” since the ombudsman raised concerns in 2011.

“Coles previously had more than 30 contractors but improved its operations in late 2012 by contracting to one national trolley collection provider, administered under a single external payroll,” said Coles.

“Coles also established a hotline for external complaints to be escalated to senior management. Bank guarantees are in place with the sole contractor to secure against any risk of underpayments [and] with the assistance of the Fair Work Ombudsman, the sole contractor has entered into a deed of proactive compliance, which provides transparency of payments to third party employees.”

Coles said the enforceable undertaking with the ombudsman will help the company bring all of its trolley collection services in-house by the end of 2016. Direct employees of Coles already collect the trolleys at 400 of the supermarket’s stores.

“Coles believes the Fair Work Ombudsman plays a vital role in the community by ensuring fair practices for employees and preserving the integrity of workplace relations in this country,” said Coles.

Rachel Drew, employment, industrial relations and workplace safety partner at TressCox Lawyers, told SmartCompany an enforceable undertaking is something the ombudsman can accept from a company as an alternative to a court claim.

However, Drew says the ombudsman will generally only accept an undertaking “where the employer admits there was some contravention”.

“In turn, the Fair Work Ombudsman has to believe the contravention was not deliberate or reckless,” she says.

Drew says it is likely Coles believed it had sub-contracted out its employment responsibilities to the trolley collectors but “under the Fair Work Act a person can be involved in a contravention if they are aware of it”.

While Drew says an employer will generally weigh up the pros and cons of accepting some responsibility and defending litigation, in this case it appears Coles is “going further than it legally needs to” to rectify the situation.

“They seem to be trying to put a positive spin on it … they are trying to correct past errors and do the right thing by creating a half-a-million dollar fund to pay other collectors,” she says.

Drew says it is unlikely the undertaking will have flow-on effects to other parts of Coles’ business as it appears trolley collecting “was a very particular part of the business that was capable of being sub-contracted out”.

“And it’s an area that tends to attract students, young people, and casual workers so there is some level of vulnerability,” says Drew, who says it is likely cases of trolley collectors being underpaid by other businesses will emerge.

“For many businesses, sub-contracting seems to be an easy way to employ people, but when you sub-contract you do lose control.”

“Bringing the trolley collectors in house will likely be safer and probably cheaper in the long run.”