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Woolworths to defend wage theft class action in Australian underpayment scandal

Woolworths has been slapped with an employee class action that alleges its underpayment scandal is far worse than the current $300 million (NZ$315.7 million) estimate.

Woolworths (file picture). Source: 1 NEWS

The supermarket giant today said it would "fully defend" itself against the legal proceedings headed by Adero Law, which accuse Woolworths of substantially underestimating the scale of the underpayment bill.

Woolworths in October admitted to a near decades' worth of underpayment of nearly 6000 employees, and said it only discovered it had been keeping the cash when shocked store managers complained they were earning less than their staff.

The company has committed to repaying all underpaid staff and chief executive Brad Banducci has given up a potential $2.6 million (NZ$2.73 million) bonus as a show of contrition.

The company said last month that returning the cash plus interest to staff will result in a one-off remediation charge of between $200 (NZ$210,000) million and $300 million (NZ$315.7) in February's first-half results, although the final numbers of staff affected and wages underpaid could climb.

But Adero believes the company's underpayment bill could be as much as $620 million ($NZ652.4 million).

"Adero is instructed that current and former Woolworths employees have suffered underpayments and systemic wage theft during their employment at Woolworths on a far greater scale than the retail giant has disclosed," the firm said in a statement.

Woolies said it learned it had underpaid 5700 salaried staff over nine years when a handful of managers noticed a difference between their pay packets and those covered by a newly negotiated enterprise agreement for supermarkets and Metro stores.

That agreement, implemented in February, set in motion a review during March and April that Woolworths said uncovered the long-running breach.

It didn't tell the Fair Work Ombudsman until August and reportedly only revealed the full scale of the shortfall in October, when it said it had analysed two years of accounts but that the issue could date back to 2010.

Woolworths shares took a 1.4 per cent hit on the day the scandal broke but have since soared to a new record high, touching $40.02 (NZ$42.11) during trade on Thursday and achieving a record high close of $39.76 (NZ$41.84) on Friday.

That means the company has added $3.2 billion (NZ$3.36 billion) to its market capitalisation after revealing underpayments.