Pay Secrecy

Pay secrecy has long been a contentious issue in Australia. In the past, employers would often include pay secrecy clauses in employment contracts, awards, and enterprise agreements to prevent employees from discussing their remuneration packages with their colleagues. This lack of transparency increased the risk that pay decisions would be influenced by unconscious bias, favouritism, discrimination, and stereotyping, culminating in situations where some employees were paid substantially less than others performing the exact same role. Due to recent changes to Australian workplace law, employees can now freely discuss their salary and bonuses with co-workers. Additionally, existing “pay secrecy” clauses have no effect, and there are penalties for employers who attempt to enforce pay secrecy practices. This article looks at the nature of pay secrecy in Australia and the implications of these legislative changes.

Enforceability

Until the recent legislative changes, pay secrecy clauses were considered fully enforceable in Australia. As late as 2022, the Federal Circuit and Family Court of Australia denied an unfair dismissal case because the employer was within their right to terminate for breaches of confidentiality. In the case of AMIEU v Primo Foods [2022], the employee had discussed salaries and other employment terms with his colleagues, and the Court held that it was reasonable for the employer to terminate him for breaching their confidentiality policies.

Dangers of pay secrecy

There are sound reasons why pay secrecy is now prohibited in Australia. Clauses that prohibit employees from discussing their salaries reduce the bargaining power of workers during salary negotiations, restricting wage growth by limiting collective pay negotiation. This lack of transparency in the workplace can leave employees feeling undervalued and distrusted. Secrecy can also leave employees to make negative assumptions, adversely impacting workplace productivity.

Historically, some types of employment have strong cultures of pay secrecy. This is particularly true in industries where performance bonuses and discretionary incentives form a large part of total remuneration. In these industries, white male workers are statistically likely to receive higher total remuneration than other workers. Critics argue that this disparity is partially driven by the lack of transparency around pay. In fact, one of the most significant critiques of pay secrecy clauses is based on the gender pay gap in Australia. According to the Workplace Gender Equality Agency, the current average gender pay gap is 21.7%. Critics argue that prohibiting pay secrecy will allow open discussions and help workers to recognise pay disparities. These discussions will hopefully assist women to secure equal pay for equal work during pay negotiations.

2022 ban

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 amended sections of the Fair Work Act 2009 that deal with matters including bargaining, sexual harassment, and registered organisations. It also effectively settled the dispute over pay secrecy in favour of transparency. From 7 December 2022, three new legal protections relating to pay secrecy in the workplace were introduced:

1. Employees are no longer subject to pay secrecy.

An employee has a right to discuss (or not discuss) their pay with another person, including a work colleague. This allowance extends to disclosure of other terms and conditions of their employment that are reasonably necessary to determine pay (such as hours of work).

An employee can enquire about the pay of other employees whether or not they share an employer. However, employees are not legally obligated to disclose their salary to a co-worker just because they are asked, as the right to disclose pay and conditions lies with the employees themselves.

• Pay secrecy terms are unenforceable.

Clauses and terms that impose pay secrecy have no legal effect on the employee. Employers can no longer include a pay secrecy clause in employment contracts, modern awards, or enterprise agreements.

• Penalty applies for enforcing pay secrecy.

The new law imposes heavy penalties on employers who try to enforce the use of pay secrecy terms in contracts. The maximum penalty for a violation is up to $825,000 for serious contraventions. The employer may also face prosecution from the Fair Work Ombudsman.

These protections apply to employment contracts varied or entered into after 7 December 2022, with penalties for employers taking effect six months later.

As a result of these new provisions, discussing pay is now considered a workplace right, protected under section 340 of the Fair Work Act. This means that if an employer takes adverse action against an employee for discussing their pay, they are liable for penalties under the general protections provisions of the Act. Even if the employment contract predates 7 December 2022, the employee’s right to discuss pay may still be legally protected. Employees who have contracts predating the enactment of the legislation should seek legal advice to understand what protections apply to them.

The experienced solicitors at Go To Court Lawyers can discuss any issue relating to pay secrecy, adverse action or other employment law matters. Please make a booking with our team or call 1300 636 846 for a confidential discussion of your legal needs.