Employees are reluctant to discuss pay and remuneration packages openly with colleagues. Some employers have prohibited these discussions by adding a pay secrecy clause to employee contracts.
Roles with bonuses and discretionary incentives are especially prone to pay secrecy clauses. These clauses are used by some businesses to differentiate employee pay.
Employers often used pay secrecy during salary negotiations to enhance their bargaining positions. In many cases, pay secrecy clauses led to a reduction in employee bargaining power. The gender pay gap has also been shown to be significantly exacerbated by pay secrecy.
What has changed with the pay secrecy clause ban?
Pay secrecy clauses in employee contracts prohibited employees from discussing salaries and remuneration with colleagues. In Australia, pay secrecy clauses are now banned. Similar laws are in place in the US and the UK to reduce workplace discrimination and disempowerment.
A bill to amend the Fair Work Act (Secure Jobs, Better Pay) was passed by Parliament and was given royal assent on 6 December 2022. Pay secrecy clauses in contracts, and workplace policies are banned.
Now the Fair Work Act has been amended, employees can ask any colleagues (whether employed by the same or a different employer) about their pay and terms and conditions of employment. With these changes, past and prospective employees can ask what individuals earn. The right to disclose pay is discretionary, which means employees can decide not to disclose the details, but people now have the right to ask at work.
Why is the pay secrecy clause ban good for employees?
Greater equality is achieved by reducing pay secrecy. Currently, there is a 22.8% gender pay gap in Australia. Historically, pay secrecy clauses have been used to conceal gender pay differences, according to Tony Burke, minister of employment and workplace relations.
Banning pay secrecy improves transparency and reduces gender pay discrimination risk by allowing women to compare their pay with that of their co-workers. Transparency enables employees to discuss pay differences openly with managers without fear.
Mr Burke's claim is supported by international evidence. Legislation to promote pay transparency has led to a decline in the gender pay gap in the UK, USA, Denmark, and Canada.
The pay secrecy clause ban is good for employees as it eliminates the restrictions on discussing and disclosing one's wages and salary information with others. This ban helps to promote transparency and fairness at work, as it allows employees to have open and honest discussions about compensation.
Employees may not be aware that they are being paid less than their peers for the same job when prohibited from discussing their pay. The pay secrecy clause ban helps to prevent this by allowing employees to share information and negotiate for fair compensation.
Additionally, the ban can help break down gender-based pay disparities, as women are often paid less than men for the same work. When employees can discuss their pay freely, they can work together to address and resolve pay disparities.
The benefit of the pay secrecy clause ban for employees generally promotes transparency, fairness, and equality.
Why is the pay secrecy clause ban good for employers?
There are many reasons that the pay secrecy ban is good for employers.
- Employee Engagement: Banning the pay secrecy clause promotes transparency and fairness in the workplace and can improve employee morale and engagement. A feeling of fairness and openness increases employee satisfaction and engagement in the workplace.
- Risk management: The ban on the pay secrecy clause helps reduce the risk of discrimination claims. Discussing salaries openly makes it easier to identify and address wage disparities based on gender and other factors.
- Increase trust: Banning pay secrecy clauses can increase trust in the company, improving the employer-employee relationship. Fair and transparent treatment of employees increases their trust in their employers, resulting in a positive relationship.
- Employee Retention: Top talent is more likely to be attracted and retained by companies that promote transparency and fairness in their compensation practices. Long-term retention is more likely to occur when employees feel fairly paid.
- Improved productivity: Employees that feel valued and treated fairly are more likely to be productive and motivated at work. The pay secrecy ban helps promote a positive work environment and improve employee morale, resulting in improved employee productivity.
When do pay secrecy rights apply?
From 7 December 2022, the pay secrecy clause in a new employment contract is illegal. The pay secrecy clauses in existing contracts will remain in effect but are no longer effective when the contract is modified (wage increases etc.).
The ban on pay secrecy clauses in employment contracts is effective from 7 June 2023. From this date, the pay secrecy clause ban applies to existing and new employees.
Penalties apply to employers that do not adhere to the new rules.
Employers should review all contracts annually to ensure they abide by legislative changes for all employees.
The Fair Work website contains more information on the pay secrecy clause ban.
Download the Secure Jobs, Better Pay 2022 PDF from Fairwork that shows the timeline of the key dates and changes.