How to handle elimination of pay secrecy clauses

Legislative changes put spotlight on employment contracts, pay disparity, employee communication

How to handle elimination of pay secrecy clauses

Changes to the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 will lift the lid on the secrecy of employee salaries and allow for more transparent conversations with employers.

The act amends the Fair Work Act 2009 and enables employees to discuss their pay and terms and conditions of employment that affect pay outcomes.

The changes “have the effect of prohibiting inclusion of pay secrecy clauses in employment contracts,” Jo Alilovic, owner of 3D HR Legal, said.

“Further, employees will have a workplace right to be able to disclose their rate of pay or ask others about their rate of pay.”

The changes mean that employers won’t be allowed to have big discrepancies in pay for no valid reason, and shed light on how much employers value certain employees over others, according to Peta Slocombe, CEO of Performance Story.

“It will impact what employers pay employees,” she said. “Particularly where there is a high level of disparity between employees performing the same role.  Employees will either leave, become more disgruntled or resentful if they are aware that others are doing the same role for higher pay.  There is little less motivating than feeling you are not valued, which can also create dissention between employees.”

Review pay rates

Initially, the biggest impact from the legislative changes will be on employers making sure that their template employment contracts do not include any pay secrecy clauses, as inclusion can result in penalties, Alilovic said.

“Second, employers need to be prepared for employees to start pay discussions amongst their peers. Where discrepancies are identified, this may lead to disgruntled employees, requests for pay increases and potentially resignations.”

The onus is now on employers to be open and transparent around pay as this change in legislation may lead to in-house discussion amongst employees working in similar roles.

“There have always been those employees who will quite happily discuss their pay with others, despite pay secrecy clauses,” Alilovic said.

“Now that the prohibition on these discussions is gone, employers need to be aware that these discussions will happen and the potential impact.”

The reason an employer would have a pay secrecy clause in a contract is primarily to avoid workplace conflict, says one legal expert.

To prepare for potential questions or claims based on information obtained from other employees, employers should conduct a review of all pay rates and particularly consider pay rates given to employees performing similar work or with similar years of experience, she said.

Where these people are not being paid the same, employers need to be ready with clear reasoning to support their decision-making.

“It is highly likely that conducting this review might help employers identify where they have been underpaying or overpaying. Perhaps there is an employee who is really good at putting a business case forward and another who doesn’t ask for more. Maybe there is a case of unconscious bias or identified gender inequity. Uncovering these things in a review may definitely lead to employers reconsidering their pay agreements,” Alilovic said.

Focus on gender pay gap

Hopefully, the changes will address one glaring issue that still remains in the workforce and that is the gender pay gap.

According to the Workplace Gender Equity Agency, Australia’s national gender pay gap is 14.1 per cent.

“I believe [the new rules] will help reduce the gender pay gap,” Alilovic said. “I certainly hope so. It’s generally perceived that women ask less than men for pay rises. Hopefully the new open system will result in employers giving more thought to this and other factors which may be causing the gender pay gap.”

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