Employment lawyers say HR professionals need to consider what restrictions on pay secrecy will mean for their business
New Zealand is considered behind many countries when it comes to legislation tackling the gender pay gap. Its Government has also been criticised recently for abrupt changes to pay equity laws aimed at restricting potential claims.
In this context, a private member’s bill promoting pay transparency received sufficient support in Parliament to pass into law - the Employment Relations (Employee Remuneration Disclosure) Amendment Bill.
Introduced by Labour MP, Camilla Belich, the Bill has a relatively narrow ambit, but was voted through Parliament as a measure intended to increase pay transparency, enabling easier identification and remediation of pay discrimination.
After the bill becomes law, employees who experience ‘adverse conduct’ as a result of discussing or disclosing their pay will be entitled to bring a legal claim seeking compensation. This new legislation may do little to address or bring to light the root causes of pay inequity, but it does protect employees who want to discuss their remuneration with others.
Pay secrecy law of this sort brings New Zealand into line with comparable jurisdictions. Australia has recently amended its Fair Work Act to explicitly ban pay secrecy clauses and the European Union is introducing a directive requiring member states to ban pay secrecy clauses by 2025. The United Kingdom has more limited protection covering only employees who discuss pay to check for discrimination, but it has also required employers with 250 or more employees to publish gender pay gap data.
'Adverse conduct' - a new ground for personal grievances
Adverse conduct is defined broadly in the new legislation and includes dismissal, forcing an employee to retire or resign , denial of equal terms or benefits, denial of opportunities, and subjecting an employee to any form of detriment.
The law deliberately sets a low threshold for what constitutes adverse conduct, meaning that even ‘encouraging’ or ‘inducing’ managers to penalise employees who discuss their pay could be considered a breach.
To successfully raise a personal grievance, employees must demonstrate that:
- Adverse conduct occurred.
- That a ‘remuneration disclosure reason’ was a substantial reason for the employer’s conduct.
This means showing that the employer took the adverse action because an employee discussed their remuneration with any other person, whether or not that included disclosing their remuneration, and whether or not it is someone inside or outside their organisation. It can also cover making or even just receiving inquires about remuneration.
One of the more striking features of the new law is the presumption that a remuneration-related reason is a substantial reason for adverse conduct. This means that if a claim is raised demonstrating there was adverse conduct connected in some way to a remuneration discussion, the employer must prove this was not a substantial cause of their conduct to avoid liability.
What Counts as ‘Remuneration’
‘Remuneration’ is defined expansively. It includes salary or wages, allowances, incentives (including commissions) and employer contributions to superannuation schemes. This broad scope means that all forms of compensation should now be able to be discussed by employees without fear of reprisal.
Pay secrecy clauses – should employment agreements be changed?
The bill does not specifically prohibit the inclusion of pay secrecy clauses in employment agreements, but it does render them unenforceable. Any punitive action taken against an employee for breaching such a clause would be considered unlawful adverse conduct. It is a key feature of the legislation that any type of measure aimed at achieving pay secrecy should become ineffective e.g. policies, procedures and manager preferences.
A helpful consequence of this approach is that employers should not need to revise their existing employment agreements, even if they currently include pay secrecy clauses. At the same time, including such clauses in future employment agreements will be futile and might still be unlawful. That is because such a practice could be interpreted as encouraging a culture in which employees are not free to discuss their remuneration, and therefore inducing, encouraging or authorising adverse conduct.
Business impact
Some employers have raised concerns that employees may now become aware of discrepancies in pay without understanding the full context and the reason for the difference, increasing workplace tensions. Obviously, there may be valid reasons for varying levels of pay, such as market conditions, individual negotiation outcomes, or differences in performance or experience.
The new law does not rule out relying on these grounds to pay employees differently, but employers may now have to be prepared to explain their reasoning, or even adopt a general practice of explaining. If there is increased transparency this may encourage a quicker convergence of salaries and benefits for employees at the same level, at least within the same organisation. On the other hand, it may also make it harder for employees to be rewarded with a raise for good performance, if the employer is conscious that this will need to be explained to other staff. We may see an increased shift towards incentive and bonus arrangements which allow flexibility.
In terms of competition between businesses, remuneration signals may become much stronger, with employees aware of the labour market range, and perhaps more prepared to use that in discussions during recruitment. The practice of advertising at one level but offering at another is likely to be even more dangerous. These outcomes are likely to be viewed as healthy for competition but they may also make remuneration less variable between competitors. Employers who wish to pay more to secure key talent could set a precedent within their business, and potentially for the industry.
Time will tell how much actual pay transparency the new law will deliver. But HR professionals should be considering now what the restrictions on pay secrecy will mean for their business. There could be perceptions of unfairness to address, or agreements and policies to update. They might also be considering what new intelligence can be obtained on their competitors.
This article was written by James Warren, Partner and Kathleen Griffiths, Solicitor, in Dentons New Zealand's Employment and Labour team.
