For a long time, it has been common in employment contracts to enforce clauses which prohibit employees from discussing their salary or benefits with their colleagues. These clauses have now been banned under recent legislative amendments to the Fair Work Act, with impacts to both employers and employees.
So what exactly has happened?
The Albanese government has introduced the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth), which, among other changes, has banned the inclusion of these clauses in employment contracts. The changes mean that the ability to ask about another employee’s remuneration or hours of work, and the ability for an employee to either disclose or not disclose their own has been enshrined as a workplace right. If an employer takes adverse action against an employee for exercising these rights, they may leave themselves open to claims under the Fair Work Act.
While the new legislation allows for disclosure, and for employees to openly ask others, it does not require employees to disclose if they do not want to. Importantly, the legislation will nullify any of these clauses in existing contracts and prevent employers from issuing new contracts that enforce pay secrecy, which may incur penalties from the Fair Work Ombudsman.
Why have the changes been made?
According to the Workplace Gender Equity Agency, in 2022 the gender pay gap was 22.8%, with women earning an average of $26,596 less than men per year. The government considers that pay secrecy clauses are a large reason for this difference, as they have been used as a shield to conceal gender pay discrepancies.
Evidence from the United States and Canada has shown that prohibitions on pay secrecy clauses have significantly reduced the gender pay gap, as transparency within organisations means that managers will have to justify decisions that they make regarding pay. This reduces the risk of impacting employees through unconscious bias, favouritism, discrimination or stereotyping, and allows for open discussions with managers without fear of punishment.
While the instigating consideration of the legislation was focused on reducing the gender pay gap, the government hopes the effect of these changes will assist all disadvantaged employees by increasing transparency in the workplace.
What does this mean for me?
As an employee, you are now able to freely discuss your pay and other conditions with other employees, even after you have left the employment. While no penalties or punishments can be placed on you for discussing these issues with colleagues, it is important to note that you are not obligated to disclose any information.
The exception to this is where pay rates are included in an enterprise agreement, which do not contain specific names, but only the positions and applicable pay rates. These agreements have always been publicly available, so the legislation has not made any changes to the distribution of this information.
If you are an employer, we recommend familiarising yourselves with the legislative changes, and ensuring that your employment agreements are compliant. Additionally, if there are any internal practices which reinforce pay secrecy within your workplace, you should take steps to inform your employees of the changes. This is particularly relevant to those in management positions, so that they are aware of their obligations and entitlements.
Several employers had raised objections to the changes, arguing that the new levels of transparency will lead to conflict between employees who are on different pay levels. However, research has shown that secrecy has traditionally been seen as evidence of self interest by managers and the overall company, and leads to overestimating colleagues’ pay rates. If employers embrace the new legislation and encourage transparency within their workplaces, they are more likely to engender trust from their employees, leading to increases in performance and job satisfaction.
If you require any advice about making changes to your business practices, or would like advice in regard to your workplace rights, please contact Andreyev Lawyers on (02) 9199 8597 or email us to speak to one of our qualified and helpful people.
The information contained in this post is current at the date of editing – 29 August 2024.