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As an employer, you might wonder whether you can prevent employees from sharing their salaries. The answer is no. The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (the Act) has significantly changed the workplace relations sector in Australia. A notable change is a prohibition on pay secrecy clauses in employment contracts. As a result, you must ensure that your employment contracts do not include such clauses. This article will explain what a pay secrecy clause is.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Pay Secrecy Clauses
A pay secrecy clause is a clause in an employment contract that prohibits employees from sharing their salaries. Employers typically add pay secrecy clauses in industries where bonuses or discretionary incentives are offered. However, such clauses have caused much controversy for the problematic ways employers can use them to allow for substantial pay discrepancies between their staff. This controversy has partly led to the government abolishing provisions promoting pay secrecy.
In addition to a ban on such clauses, the Act also creates a workplace right for employees to disclose their salary and conditions with other employees openly. Employees may ask other employees to disclose:
- the employee’s salary; and
- any conditions of the employee’s employment that are reasonably necessary to determine their salary (e.g. the number of hours that the employee works).
Nevertheless, employees can choose whether they would like to disclose this information.
Why Are Pay Secrecy Clauses Banned?
Pay secrecy clauses have been the subject of debate for a significant amount of time. Ultimately, the government’s focus on increasing pay transparency and reducing gender discrimination led to the prohibition of such clauses.
1. Creates an Opportunity for Unequal Pay
Employers might have good intentions when offering differing salaries between employees. For example, these differences could relate to an employee’s performance or skill level.
However, there is always a concern that these pay rates are based on stereotyping or bias. Notably, employers can use these clauses as a facade for unfair discrimination. Typically, pay secrecy policies in companies heightens the gender pay gap.
In addition, the lack of pay transparency allows employers to avoid justifying pay differences, exacerbating the potential for discrimination.
2. Negatively Impacts Workplace Culture
A lack of transparency in the workplace can make your employees feel undervalued and distrusted. When employees assume that you are not rewarding them for their efforts and assume your business is paying other staff more than them, it impacts their workplace productivity, hindering your business’ success.
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What Does the Ban Mean For Me?
This change applies to employment contracts entered into on or after 7 December 2022. Therefore, any employment contracts you enter with employees must not include pay secrecy clauses. Hence, before you issue a new employment contract, make sure it is reviewed and in line with the changes made by the Act.
You may be worried about employment contracts that you entered before 7 December 2022, including pay secrecy clauses. The good news is that these changes do not apply to these contracts. You do not have to review any employment contracts signed before 7 December 2022. It also means that any employee who signed an employment contract before 7 December 2022 is still obliged to comply with such a clause.
Key Takeaways
Pay secrecy clauses are now banned from employment contracts. As such, you must ensure that any new employment contracts do not include a pay secrecy clause. Employees now also have a workplace right to disclose their salary and conditions of employment. Hence, you must not take adverse action on this basis, or you could face a general protection claim.
If you have questions or would like assistance with pay secrecy clauses, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Pay secrecy clauses prohibit employees from sharing their salaries.
You cannot include a pay secrecy clause in an employment contract. Recent changes made by the Act have banned pay secrecy clauses and introduced a workplace right for employees to disclose their salary and conditions of employment. You may face penalties if you include a pay secrecy clause in an employment contract.
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