Written by Lucy Diggle and Principal, Jennifer Tutty.
“You agree not to discuss any terms of this employment agreement, including any benefits or entitlements to remuneration with other employees or contractors of [insert business]”
Is this phrase familiar to you? Perhaps you’ve encountered similar wording in your employment agreement. If so, you have likely come across a ‘pay secrecy clause’.
In this week’s blog, we discuss what pay secrecy clauses are, how they function and key changes that employees and employers need to be across in light of recent amendments to the Fair Work Act 2009 (Cth) (Fair Work Act).
What is a pay secrecy clause?
Pay secrecy clauses prohibit employees from discussing their salaries and remuneration with other colleagues.
Pay secrecy clauses and the gender pay gap
The gender pay gap is a live issue in the Australian employment landscape, where it currently sits at 22.8%.
Studies in the United Kingdom, the United States, Canada and Denmark report a significant decline in gender pay discrimination as a result of greater efforts to promote pay transparency through legislation.
The government hopes to see similar progress for gender equity in Australia through a broad set of reforms, including the new changes to pay secrecy.
What are the key changes?
On 6 December 2022, the Fair Work Amendment (Secure Jobs Better Pay ) Act 2022 was passed, which amongst other developments, banned pay secrecy clauses in employment contracts. This month (7 June 2023), a prohibition on pay secrecy clauses in employment contracts took effect.
There are some exceptions however. A pay secrecy clause will remain binding on an employee in relation to an employment contract they entered into before 7 December 2022, until such time as such the contract is varied, or a new contract is entered into. A contract will be considered varied, if remuneration changes for example.
Key Dates
Below we’ve listed the key details, including dates and changes that employers should be aware of regarding pay secrecy clauses:
– For employment contracts entered into before 7 December 2022, pay secrecy clauses will continue to operate, until such a time those contracts are varied (this could include where an employee’s salary changes).
– For employment contracts made on or after 7 December 2022, a pay secrecy term has no effect and can’t be enforced.
– From 7 June 2023 onwards, pay secrecy terms can’t be included in employment contracts at all. Employers who enter into employment contracts that have pay secrecy terms in them could be liable to penalties.
What do these changes mean for employees?
The Fair Work Act now gives employees rights to share information about their pay, as well as their employment terms and conditions.
Employees are also free to ask other employees about these key things.
Importantly, the right to disclose these details is discretionary. Employees who don’t want to share this information cannot be forced to do so.
The key difference that has come into play is that willing employees now have the right to ASK, as well as the right to SHARE these details.
Remember to check over the key dates (above) to confirm your understanding of how these rights differ in relation to existing and future employment agreements.
What do these changes mean for employers?
For employers, these changes mean that they cannot prevent their employees from exercising their rights (i.e. they cannot prohibit them from discussing their pay, or employment terms with others).
Additionally, employers cannot take adverse action (such as disciplinary action) against employees for doing so.
For example, if an employer finds out that their employee has been discussing their pay with another colleague, the employer:
(a) Cannot prevent this; and
(b) Cannot discipline either of the employees.
Be sure to check over the key dates (above) to confirm your understanding of how these obligations differ for existing and future employment agreements.
What is the situation for awards or enterprise agreements?
As of 7 December 2022, pay secrecy clauses contained in Fair Work instruments, such as awards or enterprise agreements, have no effect and can no longer be enforced.
Top Tip: Review your contracts
In line with the above, it is important that employers regularly review all employment contracts (we recommend annually) to ensure they are in line with legislative changes and are not liable to penalties.
Employment law is a space that moves quickly and changes rapidly. Therefore, it’s important to remain on top of key changes, from pay secrecy clauses and beyond!
Further Information
Looking for help with your employment agreements including updating your contracts to address recent updates dealing with pay secrecy laws? Please contact us through our online form or via email at hello@studiolegal.com.au.
Written by Lucy Diggle and Principal, Jennifer Tutty.
Published 19 June 2023
Photo by Mathieu Stern on Unsplash
DISCLAIMER
The information in this article is of a general nature. It does not constitute formal legal advice and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.