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Pay Secrecy Clauses – New Laws

Reading time: 8 mins

Pay secrecy clauses prohibit employees from discussing their salary with others. Pay secrecy clauses were also aimed at preventing employees from sharing other conditions of remuneration.

A recent change in Australian law means that employers can no longer prohibit their employees from discussing pay and conditions with each other. The new law has significant implications for both employers and employees. Whether you are an employer or an employee, it is important to understand the implications of this new law. And how it will affect your rights and responsibilities in the workplace.

In this article, Farrah Motley, a workplace lawyer and Director at Prosper Law, provides the ultimate guide to the new Australian law, exploring what it means for employers and employees and how employers can comply with the new regulations.

What is a Pay Secrecy Clause?

Pay secrecy clauses are contractual provisions that prohibit employees from discussing their salary and remuneration. Employers often use these clauses to prevent employees from discussing their pay with their co-workers.

These clauses were particularly common in industries offering bonuses or discretionary incentives. Some businesses used these clauses to differentiate pay among employees.

What are the changes to the Pay Secrecy Clause laws?

Pay secrecy clauses used to be legal in Australia. However, they are now illegal under Australian law.

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 was passed on 2 December 2022. On 6 December, it received royal assent and is now the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022.

The new law makes changes to the legislation, consisting mainly of two changes that affect the pay secrecy clause: These include:

Change 1: Elimination of pay secrecy clauses in contracts of employment and other workplace agreements 

Before the new law was passed, the pay secrecy clause was common in employment and other workplace agreements. These clauses prohibited employees from talking to others about their pay and employment conditions, making it difficult for employees to find out if they were being paid fairly.

Let’s understand it by examples.

Example 1:

Alex worked in a software company. He was paid less than his colleagues for the same work. He wanted to discuss his colleagues with his pay but could not because he was bound by a pay secrecy clause in his employment contract.

Example 2:

Kylie and Kendall work for the same company in the same position. Kylie is paid $ 50,000 per year, while Kendall is paid only $ 45,000 per year. If Kendall finds out in any way that Kylie earns more, under the old law she cannot talk to anyone about it or do anything about the pay disparity.

However, with the new law, employers cannot include pay secrecy clauses in employment contracts. In fact, the prohibition also applies to other workplace instruments.

Let’s understand with examples what the elimination of a pay secrecy clause in the contract means.

Example 1:

Monica works in a hotel. She finds out that she is paid less than her colleagues for the same work. With the new law in force, she can now discuss this with others without fear of reprisals. Ultimately, this could help eliminate pay disparities and promote more equality in her workplace.

Example 2:

Sam and Monica work in the same company. Their employer pays some employees less than others because of their gender. Now all those employees who face discrimination can discuss their wages with others and take action to address the bias.

Change 2: Ability to choose to share information or not share information

In the past, when the pay secrecy clauses were still legal, employees were not allowed to share information about their pay with anyone.

Let’s understand it by examples.

Example 1:

Miley found out she was being paid less than others in the same position. Earlier, she could be prohibited from discussing her pay with co-workers or others outside the company. This made it difficult for her to address pay disparities or negotiate better pay and working conditions.

Example 2:

Andrew got a job offer from a new company. However, he was unable to discuss the pay with others to determine if it was fair and reasonable. This lack of transparency made it difficult for him to make informed decisions about his employment and negotiate better terms.

The new law allows employees to share information about their wages and working conditions. As a result, the employees now have the right to discuss their wages and working conditions with others without fear of reprisal.

However, it is important to note that employees can keep their salary information private if they wish.

Let’s understand this by an example.

Example:

Ron accepted a job with a new company. He was happy with the salary and benefits package offered. However, he was not sure if the salary was in line with industry standards. Under new laws, now he can discuss his salary with others, such as colleagues or industry groups, to determine if it is fair and reasonable.

What does the Change in new Pay Secrecy laws mean for Employees?

With the changes to pay secrecy laws, employees now have more rights and freedoms. Specifically, these rights and freedoms are:

Freedom to discuss pay

Employees now have the right to discuss their pay and working conditions with their colleagues. Such a right promotes transparency and fairness in the workplace. It helps them better understand their value and negotiate better pay and conditions.

Protection against adverse action

Employees who discuss their pay and working conditions with others are now protected from adverse action by their employer. As a result, employers cannot now take adverse action against employees who exercise their right to speak with others about their pay and working conditions.

Access to information

Employees now have greater access to information about their pay and working conditions, as well as those of their colleagues. The change will reduce the gender pay gap and other forms of pay inequality and promote greater transparency and accountability in the workplace.

Employees who believe their employer has violated the new laws can complain to the Fair Work Ombudsman or take legal action against their employer.

What does the Change in new Pay Secrecy laws mean for Employers?

The changes in the pay secrecy laws have greater implications for employers than they “can no longer prohibit their employees from discussing their pay and working conditions among themselves.”

Here’s what the change in new pay secrecy laws means for employers:

Increased transparency

Employers now have to be more transparent about their pay and conditions policies. They can no longer invoke pay secrecy to prevent employees from disclosing pay disparities among employees or uncovering possible discriminatory practices.

Greater accountability

Employers are now more accountable for their pay practices. Because employees have the opportunity to speak up about pay, employers may be scrutinized more closely. Therefore, they must ensure that their pay policies are fair and equitable.

Compliance

Employers must comply with the new laws, including not taking adverse action against employees who discuss their pay and working conditions. Moreover, employers must respond to inquiries about pay and working conditions as early as possible.

Employers who violate the new laws may face legal action, including penalties and claims for damages.

How can Employers comply with the new Pay Secrecy laws?

Employers should take legal advice from a workplace lawyer to comply with the new pay secrecy laws. However, here are some quick tips for employers:

Review and update workplace policies

Employers should review and update their workplace policies to comply with the new pay secrecy laws. This may include updating workplace policies related to employee confidentiality and anti-discrimination.

Educate employees

Employers should educate employees about the new laws and their right to discuss pay and working conditions with their co-workers. This may involve providing training or information sessions to ensure all employees know their rights and obligations under the new laws.

Review and update employment contracts

Employers should review and update their employment contracts to comply with the new laws. This may involve removing clauses that prohibit employees from discussing their pay and working conditions with others.

Respond to employee requests for information

Employers must respond to employee requests for information about their pay and working conditions. In addition, employers should have procedures in place to ensure that employees can request and receive this information without fear of retaliation.

Avoid taking adverse action

Employers must avoid taking adverse action against employees who discuss their pay and working conditions with others. This may involve reviewing disciplinary and performance management procedures to ensure they do not unfairly target employees discussing their pay and working conditions.

How Prosper Law Can Help?

Prosper Law is Australia’s online law firm. We provide legal advice to businesses and individuals across Australia. Our areas of legal practice include contracts, eCommerce, publishing, legal counsel and employment law.

If you need to talk to a workplace lawyer, get in touch today.

Contact the team at Prosper Law today to discuss how we can provide you with advice for a fixed fee or at affordable hourly rates.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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