End of financial year is generally a busy time for many employers across all industries. For employees, it often means pay reviews and, for some, the possibility of bonuses.
Previously, it was common for employers to include terms of confidentiality in employment contracts, prohibiting employees from disclosing their pay and entitlements to their co-workers. The rationale for this was understandable; regardless of any reasonable and lawful basis for pay disparity (e.g. performance), tensions are likely to arise if employees are aware that they are being paid less than their coworkers.
However, following changes to the Fair Work Act 2009 (Cth) as a part of the Fair Work Act (Secure Jobs, Better Pay), pay secrecy clauses in employment contracts were prohibited. Specifically, the changes mean that:
- employees have a right to disclose, and ask other employees to disclose, information about their remuneration, and any conditions or terms which are reasonably necessary to determine remuneration outcomes;
- any contractual terms which contravene this provision will be deemed to have no effect; and
- an employer is prohibited from entering into a contract of employment which contains a clause that contravenes these provisions.
These changes took effect from 7 December 2022. Employment contracts with pay secrecy terms entered into before this date will continue to operate until the contract is varied.
For many employees, the pay secrecy terms will now be in effect and employers can expect that discussion will be occurring around pay increase and bonuses. Where there is pay disparity identified, without being advised why, it is normal that employees will fill in those gaps themselves; that can lead to workplace conflict and, potentially, claims and/or disputes.
For example, where one employee identifies that they are paid less than their equivalent counterpart, they may engage in a comparison of personal attributes to help explain the difference. Are they female and their counterpart male? Have they recently had to take leave to care for a child while their counterpart has no children? This kind of comparison could lead to a discrimination claim being made.
Perhaps it’s not a matter of comparison with colleagues, but a review of their own recent circumstances. For example, has the employee recently made complaints about their employment, for which they believe they are being punished through a limited pay increase? This may result in a general protections claim.
There is also a risk that such known pay disparity may give rise to tensions between employees. The flow on effect may be reduced productivity and lack of engagement, increased absenteeism and, if tensions escalate, may manifest in bullying behaviour (which in turn creates further legal risk).
Of course, this does not mean that all employees must be paid the same. Rather, it is entirely reasonable to recognise high performing employees with greater pay. However, employers need to be ready to justify those types of those decisions.
There are steps which can be taken to minimise these risks, including:
- Review employment contracts
- Conducting regular salary reviews to ensure consistent application of criteria, and ensuring that the criteria is fair and lawful
- Having a transparent system to determine when and by how much an employee receives a pay increase or bonus (including clear KPIs and conducting regular performance reviews)
- Keep pay rises or bonuses consistent (having a clear method of calculation applied across the workforce)
- Providing clear feedback where an employee does not receive a pay rise/bonus or receives a reduced pay rise/bonus
Should you require assistance with this, or any other employment matter, our national Employment and Safety team are happy to help.
We will be reporting on other issues facing employers in these economically turbulent times, so subscribe to our Employment & Safety Insights to stay informed.
