Are your pay secrets no longer safe? Changes to the Fair Work Act
On 2 December 2022, the Federal Parliament passed its leading industrial relations law reforms, in the most significant changes to the Fair Work Act 2009 (FW Act) since it was introduced.
In the latest in our series of articles on the major changes found in the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 (the Bill), we will discuss the new prohibition on pay secrecy clauses in employment agreements and the new rights of employees to discuss their remuneration with colleagues. We will look at what these changes mean for employers and EPL/ and statutory liability insurers.
What is changing?
Traditionally, many employers have included pay secrecy clauses in employment agreements to prohibit employees discussing their terms of employment and salary information. Employers generally use such clauses to reduce employee disputation and agitation about pay rates. The rationale underpinning this is employees who are not aware of what their peers are paid will be less likely to be unhappy about their own remuneration, even if it is lower than their peers.
However, opponents of pay secrecy clauses say they cause disadvantage to minority groups, including women, migrants and LGBTIQ+ people, because they are less likely to find out if they are being underpaid. Pay secrecy clauses are also reported to perpetuate the gender pay gap. The prohibition of pay secrecy clauses is intended to address and rectify these issues.
One of the main changes in the Bill is a new workplace right for employees to ask each other about, and disclose, their remuneration and any associated terms (such as hours of work). An employee will be protected from adverse action (including dismissal or other retaliatory treatment) by their employer for asking questions or making disclosures about their remuneration and any associated terms. Employers will be prohibited from taking any action against employees for doing so.
Another significant change relating to pay secrecy clauses is to make any existing pay secrecy clauses in current contracts of employment void and unenforceable. It will be unlawful to enforce or attempt to enforce such clauses. Further, it will be unlawful to include such clauses in any new contracts. These provisions are civil remedy provisions of the FW Act. This means employers will be exposed to significant monetary penalties for contravening the new laws.
Claims for breaches of these new provisions will arise under the general protections provisions of the FW Act which aim to protect employees from adverse action, coercion, undue influence or pressure, misrepresentation, discrimination etc. that affect employee’s workplace rights.
The new laws do not require or compel an employee to disclose their salary information to another person/employee. Similarly, adverse action cannot be taken against an employee for their refusal to provide such information to a colleague.
The prohibition on pay secrecy clauses only apply to clauses in agreements between employers and employees. It appears arguable that pay secrecy conditions could still be included in non-contractual arrangements, such as discretionary policies providing for bonuses and other incentives.
What should employers do now?
Employers should immediately update their employment agreement templates to remove pay secrecy clauses of any kind. Otherwise, once the laws come into force, employers would contravene the FW Act and be exposed to pecuniary penalties by including pay secrecy clauses in contracts offered to new or existing employees. Pay secrecy clauses may not be immediately obvious, for example, they may arise from the definition of ‘confidential information’.
Employers should also remove any reference to confidentiality in letters concerning periodic salary/pay reviews or promotions where new remuneration details are included.
Given the complexity and potential pitfalls, we recommend employers seek advice from employment lawyers to assist with the review.
Employers should also be aware their pay structures will be subject to staff scrutiny and must ensure no managers take adverse action against employees if they ask for such information or disclose the information to colleagues. Employers should audit their remuneration to ensure equity, as the new prohibition and protections about pay secrecy will be used by employees to agitate for increased remuneration.
Employers will have a six-month grace period before the new civil penalties come into force but they don’t have long to get ready – the penalties will come into force in around mid-2023. Further, existing protections against adverse action for making complaints or inquiries in relation to employment would likely assist employees even before the new penalties come into force.
What do these changes mean for insurers?
EPL insurers may notice an increase in general protections claims which arise out of these new provisions of the FW Act. We expect to see a rise in claims from employees (both current and former) or union representatives against employers who have taken adverse action against employees due to their request for, or disclosure of salary information to another person.
Further, there will be entirely new types of claims, as employees bring proceedings for contravention of the prohibitions against pay secrecy clauses. These claims may trigger insuring clauses in statutory liability policies in addition to EPL policies. EPL and statutory liability underwriters should be aware of the new claims and consider how their wordings would respond (if at all) to these new claims.
Update: This bill received royal assent on 6 December 2022. It is now an Act