Are pay secrecy clauses helping or hindering your business?

Pay confidentiality clauses, or pay secrecy clauses, are clauses in a workplace contract that prohibit an employee from disclosing or discussing their pay. They tend to be quite common in white-collar employee environments but are rarely included in situations where the pay rate has been negotiated collectively, such as through enterprise bargaining.

Secrecy around pay has long been a source of criticism for those campaigning to end the gender pay gap. When employees don’t know what their colleagues are earning, they are not in a good position to effectively negotiate their own salaries.

Julian Arndt, associate director at Australian Business Lawyers & Advisors, says this is the principal reason why pay secrecy clauses are disliked by employees. They are also part of a suite of topics that the Labor administration is currently consulting on with business groups and unions.

“Labor are trying to achieve some degree of equity on the issues they were elected on, and that would include reducing the gender pay gap and whether pay secrecy clauses that contribute to that should be prohibited or at least made unenforceable,” Arndt says.

The reason an employer would have a pay secrecy clause in a contract is primarily to avoid workplace conflict.

“An employee who believes they are being underpaid – whether they have grounds or not for believing that – could be very unhappy and can cause workplace disruption, which is bad for the business and bad for them as individuals,” Arndt says.

There is a view that an employee’s pay is their own private business, a view held by employees as much as employers. Talking about your salary is one of the great taboos, and certainly not something encouraged by employers.

“It definitely provides the employer with power to negotiate with their employees on an individual level rather than collectively,” Arndt says.

There are a great many reasons why people may be paid differently and not all of them are discriminatory. These may include performance, experience, service and sometimes just the timing of when a person joined the company, such as during a tight recruitment market like Australia is currently experiencing.

“That being said, it does assist anyone who is being underpaid – or feel they are being underpaid – to know what others are being paid because if you don’t know you have no leverage,” Arndt says.

Nevertheless, even its harshest critics are not calling for all pay to be disclosed – it would be the employee’s choice as to whether they wanted to disclose, Arndt says.

Can pay secrecy clauses be enforced?

If someone in breach of their contract discloses their pay to other employees, it depends on the circumstances as to what sanction an employer might bring that would be defensible. In some contexts, a breach could potentially warrant dismissal.

“Having said that, an employee terminated for breach of a pay secrecy clause – if they were eligible and entitled to bring an unfair dismissal claim – could certainly argue that it was unfair to terminate them on the basis that they breached that part of their contract,” Arndt says.

There are some difficult questions about what may happen if an employee made complaints about their pay following the breaching of a pay secrecy clause, because making complaints is a workplace right and protected under the Fair Work Act, Arndt says.

“An employer would have a hard decision to make if they wanted to enforce a pay secrecy clause lest it be hit with an adverse action claim for taking retribution against someone for making a complaint against their underpayment,” he says.

How does Australia compare?

Unusually, within the context of industrial relations, Australia is a bit of an outlier in terms of pay secrecy clauses.

At the extreme end of the scale sits Norway where there are no pay secrecy clauses and for decades the country has published all of its citizens' taxable incomes, which are publicly available. But even in the US – which, as Arndt points out, is not known for having a protective industrial relations system – pay secrecy clauses are illegal in most cases.

“Even Obama issued a presidential order banning pay secrecy clauses for federal contractors. They take it pretty seriously in the US, whereas here in Australia it is less of a thing,” Arndt says.

Arndt believes that is due to Australia having a wage system with employees on proper minimum wage instruments, modern awards and, in particular. collective enterprise agreements whereby people are ultimately paid a uniform wage.

“The people we are talking about affected by pay secrecy clauses are white-collar office workers who are relatively well paid so the amount or opportunity for exploitation isn’t there as much,” Arndt says.

Movement towards getting rid of pay secrecy clauses is already happening within large organisations, Arndt says – particularly in the big four banks where the push for gender equity is strong and there is a feeling that pay transparency simply makes good business sense.