Should Australian employers finally axe confidentially clauses?

Why all the noise about salary confidentiality clauses?

The salary confidentiality clause has been part of employment contracts for as long as most of us remember. One of those clauses that you gloss over, accept as standard practice, then completely ignore when you go home and proudly declare to your family and friends how much you managed to negotiate in your new role.

Last week, Westpac and Commonwealth Bank of Australia announced to their staff that they would no longer be shackled by the constraints of silence and employees were free to discuss their salaries openly. It’s unlikely the announcement caused a sudden stampede to the break room for a friendly pay rates chit-chat so why all the sudden noise from big business around such a benign clause?

“I haven’t had a client approach me to enforce a pay confidentiality clause,” added Matthew Parker, Senior Associate Workplace at Moray & Agnew Lawyers. “It’s rare that these kinds of clauses end up being relied upon or enforced.”

Parker attributes the change in heart from employers to research that has been published linking pay confidentiality clauses as a factor in pay inequality.

“Employers are looking at these clauses and thinking about the cost benefit analysis and asking if it’s really beneficial to maintain them in light of findings coming out of the research.”

Both Westpac and CBA cited pay equity as the reason for the move but the move from CBA comes amongst claims from the union earlier last month that CBA had banned their employees from discussing pay rates with each other.

“Employers are looking at these clauses in a different light,” said Parker, “They’re assessing whether the benefit of having them outweighs the cultural and reputational risks that are associated with them.”

Pay secrecy has historically provided employers with some surety around heading off any disputes that may arise between employees who are paid differently. Parker said only time will tell what the risks of removing the restriction are, but some employers may be concerned about that workplace disputation.

“Everyone will ultimately have a different view of the value they bring to an organisation and how that should translate to pay.

“Although it’s likely that an employee who finds out they are earning less than a colleague will be unhappy about that result,” Parker told HRD.

From what Parker has witnessed though, it would be wrong to assume that most employees want to have open discussions about remuneration with their colleagues.

“I think it would be wrong to assume that these clauses are the main inhibitor to employees sharing information with each other.”

Some employees may just want to keep their salary quiet whether there is a secrecy clause or not, and relinquishing this could lead to employees who don’t want to disclose their salary feeling pressured or bullied into revealing it.

Parker said that communication is key for companies thinking about deleting salary confidentiality clauses.

“If an employer is looking to take that proactive step, they need to communicate with their workforce. That decision needs to be accompanied with some clear messaging about how employees are expected to conduct themselves in discussions with each other and respect other’s decisions about whether or not to disclose that information.”

Organisations will have their own legal and cultural reasons for exploring the idea.

“I do think we are in a different position socially, with what we know about gender equality and the research coming out, at the very least, it’s a good opportunity for employers to revisit these kinds of clauses.”

The finance sector union and the Labor party have been particularly vocal on their criticism of these clauses so it’s unlikely the debate will go away anytime soon.

“It gives employers the opportunity to say, well, we've had these historically, but why do we have them now? Do they still serve the purpose we wanted them to serve? And are they actually beneficial to the organization both legally and culturally?”