Pay Secrecy Deadline Fast Approaching

From 7 December 2022, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth) amended the Fair Work Act 2009 (Cth) (FW Act) by introducing pay secrecy restrictions. These amendments prohibit the inclusion of pay secrecy terms in employment contracts and operate to protect employees from adverse action should they choose to disclose, or not disclose, details of their pay to others.

The Federal Government’s position was that pay secrecy terms inhibited wage comparison and acted as a barrier to the reduction of the gender-pay gap and workplace discrimination.

The FW Act now effectively gives employees a positive right to disclose, or not disclose, their pay, and to ask any other employees about their renumeration, whether they are engaged by the same or a different employer. This will help employees to assess whether their remuneration is fair and comparable to that of other employees in the same workplace or industry.

Employers should review their contracts to ensure they do not breach the laws.

What is a pay secrecy term?

A pay secrecy term is a term in an employment contract which prevents employees from discussing their remuneration. These confidentiality terms have typically been included in contracts for senior staff or where rates in an industry are competitive.

Commonly, pay secrecy terms are encompassed by a broader confidentiality clause requiring the employee to maintain the confidentiality of all terms and conditions of employment. Such terms now contravene pay secrecy laws to the extent that they prevent employees from discussing their remuneration.

Under section 333B of the FW Act, a term in a contract which prevents discussion of remuneration or any other terms or conditions of employment that are reasonably necessary to determine remuneration outcomes will be affected.

Practical impact of changes

The impact of the new pay secrecy laws depends on the date that the parties entered into the employment contract.

Existing employment contracts

Pay secrecy terms in existing employment contracts entered into prior to 7 December 2022 remain operational until the contract is renewed, varied or the parties otherwise enter into a new contract.  After that point, the pay secrecy term in the old contract will cease to have effect and can’t be enforced.

This means that if an employee receives a promotion or moves from full-time to part-time work, this might be sufficient to constitute a contractual variation. Consequently, the pay secrecy prohibitions will apply to that contract.

New employment contracts

Pay secrecy terms included in employment contracts entered into on or after 7 December 2022 have no effect.

More importantly, from 7 June 2023 employers could face penalties for the inclusion of pay secrecy terms included in employment contracts that have been entered into on or after 7 December 2022. This 6-month grace period for employers to review employment contracts and ensure that are compliant with pay secrecy provisions is ending soon.

Other agreements

Interestingly, section 333D of the FW Act prohibits pay secrecy terms not only in employment contract but and any ‘other written agreement with an employee’. This means that pay secrecy terms contained in deeds of settlement between employers and employees will be prohibited.

What should businesses do next?

The grace period for avoiding penalties is fast approaching.

Employers should ensure they are acting in compliance with pay secrecy laws by 7 June 2023, or potentially risk exposure to civil penalties under the FW Act.

Employers should consider reviewing contracts and other agreements (like deed templates) sooner rather than later.

There are several ways in which employers may seek compliance with pay secrecy laws. These include:

• Removing the terms that contravene pay secrecy laws for template contracts.
• Modifying confidentiality terms in contracts to ensure they do not contravene pay secrecy laws.
• Varying contracts for existing employees who are subject to pays secrecy terms and where the contract was entered into on or after 7 December 2022. Employers should take note of any express terms in the contract that allow for variations.

As these are just some of several changes introduced by the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth), employers may benefit from seeking advice about updating their contracts.

‍This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.