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This article was written by Dr Nicola Bowes

Dr Nicola Bowes holds a Bachelor of Arts with first class honours from the University of Tasmania, a Bachelor of Laws with first class honours from the Queensland University of Technology, and a PhD from The University of Queensland. After a decade working in higher education, Nicola joined Armstrong Legal in 2020.

Wage Confidentiality

People are often reluctant to discuss financial matters, including salaries. Other workers welcome the opportunity to discuss and compare wages with their co-workers. In Australia, employers can legally direct employees not to disclose their salary with their co-workers. Many employment contracts include a pay secrecy clause prohibiting employees from discussing their salary packages. This article explains wage confidentiality in the Australian workplace.

Wage Confidentiality

A pay-secrecy clause in an employment contract directs an employee not to discuss their pay with co-workers. This clause acts much like a confidentiality clause, keeping a worker’s pay a secret between employer and employee. Wage confidentiality is particularly common in industries that offer discretionary incentives and bonuses to employees.

Is Wage Confidentiality Legal?

In Australia, employers can legally include pay secrecy clauses in employment contracts. By contrast, the United States and the United Kingdom banned pay secrecy clauses because it increases wage disparity and disempowers employees. In 2015, some Australian legislators attempted to ban pay secrecy clauses with the Fair Work Amendment (Gender Pay Gap) Bill. Parliament did not pass the bill.

Despite this failure to change federal law, there are legal constraints on wage confidentiality in Australia. Under the Fair Work Act 2009, an employee has the right to complain or enquire about their pay. An employer cannot take adverse action against an employee for inquiring about their wages or entitlements.

The Finance Sector Union (FSU) recently commenced legal action in the Fair Work Commission against an employer for allegedly terminating a worker who breached a pay-secrecy clause. The employee discussed his overtime payments with his co-workers in violation of his employment contract terms. The FSU called on the employer to remove pay-secrecy clauses from all employment contracts. The employer claims that the termination was for employee misconduct beyond the breach of the pay-secrecy clause.

Advantages Of Wage Confidentiality

Wage confidentiality gives an employer a significant advantage during salary negotiations. The employer has greater bargaining power to discuss pay and work conditions when the employee has no basis of comparison. Employees find it more difficult to band together to negotiate for better pay and conditions if pay and conditions are kept secret.

There are legitimate reasons for companies to mandate wage confidentiality. Companies claim that pay secrecy reduces conflict in the workplace and increases organisational control. These employers argue that when employees are unaware that they are paid less, there can be no cause for conflict. Employers also tend to say that wage confidentiality helps protect an employee’s privacy.

Disadvantages Of Wage Confidentiality

An employer should consider the disadvantages of wage confidentiality before inserting a pay-secrecy clause into an employment contract. Employees reasonably expect to be paid the same wage as other co-workers to perform the same work. Pay secrecy can lead to both actual and perceived inequality in the workplace. It is actual inequality when a business uses wage confidentiality to disadvantage some employees without their knowledge. It is perceived inequality when a business behaves in a way that causes employees to assume there is pay inequality. Pay secrecy clauses encourage employees to believe there is unequal pay and other unfair business practices. Actual and perceived inequality in the workplace can damage a business’s reputation amongst current and future employees and customers.

Pay-secrecy clauses reduce an employee’s bargaining power and significantly contributes to workplace favouritism and gender and racial pay disparity. These clauses can lead to unfair discrimination and unconscious bias that impacts pay rates. An employer might intentionally or unintentionally treat workers differently because of gender, age or sexual orientation. Under Australian anti-discrimination law, an employer cannot treat a worker differently because of these protected attributes. Wage confidentiality means employers do not have to justify any pay differences, so it is more difficult to discover intentional or unintentional bias.

As well as promoting inequality, pay secrecy can decrease employee motivation. Motivation comes from reward for effort. When employees believe they are receiving unequal pay, it can negatively impact their work motivation and job satisfaction.

Pay Transparency

Some workplaces consciously avoid using pay-secrecy clauses to achieve pay transparency. For instance, the Australian Public Service publishes employee wages on the APS scale. While the salary bands differ slightly depending on the department, this gives a clear sense of wage brackets. This transparency reassures employees who can compare their own salary to co-workers and market value wages.

Introducing pay transparency can improve a business’s reputation, limit accusations of discrimination and favouritism, and promote a work culture of appreciation and respect. An employer can publish workplace pay grades online and/or make them accessible in the employee’s personnel portal.

Impact On Employees

Many workers find it difficult to negotiate pay rises. Historically, part-time workers, women and disabled and minority employees are less successful when negotiating pay increases. Often an employee will prefer to transition to another job with an advertised larger salary and benefits over “playing hardball” during periodic wage negotiations. This leads to unnecessary staff turnover for the employer.

Wage confidentiality is a sensitive and complex issue. In Australia, it is currently legal for employers to include pay-secrecy clauses in employee contracts. However, an employer has considerations other than the legality of wage confidentiality. An employer should consider the negative consequences pay secrecy can have on workplace culture. Please contact Armstrong Legal or call 1300 038 223 for assistance with any workplace or employment law issue.

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