Is it legal to include a ‘pay secrecy’ clause in my employment contracts?

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 In the same way in which confidentiality clauses can be included in employment contracts, employers may also choose to insert a clause that prohibits an employee from discussing their remuneration. Such clauses are often referred to as pay secrecy clauses, and they are perfectly legal in Australia.

These are often used in workplaces where bonuses and discretionary incentives are commonplace. While such clauses are entertained in the private sector, they are not used in the public sector, at least, not at the employee level.

It is interesting to note that the gender pay gap in the private sector sits at around 21%, while in the public sector it is approximately 12%. While this figure is still too high, it leads to a reasonable conclusion that pay secrecy clauses do nothing to correct pay imbalance, be it based on gender, race, or anything else.

Why use them?

Employers argue that pay secrecy clauses enable them to individually adjust remuneration based on experience and performance, and allow new recruits to negotiate individual packages without fear of later difficulties when established employees become aware of the details. Further, they allow for stronger negotiation by employers, when new hires are unaware of what current employees are receiving. They may be getting a great package, or they may not – who would know, when the details are all shrouded in secrecy.

Current employees who are renegotiating remuneration are essentially flying blind. This may well suit the employer as it places them in a strong position at the table with an employee attempting to negotiate without full knowledge. This is particularly cutting when that employee already has a weaker position due to gender or race.

Those are some of the proposed benefits, but cynics espouse that pay secrecy clauses simply provide a far too easy way for employers to engage in pay imbalance practices. Further, employees breaching such clauses can be charged with breaking their contract of employment.

The employee view

It is said that the greatest motivation for employees is recognition, and by extension, fair and equitable pay for dedication, effort, and work performance. 

When a layer of secrecy exists over who is getting paid what, employees may wonder at the motive behind it. Human nature being as it is, employees may well assume, rightly or wrongly, that their co-workers are being paid more. This can be described as either actual or perceived inequality. In any case, it does nothing for employee morale. Such clauses certainly protect individual privacy, but at what cost?

And elsewhere?

 It is worth noting that in the USA, an 80-year-old federal labour law already prohibits employers from inhibiting employee discussion on remuneration, however, the law is not widely known. Despite the existence of the law, in 2014 then President Obama felt compelled to sign an executive order to prohibit federal contractors from retaliating against employees who discussed remuneration levels saying: ‘Pay secrecy fosters discrimination and we should not tolerate it’.

Closer to home

Pay secrecy clauses are controversial and emotive issues, and have become a political issue in Australia, as a component of the gender equality and pay parity debate. A fitting closing comment may simply be, watch this space.

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