There's been a lot of debate in mainstream and social media in the past week about major Australian corporates removing pay secrecy clauses from their employment contracts. The Financial Services Union is keeping sustained pressure on employers in that industry to remove the clauses from their employment contracts. The Labor Party has made it known that, if elected, it intends to amend the Fair Work Act to prohibit these kinds of clauses, as part of their commitment to achieving gender pay equity.

The Australian position on pay secrecy clauses is different to that of other leading economies. Pay secrecy clauses have been made legally unenforceable in the United States of America and the United Kingdom, with the worthy aim of decreasing discrimination and disempowerment of employees. In 2021, the European Union also announced a proposal to make pay transparency a binding measure for its member states.

But there are sound reasons for employers to include pay secrecy clauses in employment contracts. As with all complex issues, there are trade-offs that must be considered in arriving at a balanced final position. Requiring employees to keep their pay levels confidential can assist with preventing workplace tension and conflict, particularly in sectors where a significant proportion of pay is discretionary. Pay secrecy clauses can also provide an easy 'out' for employees who aren't comfortable divulging their remuneration to others.

Before making any decisions about removing pay secrecy clauses from your employment contracts, there are some important practical considerations to work through:

  1. What exactly are you prepared to allow? Whilst an employer may be open to removing pay secrecy clauses, there may still be good reasons to moderate employees' public statements that could potentially damage the employer's brand or reputation. If appropriate, set clear boundaries around when and with whom employees are permitted to discuss their pay.

  2. Protect employees who don't want to disclose. How will you ensure that workers who don't wish to share their private pay information don't feel pressured to do so? Consider developing a communication policy to guide behaviours and expectations around disclosures.

  3. Quarantine employees' choices about disclosing their pay from other decision-making processes. Employees must not be dismissed or subject to other adverse action because they have made complaints or enquiries about their pay, or (if pay secrecy prohibitions are introduced) because they have exercised, or propose to exercise, any right to disclose or withhold their pay details. Be clear on the proper process and channels for raising genuine complaints. Consider training your leaders on effectively separating an employee's disclosure (or not) from other decisions about their access to promotions or other opportunities, disciplinary action or termination, and handling sensitive pay discussions, queries, and complaints appropriately.

  4. Be prepared to answer tough questions about pay gaps. There are good reasons to remove pay secrecy clauses if that is the only way to ensure transparency about pay. Employers can also consider alternative approaches such as providing detailed information about pay that does not identify individual employees. Whichever policy position is taken – arm yourself with knowledge – do pay differentials exist in your workforce? Are there sound merit-based reasons for the gaps, or is gender (or another protected characteristic) the underlying reason, and if so, what is being done to address this? Understanding the reason for gaps in pay, whether based on gender or any other attribute, requires a detailed analysis of data and a regression analysis which can help to flush out causal relationships between gender or other attributes and variable matters such as percentage pay rises or discretionary pay.

  5. Be mindful of privacy obligations. Disclosing details about an individual's pay data for purposes other than those directly related to the employment relationship with that individual (for example, as part of broader pay equality initiatives) without their informed consent may expose the employer to a privacy complaint. If you need to share pay data, can this be done at an aggregated, anonymised level?

It's unlikely that removing pay secrecy clauses will resolve gender pay gaps in and of itself – the question is whether it is a necessary step along the way in light of alternative measures that may not have the same unintended consequences. And when well-executed, pay transparency might also be leveraged as a powerful motivational and cultural factor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.