It’s our secret: pay secrecy clauses in employment contracts

 
Rocio Paradela, Graduate Associate

It’s not uncommon for employers to prohibit employees from sharing details of their salaries. This type of prohibition is commonly referred to as “pay secrecy”. This practice is most often seen in sectors where discretionary incentives and bonus payments are common, such as the financial services industry.

Why does this matter?

In Australia, more than half of all employers commonly include pay secrecy clauses in their employment contracts. The concept of pay secrecy is linked to the gender pay gap. The gender pay gap currently sits at around 14.6% based on average weekly ordinary full-time earnings. This gap is largest when pay levels are secret, but almost non-existent when pay is transparent (for example, where an employer pays the minimum wage rate in accordance with the terms of an award).1

Last month the Labour opposition announced (as part of its election promise) that it will make Australian companies with more than 1,000 employees publicly report on the gender pay gap and also committed to changing the Fair Work Act 2009 (Cth) to prohibit pay secrecy clauses.

The pros and cons

There are competing arguments in this space. On the one hand, pay transparency, in theory encourages employees to be more competitive and can improve productivity and motivation. However, most employers discourage employees from discussing their pay, to avoid resentment amongst employees. The disclosure of pay disparities can create tension between employees and have an impact on overall culture. It can lead to reduced job satisfaction on the part of lower paid workers, and a focus on pay level can contribute to the impression that this is the only indicator of an employee’s worth to an organisation.

While many employers may see the worth of abolishing pay secrecy clauses as a tool to help reduce the gender pay gap, organisations will need to think about the broader impacts of removing pay secrecy clauses. Organisations will have to assess how the fact that workers might choose to disclose or not disclose their salary, could impact on the culture and morale of a work team or the organisation as a whole. If such amendments are implemented, organisations should turn their minds to developing an internal communication strategy to help guide behaviours and expectations around pay disclosures.

Interestingly, the recently published Interim Report of the Financial Services Royal Commission makes the link in a broad way between remuneration and workplace culture, showing that the way in which remuneration is structured can have a significant impact on a company’s overall culture.2

While removing pay secrecy clauses may be one strategy in closing the gender pay gap, employers should not rely on legislative changes as the only solution. Organisations can strive towards overcoming obstacles to gender equality identified in their businesses and ensure that employees are rewarded based on merit rather than personal characteristics that can give rise to allegations of discriminatory treatment. Organisations considering an open salary policy need to deliver a proactive and positive message on this point, and ensure they have defensible non-discriminatory pay practices that match this messaging.


1 Workplace Gender Equality Agency, Australia’s Gender Pay Gap Statistics, available at https://wgea.gov.au/sites/default/files/gender-pay-gap-statistic.pdf
2 Interim Report of the Financial Services Royal Commission, available at https://financialservices.royalcommission.gov.au/Pages/interim-report.aspx

A Chain Reaction: Modern Slavery Bill Under Consideration

 

Daniel McNamara, Graduate Associate

On 17 September 2018, the House of Representatives passed the Modern Slavery Bill 2018 (Cth) (the “Commonwealth Bill”) which is currently before the Senate.

Background

While there is no set definition of “modern slavery”, it is regarded as the full or partial servitude of people which can involve “human trafficking, slavery, forced labour, removal of organs and slavery-like practices”.1 For large businesses operating in Australia, a risk of modern slavery may arise within the supply chain of producing goods and services, as has occurred with respect to forced labour in the agriculture and construction industries. Another scenario that has given rise to concerns is where a business allows (or turns a blind eye to) workers paying off “debts” owed to others by working indefinitely without being paid a wage.

Since 2004, over 50 prosecutions have occurred in relation to modern slavery under the Criminal Code Act 1995 (Cth).2 However, the liability and accountability of large entities within Australia remains limited due to the lack of legislation requiring entities to conduct due diligence in preventing modern slavery throughout entities. The result is that instances of modern slavery within organisations’ supply chains, operations and structures may fail to be recognised or no preventative action is taken. With this in mind, in February 2017, the then-Commonwealth Attorney General, George Brandis, requested the Joint Standing Committee on Foreign Affairs, Defence and Trade, to consider the introduction of modern slavery legislation in Australia.

Amongst other things, the Joint Standing Committee drew closely on the 2015 legislation introduced in the United Kingdom, as well as considering 225 public submissions and conducting 10 public hearings between May and October 2017. If it is enacted, the Commonwealth Bill will be the first piece of federal legislation to deal with modern slavery.

Nature of the obligations

The sole requirement of the Commonwealth Bill is the obligation of entities with a consolidated revenue of at least $100 million to publish modern slavery statements relating to the potential risks that exist in their operations and supply chains in relation to potential modern slavery.3

Unlike the Modern Slavery Act 2018 (NSW) (the “NSW Act”) introduced earlier this year, which imposes a penalty of up to 10,000 penalty units ($1.1 million) for failure to file a compliance statement,4 the Commonwealth Bill has no such sanctions. Instead, the Commonwealth Bill takes a “soft line” on enforcement. As Senator Nigel Scullion stated in the Second Reading Speech for the Bill, “[b]usinesses that fail to take action will be penalised by the market and consumers and severely tarnish their reputations”.5

How might this affect your business?

As compliance with the Commonwealth Bill will require an organisational level approach to assessing risk, human resource managers may be required to contribute to the process of producing modern slavery statements. Amongst other things, this will involve identifying the structure, operations and supply chains of the reporting entity, the risks of modern slavery throughout the entity’s operations and supply chain, assessing any risks and taking appropriate action.6

For NSW businesses, the requirement of a modern slavery statement as prescribed by the NSW Act is removed if the organisation is subject to a “law of the Commonwealth … that is prescribed as a corresponding law”.7 It is not yet clear whether the prospective Commonwealth legislation will be a “corresponding law” to the NSW Act, meaning that NSW businesses may be required to produce modern slavery statements on both a state and a federal level to satisfy both reporting regimes.

Key takeaways

  • Businesses with a consolidated revenue of at least $100 million should consider their strategies for producing a modern slavery statement that reflect the risks within their operations and supply chains to comply with the Commonwealth Bill.
  • There are no pecuniary penalties in the Commonwealth Bill for non-compliance.
  • NSW businesses may be subject to both Commonwealth and state compliance requirements in creating modern slavery statements.

The Devil is in the Detail: New Model Term on Flexible Working Arrangements

Therese MacDermott, Consultant and Rohan Burn, Graduate Associate

As part of the four-yearly review of modern awards, the Full Bench of the Fair Work Commission (“FWC”) has recently published a provisional model term that supplements the flexible working arrangement provisions of the Fair Work Act 2009 (Cth) (“FW Act”) (the “Model Term”).

This follows the FWC’s decision in March 2018 where it rejected a major overhaul of the right to request flexible working arrangements on the basis that what was being sought would effectively remove the ability of businesses to determine how to roster labour.

While acknowledging there was a significant unmet employee need for flexible working arrangements, the FWC settled on an approach that would see a model term incorporated into modern awards that would “facilitate” arrangements and raise awareness of the right, rather than offering an avenue to challenge a denial of a request. Hence, the end result is a proposed model term that sets out the process an employer must follow if it is responding to a request and gives the FWC a degree of supervision over this process, but no decision-making role in relation to the underlying decision to refuse the request.

Further submissions relating to any award-specific issues will be made within the next two weeks. Subject to these submissions, it is the FWC’s provisional view that all modern awards should be varied to insert the Model Term. That provisional view will only be displaced in respect of any particular modern award if it is demonstrated that there are matters or circumstances particular to that modern award that do not necessitate the inclusion of the Model Term.

Flexibility requests under the FW Act

Under section 65 of the FW Act:

  • an eligible employee may make a written request for a change in working arrangements which sets out the details of the change sought and the reasons for the change;
  • the employer must give the employee a written response to the request within 21 days, stating whether the employer grants or refuses the request;
  • the employer may refuse the request only on reasonable business grounds; and
  • if the employer refuses the request, the written response must include details of the reasons for the refusal.

Under this scheme an employer’s decision to refuse a request for a flexible working arrangement is not subject to any review or appeal. As a result, the FWC is unable to deal with a dispute about whether an employer had “reasonable business grounds” for refusing the request unless the parties have agreed in a contract of employment, enterprise agreement or other written agreement that the FWC can deal with the matter.

What will change with the Model Term

The proposed Model Term will apply to all categories of employees who make a request under section 65 of the FW Act, and is not confined to parents and carers only.

Of particular importance for employers are the following process aspects:

  1. before responding to the request, the employer must discuss the request with the employee and “genuinely try to reach agreement” on a change in working arrangements that will reasonably accommodate the employee’s circumstances having regard to:
    1. the needs of the employee arising from their circumstances;
    2. the consequences for the employee if changes in working arrangements are not made; and
    3. any reasonable business grounds for refusing the request;
  2. the written response to the request must include details of the reasons for the refusal, including the business ground(s) for the refusal and how the business ground(s) apply;
  3. if the employer and employee cannot agree (at (1) above) on a change in working arrangements, the written response must:
    1. state whether or not there are any changes in working arrangements that the employer can offer the employee so as to better accommodate the employee’s circumstances; and
    2. if the employer can offer the employee such changes in working arrangements, set out those changes in working arrangements;
  4. if the employer and the employee reached an agreement (at (1) above) on a change in working arrangements that differs from that initially requested by the employee, the employer must provide the employee with a written response to their request setting out the agreed change(s) in working arrangements; and
  5. disputes about whether the employer has discussed the request with the employee and responded to the request (as required) are to be dealt with under the consultation and dispute resolution clauses of the modern award.

As a consequence, a dispute resolution clause can only be relied on in respect of a dispute about whether the employer has discussed the request with the employee and responded to the request, rather than the substantive decision whether to grant the request.

Implications

While the Model Term (for the most part) may already reflect the practices that organisations engage in, it does:

  • require employers to be mindful of the level of genuine deliberation and consultation they engage in with employees in responding to requests; and
  • increase the regulatory burden in administering requests.

It is also likely that organisations may find that, in the bargaining context, employees (or their bargaining representatives) seek to build on the Model Term and expand its scope to include disputes about whether an employer had “reasonable business grounds” to refuse the request within the dispute resolution clause.

PCS recommends that organisations update staff who are responsible for dealing with these requests (particularly line managers) about these proposed changes and any practices that may need to be revisited as a result of these changes.

Organisations should also consider the impact of these changes on employees who are not award covered and consider whether it will treat all employee requests in accordance with the proposed Model Term, or whether it will adopt different approaches for requests by award and non-award employees.