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.

It’s What’s Inside that Counts: Dealing with Disgruntled Ex-Employees

Rohan Burn, Graduate Associate

Last fortnight the Queensland Strawberry Growers Association released a statement saying they had reason to suspect that a disgruntled ex-employee may have orchestrated a recent newsworthy incident where sewing needles were found in a number of strawberries.

This incident has caused employers to reflect on the commercial, reputational, and legal risks that arise from current and former employees who may be unhappy with their work environment. To mitigate against these risks, there are a number of proactive strategies that an employer can implement to protect their reputation and deter employees from breaching their obligations.

Reputational Damage

Building a reputable organisation takes years of time, dedication and vision, and just minutes to destroy. It takes just one employee, for example by sharing negative feedback online or breaching work health and safety obligations, to disrupt that reputation. Trust and respect within an organisation are crucial to mitigating against the risks and potential damage that a disgruntled employee may cause. Employers need to focus on creating and maintaining a healthy workplace culture and addressing behaviours that fall foul of acceptable conduct.

Employee Management

Appropriate performance management processes encompass both a risk management strategy and a mechanism for improving the performance of employees. Employers should provide employees with regular opportunities to discuss and respond to concerns as well as achievements. Ongoing communication facilitates a more transparent and mutually beneficial approach, where an employee is aware of and can align their performance and behaviours with an employer’s expectations and organisational values.

Where employees perceive performance management as inherently negative, the employer limits performance management to a process with a forgone conclusion; exiting an employee. In these circumstances, employees may feel unsupported by their employer and aggrieved by being labelled as a “poor performer”. Terminating an employee’s employment when they have a perception of organisational injustice can expose the business to additional risks, particularly if the employee is serving out any remaining notice period or has a “story” the media might be interested in.

The People Management Quadrants

The People Management Quadrants represent a holistic approach to the management of people issues in the workplace. Instead of only focussing on commercial outcomes and how they can be achieved within the law, employers should also consider what people may be feeling and thinking about an issue, and what message is being conveyed through the organisation’s people management strategy. For example, exiting a poor performing employee may make commercial sense and be legally permitted, but consideration should also be given to how the employee will react to the dismissal and how their colleagues will perceive that decision.

Organisational Conflict

In some circumstances, the behaviours of one disgruntled employee can be understood as a manifestation of broader organisational conflict. Behaviours such as absenteeism, low morale, inefficiency, and sabotage may all be expressions of organisational conflict that need to be addressed on an on-going basis and not simply at the point where termination is being contemplated. However, where a decision is ultimately made to exit a particular employee, the employer should reflect on the circumstances that led to the employee’s exit and whether an audit of organisational policies and practices is warranted.

PCS can work with you and your leadership team to conduct a culture and effectiveness audit to identify gaps in your organisation and build a robust people strategy.

What’s on your Mind?: Mental Health in the Workplace

Rocio Paradela, Graduate Associate and Daniel McNamara, Graduate Associate

Mental health issues can have a resounding impact on productivity, performance and culture within workplaces of all sizes and industries. Approximately 21% of Australian employees have taken time off in the past 12 months for mental health reasons and this has a significant impact not just for the employees, but their colleagues, managers and the rest of the workplace.The effect that mental health conditions, such as depression and anxiety, can have on Australian business is estimated as being approximately $11 billion per year1. This calculation is based on figures for absenteeism, presenteeism, reduced work performance, increased turnover rates and compensation claims.

Legal implications

From a legal standpoint, employers owe a number of obligations to employees regarding their psychological health at work.

Under work health and safety legislation employers must provide a safe and healthy workplace and take action to eliminate and minimise any potential risks to the health and safety of all employees and those present at the workplace. This is not confined to the physical environment but extends to psychological impacts as well.

In relation to mental illness, the obligations include:

  • identifying possible workplace practices, actions or incidents which may be causing, or contributing to poor outcomes for workers in terms of their mental health; and
  • taking actions to eliminate and minimise those risks.

Under state and federal anti-discrimination laws employers have an obligation to make reasonable adjustments for employees with disabilities to enable them to perform the inherent requirements of their job. Examples of such adjustments include offering flexible working options or changing aspects of the workplace arrangements or practices. However, an adjustment is not required if it would impose an “unjustifiable hardship” on the employer, or the employee would not be able to perform the inherent requirements of the job even with such adjustments.

The Fair Work Act 2009 (Cth) also provides protection for employees with mental health illness from adverse action taken by an employer because of their disability. Potential forms of adverse action include dismissal, refusing to employ a prospective employee or discriminating against an employee.

Responding at the workplace level

There is no “one size fits all” approach to implementing strategies that promote a mentally healthy workplace. Common organisational responses include:

  • Employee Assistance Programs;
  • flexible work arrangements;
  • policies which address mental health issues; and/or
  • mental health leave (via personal leave and/or the implementation of mental health days).

These types of strategies are designed to assist employees to manage their mental health issues and, more broadly, to enhance the prospect of a healthy workplace.

On a more individual level, a commitment by employers to properly address the mental health issues of their employees is fundamental, not only in employers meeting their legislative obligations, but also for all employees to flourish in their employment. Employers should ensure that the needs of employees who are experiencing mental health issues are understood, that the impact of workplace practices on these issues are monitored, and that employees receive the support they require. This may necessitate adjustments being agreed to between the employer and employee, and efforts made to keep under review workload distributions, hours and leave arrangements.

Key takeaways

We recommend that employers consider the following dos and don’ts in their approaches to mental health in the workplace:

Do:

  • Observe and monitor changes in employees’ behaviour
  • Foster help-seeking
  • Work constructively with employees who have mental health issues
  • Show empathy to employees requiring support
  • Create open channels of communication

Don’t:

  • Tolerate a poor workplace culture
  • Rely on performance management as a means of dealing with mental health issues
  • Make presumptions about the perceived capabilities or weaknesses of employees with mental health issues
  • Treat employees differently as a result of their mental health status

1.  Blackdog Institute and beyondblue (2016), “Developing a mentally healthy workplace: A review of the literature”, Report prepared for the National Mental Health Commission, Sydney.