From June this year, civil remedy provisions in the Fair Work Act will expose employers — including law firms — to civil penalties if pay secrecy clauses are included in employment contracts. 

The Albanese government introduced the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 in November last year, in a move to keep employers accountable for pay outcomes and gender pay disparities.

Historically, Clayton Utz partner Amanda Lyras noted, there has been a lack of transparency in the legal profession in particular, with many mid-level and senior lawyers paid on pay bands, which are not published.

“Whether employees will actively take up their new legislative right to discuss their pay with other employees is a personal choice, but where the job market continues to be tight, I expect this will be more likely, particularly around remuneration review time. Law firms are increasingly vying for ways to stand out from the pack in the current market conditions, as we have seen with other employee benefits such as parental leave policies,” she said.  

“In this context, there is a good chance we will see law firms go the way of the large professional services firms in disclosing pay bands. There was a rapid domino effect of disclosure of pay bands in the large professional services sector amid a skills shortage and a desire to attract the best talent.”

Discussions about remuneration, Dentons partner Paul O’Halloran said, should be continually updated to reflect greater levels of transparency moving forward.

“In the current market for talent, it is not difficult for lawyers to find out what they might get paid elsewhere, either from recruitment agents or prospective employers, but the amendments will mean the employees cannot, in theory, be disciplined or dismissed for breach of contract if they disclose their salary details in non-compliance with any existing pay secrecy clause in their contract.

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“Employees will also have workplace rights and the protection from adverse action under the Fair Work Act to disclose, or not disclose, their remuneration; or any terms and conditions reasonably necessary to determine remuneration outcomes,” he explained.

“However, in general, competition for talent in the legal profession has meant the profession is generally quite transparent about pay and conditions compared to many other industries. Therefore, I don’t expect this provision alone will have a great impact on transparency at a lateral hire level, but potentially might for internal pay outcomes.”

Greater transparency to aid gender pay gap, impact firm culture

Gender equity is cited as the fundamental for the pay secrecy clause ban being brought in — and according to the explanatory memorandum to the bill, “removing restrictions on employees disclosing their remuneration, if they wish to do so, promotes the rights of women not to be discriminated against based on gender, because it will assist women to confirm they are not being paid less than male employees for doing the same job”.

This transparency will be “meaningful” in addressing the gender pay gap, Ms Lyras submitted.  

“We know from statistics published by the Law Society of NSW that there is a gender pay gap in the profession and that this is most noticeable for those aged over 30, with a greater proportion of full-time males earning over $150,000 compared to full-time females,” she said.

“This could be due to a variety of reasons, including family/carer responsibilities, unconscious bias and differences in negotiation approaches, but knowledge is power and can set all lawyers up for more empowered discussions around pay. Pay secrecy can have the effect of masking unjustified discrepancies in pay between genders.”

Swaab partner Michael Byrnes echoed a similar sentiment — and said that the amendments would not only reveal gender pay gaps within certain organisations but also impact culture.

“The amendments will likely lead to revelations that some employers have a gender pay gap. That opens up opportunities for other employers that have actively sought to address the issue to recruit disaffected staff,” he explained.

“The approach an employer takes to the issue of pay equity might also become an important litmus test on the culture of the organisation for current or prospective employees. Consistent with the spirit of the amendments, progressive employers may want to adopt strategies on the issue (such as publication of pay bands for seniority levels) to demonstrate their commitment to addressing the gender pay gap.”

Legal recruiters have also previously noted that, in overseas markets such as the UK, published salaries within law firms have occasionally made those firms employers of choice — but whilst pay is still of high priority, flexibility, training, brand, quality of work, and culture often overshadow pure salary.

“Greater transparency around pay may also result in employees placing greater focus on pay outcomes when choosing an employer and relying less on brand and reputation. This can have the effect of diverting talent to other firms across the market,” Ms Lyras outlined.

“The federal government has flagged that it will seek to require public disclosure of gender pay gaps in the future, and firms [that] have not proactively managed this as a leadership priority will be on the back foot in responding to any deficits evident in public disclosures. In tight market conditions, staff retention can be adversely impacted if firms are not perceived to be paying in line with the market, ensuring equitable pay outcomes, or managing employee concerns.”

Impacts of a potential recession

Whilst a tight, candidate-driven market has given employees greater leverage and driven better salaries, a recession will likely change that leverage, Ms Lyras said.

“Pay transparency would be another way for law firms to demonstrate they take a proactive and inclusive approach to employee engagement and are committed to addressing pay inequities,” she quipped.

“A recession would necessarily have impacts on the bottom line for law firms from a benefits perspective, as well as make it more difficult for employees to secure jobs across the market, and this is likely to result in less impetus for firms to take a transparent approach to pay.”

However, firms that reduce their salaries amid a global economic downturn are likely to pay the price later on, Mr Byrnes warned.

“A recession would lead to a shift in market power from employees to employers. That would likely make employees more accepting of their pay, even if they do not consider it to be fair relative to some of their colleagues,” he said.

“Recessions are, of course, temporary, and employers that take advantage of tight economic conditions to avoid addressing any unfair or inequitable pay gaps will likely pay for it in the longer term in terms of retention, reputation and culture.” 

Challenges moving forward

Despite the positives of a pay secrecy ban, Mr Byrnes argued that whilst pay secrecy clauses will no longer be legal, junior colleagues are the most likely to actually share their salary details with those they are “personally close” with.

“I suspect the practical impact of these amendments, well intentioned though they are, might be overstated. While the amendments prohibit employers imposing pay confidentiality clauses on employees, that does not necessarily mean that employees will share details of their remuneration with colleagues,” he submitted.

“Just like matters such as religion or politics, it might be considered gauche or impolite in some circles to ask about, or seek to discuss, remuneration with peers.

“One impact the amendments will have is that employers know they can’t rely upon confidentiality clauses to conceal inequitable pay differentials. The risk of pay rates being revealed might have a salutary effect on employers, keeping them honest and ensuring they pay greater attention to not creating or perpetuating unfair pay gaps.”

Employers are also going to need to be in a position to justify pay differences — particularly between employees who hold similar positions to one another.

“There will continue to be lawful and objective reasons why one professional might be paid more than another, due to their expertise, practice value or experience. The pay secrecy amendments won’t change any of that, but the challenge for employers will be ensuring that remuneration decisions, for example, during annual promotions or salary reviews, are based on objective criteria,” Mr O’Halloran explained.

“If an employer cannot explain or justify why a male senior associate is paid more than a female senior associate, where all other things are equal, that will have implications in the context of gender equality, if those two employees have shared their salary outcomes.”

Following this, organisations will also face challenges in managing employee morale where staff believe their salary should be more — resulting in “more difficult conversations around performance review time and may result in greater employee attrition”, according to Ms Lyras.

“Certain firms may find it difficult to compete with competitors with deeper pockets, given disclosure will make plain where their pay levels stand relative to the market. Pay bands do not typically extend to bonuses and incentive outcomes, and these forms of remuneration will likely be used in practice to bolster pay for top performers, which has the potential to further perpetuate pay inequities in a manner that is not visible,” she explained.

“Employers have the opportunity to lead the way in this space and use these changes as a positive impetus to address any pay inequities and engage transparently with employees around pay. The large professional services firms [that] publish pay bands have reported that this has driven lasting, system-wide change and more equitable outcomes.”