On 2 December 2022, the Federal Parliament passed the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (amending Act) marking the most significant changes to the federal employment law system since the commencement of the Fair Work Act (Act) in 2009.
In this article, we explain two of the biggest amendments that will change the way national system employers operate:
- the prohibition of pay secrecy clauses; and
- limitations on fixed-term contracts.
Pay secrecy clauses
Pay secrecy clauses are typically included in employment contracts to prohibit employees from disclosing, discussing and/or comparing salaries. Breaches of those clauses have previously provided an employer a valid and lawful reason (depending on the circumstances) to institute disciplinary action against an employee.
The amending Act provides employees with the right to:
- disclose details of their remuneration, or any terms and conditions which are “reasonably necessary to determine their remuneration” (eg hours worked, on-call/shift-work requirements, sales numbers, etc.), to any person, including their co-workers or employees of other businesses;
- ask other employees about their remuneration or relevant terms and conditions, including their co-workers or employees of other businesses.
Importantly, employees cannot be forced to divulge such information if they decide not to.
Sub-section 333C(3)(a) provides that the right to disclose remuneration (and to ask about remuneration) is a “workplace right” under the Act. This makes it unlawful for an employer to take adverse action against employees who disclose, or ask others about, details of their renumeration; for example, dismissing an employee, reducing their salary, altering their position, etc.
Section 333C provides that a term of an employment contract or fair work instrument (ie an award, enterprise agreement, workplace determination or FWC order) will have no effect if it requires an employee to maintain confidentiality about their salary (or other relevant terms and conditions). This change took effect on 7 December 2022; employers are no longer able to rely on pay secrecy clauses in new or varied employment contracts.
If a contract of employment entered into before 7 December 2022 contains a ‘pay secrecy’ clause, the clause will be enforceable until the contract of employment is varied or replaced. There is no obligation on employers to vary or replace existing contracts and the amending Act will not apply to existing employment contracts. However, even a minor variation to the contract may be sufficient for the new laws to apply.
However, the amending Act allows a six-month grace period for new employment contracts. From 7 June 2023, an employer who offers a prospective employee an employment contract with a pay secrecy/confidentiality clause will breach section 333D of the Act and could be subject to significant financial penalties (called “pecuniary penalties” under the Act) of up to $66,600 per breach.
Employers will not be penalised if new employment contracts entered into before 7 June 2023 contain pay secrecy clauses; rather, those clauses will simply be unenforceable.
In view of the new pay secrecy laws, we recommend employers:
- review and consider updating their employment contracts (particularly for new employees) to reflect these changes before 7 June 2023;
- implement new (or review and update existing) policies and procedures for raising enquiries and complaints about pay and to ensure protection of employees who do not want to share information; and
- assess any gaps in their employees’ remuneration levels and ensure these are based on merit and not protected characteristics such as age, race, gender, etc.
Fixed term contracts
Fixed term contracts are generally used to employ staff for a specific project/task or period of time. However, there have been examples of a small number of employers using fixed term contracts to avoid statutory obligations, e.g. long service leave entitlements, redundancy pay, notice payments upon termination, etc. As a result, during the last Federal Election, the elimination of fixed term contracts came under the spotlight as a means to bolster job security and strengthen employees’ rights.
While the amending Act provides a number of exceptions, fixed term contracts spanning a period of more than two years will be prohibited. Employers will also be prohibited from using consecutive contracts with substantial continuity for the same or substantially similar work where the total period is more than two years (or the contract contains an option for renewal or extension).
These changes mean that, outside of the limited exceptions, any term of an employment contract which provides for:
- termination at the end of a period of greater than 2 years; or
- renewal options such that the employee is employed for more than 2 years, will be unenforceable.
The new provisions will not apply to contracts relating to:
- the performance of a distinct and identifiable task involving specialised skills;
- projects funded by government grants (but only if the funding is payable for a period of more than 2 years and there are no reasonable prospects that the funding will be renewed);
- employees engaged to:
- undertake essential work during a peak demand period; or
- undertake work during emergency circumstances or during a temporary absence of another employee.
- an amount payable to the employee which is above the high-income threshold for the relevant year (currently $162,000 from 1 July 2022);
- governance positions that have a time limit under the governing rules of a corporation or association of persons; and
- training arrangements
- any circumstances permitted by:
- a modern award; or
- the Fair Work Regulations.
These exceptions are more complicated than they appear at first glance.
While employers could previously rely on the end of a fixed term contract to assert that they did not dismiss an employee, this will no longer be the case. Employees who are dismissed at the end of a fixed term contract of greater than 2 years will be eligible to make an application for unfair dismissal (subject to other relevant criteria) and could seek reinstatement and/or compensation.
The amending Act contains “anti-avoidance” provisions designed to catch employers who attempt to get around the new prohibitions on fixed term contracts, for example using a number of short fixed term contracts and/or delaying re-engagement of employees.
The amending Act will require employers to provide employees with a Fixed Term Contract Information Statement – similar to the existing requirement to provide all new employees with a Fair Work Information Statement. Failure to provide fixed term employees with this document will result in a breach of the Act and may result in pecuniary penalties.
At this stage, it appears these changes will commence from 6 December 2023, unless brought forward earlier by proclamation.
We recommend employers:
- reconsider the use of fixed-term contracts and give serious consideration to the new requirements before entering into such arrangements
- consider other potential options such as casual employees, labour hire workers and sub-contractors to perform work previously performed under fixed-term contracts; and
- seek legal advice sooner rather than later, particularly if one of the exceptions could apply to your business – ignorance is not bliss, particularly under the law.
Summary
These changes are significant and will require all national system employers to ensure their workplace contracts, policies and procedures are up to date and in line with the new laws.
If you have any questions regarding your obligations as an employer in relation to the changes, please contact our Employment & Workplace Law team on 8414 3400 or [email protected].