Pay secrecy policies need close scrutiny as the Equality Act 2010 comes into force

But despite the publicity, employees will continue to experience restrictions in relation to pay secrecy in the new Equality Act 2010. The main provisions of the Act are expected to come into force in October 2010, and the Act contains two core measures aimed at addressing gender pay imbalances by increasing pay transparency:

The Act makes pay secrecy clauses unenforceable in certain situations; and

It contains a power for the Government to require organisations with 250 or more employees to publish information indicating whether there is a gender pay gap

These provisions are not as alarming for employers as they may initially appear. First, the Government has committed not to use its power regarding forced publication until 2013 with respect to private employers, and only then if sufficient progress has not been made in the intervening years.

Second, the Equality Act does not prohibit pay secrecy clauses. Instead, the Act makes them 'unenforceable' against employees who make or solicit a ’relevant pay disclosure‘. In essence, a ’relevant pay disclosure‘ exists when the disclosure is made or solicited with the intention of uncovering inequality in the pay scale driven by protected characteristics, such as race or gender

When employees are asked to describe their ideal work environment, they frequently cite a need to feel valued and a desire to be treated fairly. At the heart of this legislation sits the notion of fairness and equitable reward for same or similar work. In the workplace, information is power, and while employers may derive a number of benefits from having transparent salary and bonus schemes in place, such as motivation for junior employees to work more aggressively towards promotions, most employers will find it difficult to manage a workplace where many of the employees’ pay details are common knowledge.

In the current economic climate, many employers have stopped bonuses and/or instituted pay freezes alongside redundancy programmes in a bid to make their  organisation as lean as possible. However, it is difficult to balance this need for efficiency with a need to retain the best performing employees who confer a competitive advantage during the recovery. Many employers have negotiated quite lucrative packages with key employees they wish to retain. If this information were to become readily available within the workplace, many other employees will feel unjustly treated and de-motivated and may demand that their pay be equalised. 

Disclosure of pay details will also allow employees to question the general level of pay or bonuses relative to the broader employment market, generating additional challenges around retention. Against the internal market, employers may find it difficult to justify disproportionate payments to those employees at the top levels of the organisation and become pulled into a spiral of general pay increases or bonus payments to the broader pool of employees. Alternatively, this information may create significant downward pressure on the salaries and bonuses of top-tier employees.

Those employees who have not voluntarily disclosed pay details but find those details effectively disclosed due to disclosure by an employee at a comparative level/grade, may feel there has been an unwarranted invasion of their privacy.

Although, the unenforceability of pay secrecy clauses should be limited to situations where employees are seeking to ascertain whether there is any unjustified pay discrimination, the reality is that the boundaries are not clear. If a female employee discloses her salary details to a male employee in breach of a pay secrecy clause, an employer will have to think carefully before disciplining that employee, even where it is suspected that the motive for disclosure is not discrimination related.  The reason for this is that seeking disclosure that would be a relevant pay disclosure, making or seeking a relevant pay disclosure, or receiving a relevant disclosure will all be protected acts for the purposes of victimisation.

Greater transparency may lead to an increase in equal pay litigation. It is advisable that employers take steps to prevent liability for pay discrimination claims. These steps can include:

(i) ensuring part-time employees are paid a proportional salary (as women are more likely to work part-time than men)

(ii)  ensuring all remuneration policies are properly documented and include the full range of factors to be considered when making compensation decisions

(iii) ensuring that all remuneration decisions are properly documented and include the reasons for an individual’s increase in pay/bonus levels

(iv) undertaking regular pay structure reviews to determine whether pay decisions have an adverse impact on a protected category of employees

Prior to the Act coming into force, employers may also wish to take the proactive steps of revising and/or removing pay secrecy clauses and assessing whether and/how gender pay gap information should be published. Undertaking these type of steps now may avoid the need to make delicate decisions in a pressurised situation once the Act comes into force. While silence is golden, litigation is costly.