Creating a fairer Britain
This guidance note provides advice for employers and employees on the kind of discussions employees can have with colleagues and others about differences in their salaries or rates of pay and other employment terms. Such guidance is needed because of a small but important change in the law which makes a pay secrecy clause unenforceable when the discussion relates to equal pay. The law also now enables employees to bring a claim of victimisation if they have been disciplined, dismissed, or otherwise had action taken against them for discussing possible discrimination in their pay.
A secrecy or confidentiality clause, sometimes called a ‘gagging clause’, is a clause in an employee’s contract of employment which prohibits the employee from disclosing to colleagues what they are paid. The new provision is also relevant to organisations which while not contractually forbidding employees from talking about pay, nonetheless have a culture which actively discourages people from talking to colleagues about what they earn.
We explain why the change is necessary and what the relevant legal provisions mean in practice. We use examples to show what the practical effect of the provisions might be.
Research carried out for the Commission in 2009 found that 18% of a sample of 900 employers in the private and voluntary sectors employing at least 250 employees discourage or forbid discussions between colleagues about pay. As there are only around 6,900 organisations of this size and as such secrecy is not generally a feature of voluntary organisations, 18% represents well over a thousand private sector companies. Moreover, this shows little improvement on the figure of 20% that research for the former Equal Opportunities Commission revealed over 10 years ago, suggesting that such secrecy is well-entrenched in certain organisational cultures.
Openness about pay is one of the factors known to be associated with a narrowing of the gender pay gap so such secrecy matters. There is a correlation between transparency – making visible the impact on male/female earnings differentials of the ways in which an organisation sets rates of pay – and a lower gender pay gap. The gender pay gap in the public sector, where generally speaking, pay is more transparent, is 11.6% as compared to a private sector gap of 20.8%.
Pay secrecy can mask discrimination. On a very basic level, how does a woman know she is getting equal pay for equal work if she does not know and is forbidden or actively discouraged from finding out what male colleagues earn?
The equal pay questionnaire and disclosure via the Employment Tribunal already provide employees with formal routes for finding out about the earnings of colleagues considered to be doing equal work. Enabling informal questions to be asked by protecting employees from adverse consequences when they discuss pay with colleagues is an important step forward and is one of the ways in which the government has chosen to encourage greater transparency and more open dialogue about pay.
The Equality Act 2010 provides that an employer cannot prevent their employees from making a ‘relevant pay disclosure’ to anyone, and cannot prevent employees from seeking such a disclosure from a colleague, including a former colleague. A relevant pay disclosure is one that is made (or sought) for the purpose of finding out whether or to what extent there is unlawful pay discrimination. It is not limited to discrimination on grounds of sex. The Code of Practice on Equal Pay between women and men provides further information about the law (see paras 103 – 110).
The law does not ban secrecy clauses and if you are an employer you will still be able to prohibit your employees from disclosing their pay, or seeking information about a colleague’s pay, as long as their discussions do not relate to possible pay discrimination. For example, if employees are just boasting about their pay increases, or complaining about disappointing pay increases, and are in breach of a pay secrecy clause you will still be able to enforce it against them.
However, where such disclosure is made or sought in the context of equal pay discussions, or the investigation of possible discrimination in pay, you cannot enforce the secrecy clause and must not treat the employees involved badly or they can claim victimisation. As now, you will also not be able to prevent such disclosure to an employee’s solicitor or other legal representative, or to the Employment Tribunal.
If you do attempt to enforce a secrecy clause, or to discipline or otherwise take action against people for discussing their pay in the context of possible discrimination, then the people against whom you have taken action will be able to bring a claim of victimisation to the Employment Tribunal. If their claim is successful then the Tribunal can award them unlimited damages.
Mr A is a chemist employed by a pharmaceutical company. His contract of employment forbids him discussing his salary either with colleagues or with people from outside of the company. Mr A is thinking about going to work for a rival company and when he meets the rival company’s HR Director at the golf club he asks about possible opportunities and tells the HR Director what he is currently earning. Their conversation is overheard by one of Mr A’s colleagues who mentions it to the Managing Director. The Managing Director takes disciplinary action against Mr A for having breached a clause in his contract of employment. Mr A cannot claim victimisation because he was not making a 'relevant pay disclosure'.
Mr B works in the City. His contract of employment stipulates that disclosing his salary to colleagues amounts to a disciplinary offence. Mr B tells a female colleague, Ms C, about the size of the bonus he is expecting because she asks him for the information in relation to her own pay negotiations. A few weeks later when the bonuses have been paid Ms C files a claim for equal pay against their employer. The employer dismisses Mr B for having told Ms C about his bonus payment in breach of the pay secrecy clause in his contract.
Because this was a 'relevant pay disclosure' it was a protected act and so Mr B can claim victimisation.
If you are an employee your contract of employment can still contain a secrecy clause and you will only be protected against enforcement action by your employer, if your pay discussions relate to possible discrimination.
Mr D works for a law firm. His contract of employment stipulates that disclosing his salary to colleagues amounts to a disciplinary offence. Mr D disagrees with this policy of pay secrecy and talks openly about his earnings to his female colleagues, whom he suspects earn less than he does. The senior partner does not like the situation but takes no action against Mr D. Mr D is therefore unable to make a legal challenge to the clause in his employment contract.
Even if there is a confidentiality clause in your contract or your employer actively discourages employees from discussing pay with colleagues, you will be able to talk about pay with impunity provided that what you are doing falls within the definition of a ‘relevant pay disclosure’ as explained above.
Mrs F works for a small retail chain of seven fashion shops. Her pay is made up of basic pay plus commission on each item of clothing that she sells. The manageress of the shop where she works informs every new employee that they must not tell colleagues how much commission they earn as this would breach company policy. Mrs F has a male colleague whom she thinks may be earning a higher rate of commission than she is, and during her tea break she tells him what she earns and asks if he is getting the same. In fact he gets the same rate of commission as she does, but the manageress overhears the conversation and docks Mrs F’s commission for a month . Mrs F successfully claims victimisation.
Ms G works for a clothing manufacturer. She asks her union representative to find out how much male colleagues in the cutting room are paid as she thinks she is doing work of equal value to them. The men belong to a different trade union but Ms G’s representative asks his opposite number what the men are paid. The factory manager is unable to prevent this discussion taking place because he knows that if he were to attempt to do so Ms G and both union reps could claim victimisation as participating in a ‘relevant pay disclosure’ is a protected act. Disclosures made to a trade union representative, or to anyone else, are protected as long as the purpose is to find out whether there may be unlawful pay discrimination.
If you are not sure how this new provision applies to you or your organisation you can contact our helpline or obtain independent legal advice.