The legal considerations you need to know when your employees request a pay rise

Much has been made of a recent increase of the cost of living in Australia which has been matched with flat wage growth. This was further highlighted with a recent interest rate rise from historic low levels and talk during the election campaign regarding the potential for wage growth to match inflation.

While many employees are paid pursuant to an enterprise agreement or in accordance with minimum award rates and rely on collective bargaining for an increase in salary, there are also many employees on individual contracts with the ability to negotiate remuneration on an individual basis.

In these circumstances employers may experience an increase in requests for increases in remuneration, and, while there are no clear laws which govern pay rises, there are important legal considerations.

The starting point for employers is that no employee is entitled to a pay rise (except for those written into awards or enterprise agreements or individual contracts). If an employee is receiving their contracted salary the employer is under no obligation to consider a pay rise, no matter how well an employee is performing. This is true even if the employee has a contractual right to a salary review because a review does not necessarily result in an increase.

While there is no right to a pay rise, employers should be careful not to act negatively to a reasonable request for an increase in remuneration. If an employee does not have a right to a pay rise, it follows that seeking a raise is not an exercise of a workplace and therefore the employee is not protected from adverse action under the Fair Work Act 2009 (Cth).

However, a request could be considered an employment inquiry, which does result in protection from discrimination, or may be related to a genuine complaint which also cannot lawfully result in negative consequences.

While protections from adverse action may be a little unclear, what is clear is that if an employee was dismissed for seeking a pay rise then that will likely not be a valid reason for dismissal — meaning the dismissal is likely an unfair dismissal (absent, of course, any other circumstances, such as misconduct in the manner in which the request was made).

Accordingly, while the pay rise can be refused the employer should take no further action against an employee for making the request.

Further, it is also important to consider gender equality and other discriminatory factors. While employers are entitled to reward requests for better remuneration with an increase in pay, it is important to ensure there is not a resulting disparity in pay for a particular class of persons, especially if that class is generally less likely to make such a request.

While there are legal considerations, employers also have organisational consideration to take into account. Discrimination aside, employers should endeavour for some sort of standardised remuneration for similar work to limit dissatisfaction. This should be balanced with the consideration of a particular employee, as inherent in any request for an increase in pay is an assumption that an employee will be dissatisfied if the request is not granted and is more likely to leave the organisation voluntarily.

And of course, all of this must be balanced with the financial position of the business which may also be impacted by inflation in costs, although the cost of losing good employees may be greater.

So while every employee with an individual contract can seek a pay rise there is no inherent right to an increase in pay, and — while dismissal would not be a fair outcome to such a request — employers should be careful in how they respond to any request and how they balance their considerations.