Pay equity is firmly on the agenda for many organisations and for good reason. But as pressure builds to act quickly, it’s important to remember that not all solutions are risk-free.
A recent case has highlighted just how tricky this space can be. An organisation attempted to fix a gender pay gap by reducing the salaries of several male employees by around $10,000. While the intention was to create fairness, the approach backfired. The affected employees took legal action, arguing their pay had been cut without agreement and that their employment conditions had effectively been changed without consent.
The Fair Work Commission agreed that the employer had overstepped. Reducing pay without agreement was found to breach the employment contract, opening the door for claims like unlawful termination and discrimination.
Why this matters
Closing gender pay gaps is important and increasingly expected but how you do it matters just as much as the outcome.
At the heart of the issue is a simple principle: salary is a core part of an employment contract. Employers generally can’t reduce someone’s pay without their agreement, no matter the reason. Even well-intentioned decisions can create serious legal risk if they override this.
In this case, the pay gap wasn’t created deliberately. It stemmed from older employees being hired under different conditions and keeping higher classifications, while newer hires (who happened to be women) came in on lower rates. Over time, that created a gap but fixing it by cutting existing salaries wasn’t a lawful solution.
So, when can pay be reduced?
There are only a few situations where reducing pay may be lawful:
1.With genuine employee agreement
The most common (and safest) option is agreement. This means a proper conversation, full transparency, and no pressure. Employees need to clearly understand what’s being proposed and willingly accept it ideally documented in writing.
2. At the end of a fixed-term contract
If someone is on a fixed-term contract, a new contract can be offered at a different rate when the current one ends. The employee can choose whether to accept it.
3. In very specific frameworks (like some public sector roles)
In limited cases, certain industrial instruments allow for demotion with reduced pay but this is rare and tightly controlled.
What doesn’t make it okay
It’s just as important to know what doesn’t justify a pay cut:
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Financial pressure alone isn’t enough – even if a business is struggling, pay can’t be reduced without agreement.
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Changing job titles or removing allowances won’t avoid the issue – these are still considered core parts of pay and can’t be changed unilaterally.
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Using pay cuts as a disciplinary tool – this is almost always unlawful outside very specific circumstances.
The gender pay gap challenge
This case highlights a real dilemma many organisations face on how to fix pay gaps quickly without creating new risks.
The safest approach is usually to bring lower-paid employees up, rather than reducing others. While this isn’t always easy from a budget perspective, it avoids breaching contracts and damaging trust.
Another option is to link pay increases to development and progression supporting employees to move into higher-paid roles over time.
Key takeaway
The big lesson here isn’t to avoid addressing pay equity it’s to approach it carefully.
Quick fixes can create bigger problems if they ignore legal obligations. A thoughtful, well-planned approach not only reduces risk but also helps maintain trust, culture and credibility with your team.