Equal Pay and The Equality Act 2010

Laura Prince and Andrew Smith

1955, London

Equal Pay Act 1970

Aim: An Act to prevent discrimination, as regards terms and conditions of

employment, between men and women

Came into force 1975

Has it achieved its aim?

2007, London

• In 2010 the gender pay difference based on the mean for all employees was 19.3% (19.8% in the private sector);

• For the tax year ending 5 April 2010 the median gross annual earnings for men were £28,100 and for full-time women were £22,500;

• The EHRC inquiry found a 55% pay gap in financial services industry;

• The Chartered Management Institute found that at the current rate, women managers will not be paid the same as men until 2067.

The Statistics; Pay Gap

The number of equal pay claims

• In 2007-2008, 62,706 equal pay claims were accepted by the Tribunal (this exceeded the number of claims for all other areas – including unfair dismissal)

• In 2008-2009, a further 45,748 equal pay claims were received by the Tribunal

• In 2009-2010 a further 37,400 equal pay claims were issued

• These figures only show the number of claims issued, rather than the number of claims currently in the Tribunal system. I have calculated that, as at the end of 2009, there were approximately 161,277 equal pay claims ongoing in the tribunal system

Equal Pay Claims; problems

• Equal pay claims are complex and lengthy: – The Armstrong case has been ongoing for over 10 years and

not a single claimant has given evidence;– An Article 6 Challenge has been raised in the Cardiff

Employment Tribunal;

• Equal pay claims are frequently appealed. Since January 2007 there have been 51 appeals to the EAT in multiple local government and NHS equal pay matters. There have been 12 appeals to the Court of Appeal and 2 to the House of Lords/ Supreme Court

• Equal pay claims are very expensive. A freedom of information request from Unison revealed that (in a survey covering 50 local authorities) £11.5 million had been spent defending equal pay claims. This did not include in-house legal costs

Part 5, Chapter 3 (sections 64-80- mostly replicate existing system)

• S. 65 – Equal work (“like work”, “work rated as equivalent” and “work of equal value”) • S. 66 – sex equality clause • S. 69 – material factor defence• S. 70 – exclusion of sex discrimination provisions• S. 71 – hypothetical comparators• S.73 – maternity equality clause• S.77 – pay secrecy clauses• S.78 – gender pay gap information• S.79 – comparators• S.129 – time limits

The Equality Act, Equal Pay: Key Provisions

Equal Pay Claims: 5 Stages

1. Claimant must identify a comparator employed “in the same employment” , who carries out “equal work”, yet enjoys more favourable terms of employment. This creates a rebuttable presumption of sex discrimination.

2. The burden shifts to the employer to explain the difference by showing that the variation in terms is due to a (genuine) material factor which is not the difference of sex.

3. The Claimant may argue that the (apparently) ‘gender neutral’ material factor operates in a discriminatory way or has a discriminatory impact.

Equal Pay Claims: 5 Stages

4. Controversially, if stages 2 and 3 are satisfied, the employer has a further opportunity to prove that the adverse impact is not the result of direct or indirect sex discrimination (i.e. that the pay differential is not “tainted by sex”).

5. If the employer is unable to do this, it is required to objectively justify the difference in terms.

Stage 1: Comparators (s.71)

• Actual comparator required in all cases except challenges to national legislation and those which fall within s.71

• S.71 provides that where the claimant is not able to identify an actual comparator and the complaint is one of direct sex discrimination or discrimination on grounds of dual characteristics including sex, the claim may be brought under the equal treatment provisions and a hypothetical comparator may be relied on

• In what situations will this apply?

Stage 1: Comparators (s.71)

• Only one example given in code of practice:“A woman’s employer tells her that she would be paid more if she were a man” (paragraph 61 Code of Practice)

• But possibly could allow claims in the following circumstances:-

– Using a successor as a comparator (which previously had not been possible – Walton Centre v Bewley [2008] ICR 1041)

– Using a comparator employed on work of greater value (but arguing the pay differential is too high)

– Using a comparator employed on work of lower value (but arguing the pay differential is too low)

– Using a comparator in circumstances where the “same employment” test is not satisfied

Stage 1: Same Employment

• Under s.1(6) EPA employed “in the same employment” meant that the Claimant and her comparator were:-

– Employed at the “same establishment”;– Employed at different establishments but that common

terms and conditions of employment were “observed either generally or for employees of the relevant classes”

• For the meaning of the “same establishment” see City of Edinburgh City Council v Wilkinson [2010] IRLR 756 where the EAT held that the council was a single establishment. The Council has appealed against this decision. The appeal was heard in June and the Judgment is was expected to be given in October, but has not yet been handed down.

Stage 1: Same Employment

• For a discussion of what amounts to “common terms and conditions” see North and others v Dumfries and Galloway Council [2011] IRLR 239; The Court of Session held that there was no need for there to be a “real possibility” of the comparator being employed at same establishment as the Claimant but that the Claimant needed to show that if the comparator were employed at the Claimant’s establishment, he would be on like terms and conditions.

• S.79 EqA refers to common terms “generally or as between A and B” as opposed to “generally or for employees of the relevant classes”. This may mean the Claimants protection is narrower under EqA than it was under EPA.

Stage 1: Same Employment

• If a Claimant does not succeed under domestic legislation they can rely on the directly applicable right to Equal Pay in Article 157 TEU;

• The issue under A.157 is whether any pay differential can be attributed to a “single source” (that there is a single body responsible for the inequality and that body has the power to restore equal treatment)

• The EAT recently considered this issue in Beddoes v Birmingham City Council UKEAT/0037/10. The EAT held that the fact that the Claimants’ terms and conditions were set by school governors (who were not the employers) did not defeat an argument that the Claimants were under a single source of terms and conditions with other Council staff.

Stage 1: Term-by-term analysis

• S. 1 (2) (c) EPA: equality clause applies if “...any term of the woman’s contract...is or becomes less favourable to the woman...”

• Hayward v Cammell Laird Shipbuilders Ltd [1988] ICR 464

- H of L rejected the employer’s argument that less favourable terms in the claimant’s contract were counterbalanced by other, more favourable, terms

Stage 1: Term-by-term analysis

• Cf. Degnan v Redcar & Cleveland Borough Council [2005] IRLR 615 - CA held that:

(i) basic pay, an attendance allowance and a bonus payment were all part of the “same subject matter” of the employment contract;

(ii) all three forms of payment should be considered as part of the same term of the contract – remuneration; and

(iii) the three elements should be aggregated to produce an hourly rate of pay for comparative purposes – i.e. no “cherry picking” was allowed

Stage 1: Term-by-term analysis

• Brownbill v St Helens & Knowsley Hospital NHS Trust [2011] IRLR 128

- The EAT held that the tribunal erred in comparing the overall remuneration of claimants and comparators

- Domestic and European authority is clear that each individual contractual term should be compared in order to ensure effective redress

- The CA’s decision in Degnan & others turned on its own facts and did not set down any general rule that a broader, overall approach should be taken to the comparison of remuneration terms

Stage 1: Term-by-term analysis

• The “particular facts” of Degnan included:

(a) the Claimants’ concession (which could not be disturbed) that the fixed bonus was part of basic pay; and

(b) the ET’s finding that the attendance allowance was a benefit paid merely for turning up to work, and was therefore part of the basic pay received for doing simply what was contractually required

Stage 1: Term-by-term analysis

• By contrast, Brownbill concerned:

“...contractual terms providing for the payment of enhanced rates contingent upon work being done at unsocial times, which were found expressly to be distinct terms of the contract with sufficient content to make it possible to compare them with those of the comparators, so that the benefits conferred could be contrasted...”

(per Mrs Justice Cox)

Stage 1: Term-by-term analysis

• CA upheld the decision of the EAT

• The meaning of the word “term” in this context is a distinct provision or part of the contract which has sufficient content to make it possible to compare it from the point of view of the benefits it confers with similar provision or part in another contract

• This approach is necessary in order to achieve genuine transparency in pay arrangements

• Not affected by the possibility of “mutual enhancement” or “leapfrogging”

Stage 2: Material factor defence - s.69 EqA

(1) The sex equality clause in A’s terms has no effect in relation to a difference between A’s terms and B’s terms if the responsible person shows that the difference is because of a material factor reliance on which-

(a) does not involve treating A less favourably because of A’s sex than the responsible person treats B, and

(a) if the factor is within subsection (2), is a proportionate means of achieving a legitimate aim

(2) A factor is within this subsection if A shows that, as a result of the factor, A and persons of the same sex doing work equal to A’s are put at a particular disadvantage when compared with persons of the opposite sex doing work equal to A’s.

Stage 3: disparate impact?

• Detailed statistical evidence

• Use of statutory questionnaires

• EqA – Equality of Terms questionnaire

Stage 4: Disproving discriminatory impact

• In Gibson and others v Sheffield City Council [2010] IRLR 311 the Court of Appeal held that the Armstrong case was correctly decided, but that the ET had been perverse to find, on the statistics before it, that the adverse impact was not the result of sex discrimination

• The evidence conclusively established that the pay differential (between the male gardeners / street cleaners and the female carers) was “tainted by sex” – there was strong evidence of historical stereotyping

Stage 4: Disproving discriminatory impact

• As a matter of practical reality:

“...where the statistics show that the pay practice has produced an adverse impact on women over a long period and where the statistics are convincing, it will generally be difficult for an employer to show that the adverse impact had nothing to do with sex.” (per Lady Justice Smith at paragraph 71)

• The Council was granted permission to appeal by the SC, but the case was settled in September 2011

• S.69 EqA arguably overrules Gibson and Armstrong (See ILJ Vol. 39, No. 3, September 2010, pp. 264 – 274; per Iain Steele)

Stage 5: objective justification

Bury MBC v Hamilton [2011] UKEAT/413-5/09; and

City of Sunderland v Brennan [2011] UKEAT/241/09

• 2 joined appeals heard by the EAT (Underhill P)

• Showing that the bonus schemes were non-discriminatory when first introduced did not establish that the pay differential was due to a non-discriminatory factor in the period to which the claims related

• The necessary causative link between the GMF (enhanced productivity) and the bonus payments no longer existed – therefore the employers’ s. 1 (3) defence failed

Objective justification cont.

• The Audit Commission v Haq [2011] UKEAT 0123/10/1803

- Protecting the pay of employees affected by a re-structuring is in principle a legitimate aim and is justified, provided the policy is a proportionate means of achieving that aim.

“...It is essential to appreciate that we are not here concerned with a situation such as that in the local authority bonus case...where the payments which it was sought to protect had been discriminatorily withheld from claimants. In cases of that kind, while the legitimacy of giving pay protection to the comparators is not in doubt, the real question is how it can be justified not to give it to the claimants as well. Typically the only available answer to employers in a case of that kind is that immediate equalisation is unaffordable. But here there is nothing discriminatory about the differential which the Commission seeks to protect...”

(per Underhill P)

Pay Secrecy – s. 77 EqA

• Gagging clauses

• Unenforceable against employees seeking or making a “relevant pay disclosure”

• Will be a RPD “if made for the purpose of enabling the person who makes it, or the person to whom it is made, to find out whether or to what extent there is, in relation to the work in question, a connection between pay and having (or not having) a particular protected characteristic” (s. 77 (3))

• No obligation on employee to disclose data to colleague

Pay Secrecy

• S.78 of the Act confers a regulation making power to require employers to “publish information relating to the pay of employees, for the purpose of showing whether by reference to factors of such description as is prescribed, there are difference in the pay of male and female employees.”

• Only applies to private sector employers with 250 employees or more

• Outgoing government did not intend to enact any such regulations before 2013 – coalition government may never do so

• Inadequate in any event – a long way from the equal pay audits which campaigners sought

Equal Pay in the ET or Civil Courts?

• Time limits:

- ET = 6 months from termination of employment or TUPE transfer

- Civil courts = 6 years

• In what circumstances will a claimant(s) be entitled to the benefit of the more favourable limitation period applicable to breach of contract claims?

Equal Pay in the ET or Civil Courts?

• Abdulla & Others v Birmingham City Council [2010] EWHC 3303 (QB)

- Ms A and 173 other former employees of BCC brought claims in the county court, upon discovering that some of their former colleagues had succeeded in equal pay claims against the Council

- All of the claims were outside the 6 month ET limitation period

- R sought a strike out of Cs’ claims

- The High Court refused R’s application

ET or Civil Courts cont.

• “I do not consider it to be consistent either with the meaning conveyed by the language or by the context in which the language appears that it could be regarded as more convenient for a claim to be disposed of by an Employment Tribunal in circumstances where it is known to the Court that the Tribunal would have to decline jurisdiction to deal with the claim on the basis that it is out of time pursuant to Section 2(4).”

(per Colin Edelman QC, sitting as a Deputy Judge of the QBD)

ET or Civil Courts cont.

• Ashby & others v Birmingham City Council [2010] EWHC 424 (QB)

- 2 stage test to be applied:

(i) Could the claim(s) more conveniently be disposed of separately by an employment tribunal?

(ii) If yes, should the court exercise its discretion to strike out the civil claim(s)?

ET or Civil Courts cont.

• The mere fact that the ET would refuse to hear the claim does not prevent a judge from deciding that the claim “could more conveniently be disposed of separately” by an ET.

• There is a “need to do practical justice”

• Forum non conveniens principle provides useful guidance

• “The court will consider whether the Employment Tribunal is the more appropriate forum for the claim to be tried. In other words would the claim be tried more suitably in the Employment Tribunal in the interests of the parties and the ends of justice.” (per Slade J)

ET or Civil Courts cont.

• The reason(s) for not commencing the claim in the ET must be taken into account.

• If it was “reasonable” not to present the claim in the tribunal, the interests of justice are likely to be served by permitting the claim to be litigated in the civil courts.

• “Just and equitable” case law (re: extensions of time) likely to be relevant

• Permission to appeal to the Court of Appeal given in the Abdulla case on 18th May 2011

• Procedural issues: detailed equal pay procedure under the ET rules likely to be applied by analogy?

Bonuses

• Equal pay or sex discrimination?

• Lewen v Denda C-333/97 [2000] ICR 648 ECJ

- Christmas bonus paid to staff as an incentive for future work and/or loyalty to the firm was “pay” for the purposes of Art. 157 EC Treaty

• Hoyland v Asda Stores Ltd [2005] ICR 1235

- Court of Session: bonus payment was “regulated by” the claimant’s contract of employment , and her claim was thereby excluded from the scope of SDA 1975 (s. 6 (6) SDA)

Bonuses cont.• Hosso v European Credit Management Ltd

(UKEAT/0475/09/CEA)

- EAT held that receipt of shares under a company share option was not covered by the EPA 1970; the claim should have been made under the SDA instead

- The scheme was “genuinely discretionary as to the number of shares; if any, which the relevant director decided to allocate to her in any one year...”

- Hoyland v Asda distinguished – in that case, there was a clear entitlement to a fixed amount by way of bonus for all eligible employees

Bonuses cont.

• EqA 2010 – ss. 66 (sex equality clause) and 71 (sex discrimination in relation to contractual pay)

• S. 66: “terms of work” – may include:

- Membership of employer’s bonus scheme

- Eligibility criteria

- Factors for assessment / applicable bonus formula(e)

• Where R’s discretion is exercised in a discriminatory manner – likely to be SD claim (ss. 13 and 14 EqA); rather than equality of terms

What the Equality Act could have done

• Appointment of a “single judge”.

• Hypothetical comparators in equal pay claims (not just sex discrimination).

• Transparency (see Sweden and Quebec) – positive onus on employers to review and monitor pay processes and rectify gender pay gap instead of an individual complaints led approach to identifying inequality.