UK: Tribunal ruling limits use of market forces as defence to equal pay claims

Employers who set pay for different but comparable roles by benchmarking against market rates may struggle to defend equal pay claims where the roles are largely gender-segregated.

A recent tribunal case involved an equal pay claim brought by retail sales consultants (who were 77.5% female), comparing their pay with warehouse operatives (53% male) whose roles were determined to be of equal value.  The employer had benchmarked pay against the wider market of warehouse operatives, which was much more male-dominated than its own warehouse staff.  The tribunal held that these statistics were sufficient to establish a disproportionate adverse impact on women, meaning that the burden shifted to the employer to establish a material factor defence not tainted by sex discrimination. 

The employer sought to justify the differential in basic pay by reference to the need to recruit and retain warehouse staff and ensure the viability, resilience and successful performance of its business.  The tribunal rejected this defence, finding that the employer's aim in essence was to keep labour costs to a minimum (when it could have afforded to pay retail staff more too).  Previous caselaw has made clear that costs alone cannot be a legitimate aim.  The tribunal recognised that certain work types dominated by women have historically been undervalued and to allow market forces to be a trump card in such cases would defeat the purpose of equal pay legislation and allow lower pay to continue in perpetuity.

In contrast, the employer was able to justify restricting to warehouse staff certain targeted and temporary payments aimed at a specific warehouse need (not applicable to retail).  These included incentives to return early from furlough because there were insufficient volunteers, paying extra during a retention crisis arising from an aggressive local competitor, and certain other productivity bonuses and public holiday and unsocial hours premiums.

The decision is only at first instance and the employer is planning to appeal.  However, the ruling is a warning for employers that set pay by reference to the going market rate for roles to consider whether there could be similar latent claims in their own workforce.  Tribunals will examine whether underlying markets may themselves be tainted by historical discrimination, including outdated perceptions of what is or has been "women's work" or "men's work".  Targeted and time-limited pay enhancement is likely to be easier to justify than a difference in basic pay between roles of equal value.  Employers may still be able to justify paying a specific key individual or group a higher, market rate in order to recruit them, but should also consider red-circling their pay to bring it into line over time, as the differential may not remain justified. 

The current focus on pay is likely to be ongoing, in particular given the Labour Government's proposals to extend large employers' pay gap reporting obligations along with the forthcoming implementation of the EU Pay Transparency Directive and ESRS reporting.  It will be prudent for employers to keep a close eye on their pay structures.

(Thandi v Next Retail Ltd)