But defining what’s ‘fair’ is complex. Employees are not just thinking about how well they are managed and what they get paid for their efforts, but also about how their pay compares with others. For employers, getting this wrong might not only result in poor performance or recruitment and retention issues, but it can also have legal implications. For instance, public sector employers have faced bankruptcy from years of accumulated equal pay liability. In the private sector, this is also something many big British retailers will be wary of as they face equal pay claims. Clothing retailer Next has had its day in court, and Asda is also now in the spotlight. Over the coming months, we would expect to see more retailers in the dock.
It’s important to state at the outset that these legal cases are complex and expensive. It’s not easy to predict whether the employers or the employees would win the argument, and employers should take steps to mitigate the risk of equal pay claims.
But what is equal pay?
Equal pay legislation
The unfair treatment of female workers resulted in the Equal Pay Act 1970, prompted in part by the Ford sewing machinists strike of 1968 at their Essex plant, a dispute that subsequently inspired both a film and a musical: Made in Dagenham.
The Equal Pay Act 1970 - which is now part of the Equality Act 2010 that applies in Great Britain (Northern Ireland has its own provisions) - outlaws any less favourable treatment between men and women when it comes to pay and conditions of employment.
The law gives a woman the right to the same pay as a man (and vice versa) when carrying out:
- like work – two employees who are doing the same or similar roles, or
- work rated as equivalent by an analytical job evaluation study – an analytical job evaluation scheme giving the same rating to totally different jobs, or
- work of equal value – when there are two very different jobs, but an employee claims they are similar in terms of: the demands made on them, training and skills, the conditions of work, and the decision-making aspects of the role. Equal pay for work of equal value has its own awareness day.
Race and other protected characteristics
The equal pay provisions set out above do not apply where the pay disparity is attributed to protected characteristics other than sex. Therefore, if employees are paid less due to their ethnicity, disability, race, religion, or another protected characteristic, they would have to bring a direct discrimination claim under the Equality Act. Discrimination claims (as opposed to equal pay claims) have shorter time limits. The main time limit for discrimination claims is 3 months from the last act complained of, whereas the time limit for equal pay claims is generally 6 months from the last day of the employment.
The Labour Government will extend the right to make equal pay claims to black, Asian and minority ethnic and disabled workers as part of its Equality (Race and Disability) Bill. The draft legislation also tackles inequality for ethnic minority and disabled people by requiring employers with 250 employees or more to disclose ethnicity and disability pay gaps.
Dual discrimination claims will also be introduced to enable one claim based on two protected characteristics, such as sex and race.
Cases in the spotlight
The legal cases in the spotlight are about retail shop floor staff, who are usually female, being paid less than warehouse staff, who are usually male.
So far, the courts have favoured the claimants, allowing female retail workers to compare their pay with male depot workers, subject to establishing the work was of equal value, and whether paying different rates for them was justifiable.
In the Next case, although those working on the shop floor and those working in the warehouse are doing different jobs, those jobs had been classed by a previous employment tribunal (ET) as being ‘equal work’.
An employer can pay its male workers more than its female workers (and vice versa) for doing work of equal value, but only if it can prove that the pay difference is due to a material factor that isn’t directly or indirectly discriminatory, such as location.
Following market rates
The employer claimed that paying different rates to store staff and warehouse staff was justifiable because this reflected factors unrelated to sex, such as market rates, affordability, recruitment challenges, scheduling, and so on.
Although Next recognised that these factors put store workers at a pay disadvantage compared with its distribution workers, it claimed that the pay differentials were a proportionate means of achieving a legitimate aim.
Even though this ET did not find that the difference in pay was a result of direct discrimination, it did find that the material factors Next relied on to justify its pay policy were indirectly discriminatory.
This was because the numbers of women and men that made up each workforce meant that paying store workers less had a disproportionate impact on women.
Additionally, the argument that the firm was only following market forces was not a legitimate justification for the pay difference, the ET said. It held that Next could afford to increase base pay for retail staff to match the base pay given to warehouse workers, but priority was given to minimising labour costs to help maximise profits.
Implications and actions
Next plans to appeal the decision, so the arguments will continue. It has announced that if its appeal fails, then it might have to close some of its shops because they are no longer financially viable. Additionally, if it loses, there will be implications for how employers protect against equal pay claims.
It won’t be enough for firms to defend their pay actions by saying they’re simply benchmarking the market, given that market rates can be influenced by historic gender stereotypes about the appropriate work for women and men.
It could be even harder to use this defence if the firm has the resources to pay more for jobs predominantly done by women, but decides not to for cost reasons.
How can employers protect themselves against an equal pay claim, as well as ensure they’re paying people fairly?
- Transparency. Being transparent about pay and grading systems should avoid discrepancies that trigger equal pay claims.
- Audits. One thing to check is that you are giving men and women similar pay for doing similar work. This is known as an equal pay audit. If you are paying people differently, are you able to justify these differences? Once inequalities are identified appropriate remedial action must be taken.
- Action plan. After identifying potential equal pay risks within the workforce (considering factors like gender, ethnicity, and disability as a minimum) any pay disparities should be evaluated against possible justifications and material factors. An action plan should then be developed to address and resolve any unjustified differences.
- Job evaluation. A job evaluation scheme may provide justification. Job evaluation helps you evaluate all your jobs, decide their value to the organisation, and rank them accordingly. However, you need to check your job evaluation scheme regularly to make sure it reflects any substantial changes to jobs that may have happened so that jobs ‘rated as equivalent’ are paid the same.
- Salaries. Another consideration is the salaries offered to job applicants. Are line managers more likely to offer men higher starting salaries than women? Managerial discretion over starting salaries can increase an unequal pay risk. Being transparent about pay in job adverts can help reduce pay discrepancies.
The Next case comes against the backdrop of the UK Government’s plan to Make Work Pay, so big employers should also consider expanding their pay audits and job evaluations to include ethnicity and disability.
ou can find more on how to ensure you’re a fair payer by checking the CIPD’s website. This will explain more about the equal pay law, equal pay audits, job evaluation schemes, the Make Work Pay plan and pay transparency.
