⏱️ 5 minute read
The latest decision in the long-running Next equal pay case has landed provides an important message for employers.
The Employment Appeal Tribunal (EAT) has found that Next could rely on recruitment and retention pressures to justify paying warehouse employees more than retail employees in relation to basic pay.
That doesn’t mean employers can stop worrying about equal pay. Far from it.
The decision underlines the importance of being able to explain why differences in pay exist and evidence the business reasons behind them.
For employers with large or complex workforces, now is a sensible time to understand where those differences exist in your own organisation, before somebody else asks the question.
What happened?
More than 3,500 predominantly female retail sales consultants brought equal pay claims comparing themselves with warehouse operatives, whose work had been found to be of equal value. The warehouse workforce had a small male majority.
Next argued that market forces and the need to recruit and retain warehouse employees explained why they received higher basic pay.
The Employment Tribunal had previously found that the arrangements put women at a particular disadvantage and that Next couldn’t objectively justify the difference in basic pay. The EAT has now allowed Next’s appeal in part.
Why did the EAT disagree?
A key issue was how Next’s reasons for the pay difference had been assessed. The EAT found that the Tribunal should have considered Next’s aims as a whole when deciding whether the difference in treatment was justified.
Those aims included paying the market rate necessary to recruit and retain enough warehouse employees, where the same recruitment pressures didn’t apply to retail roles.
The EAT accepted that this could amount to a legitimate aim.
Crucially, the question wasn’t whether Next could afford to increase retail employees’ pay. It was whether paying warehouse employees more was a proportionate way of addressing the recruitment and retention pressures it faced.
The EAT concluded that the Tribunal’s own findings showed Next was paying warehouse employees what it needed to pay for sound business reasons, and no more.
The appeal therefore succeeded in relation to basic pay and certain other elements of pay. The original findings in favour of the retail employees remain in place for some other elements, including paid breaks and certain overtime and night-working premiums.
So this isn’t the end of every issue in the litigation – or necessarily the end of the litigation itself.
What does this mean for employers?
The decision doesn’t give employers a free pass to rely on “market forces” whenever two groups doing equal work are paid differently. Instead, it demonstrates why the reason behind a pay difference, and the evidence supporting it, matters.
There can be perfectly legitimate reasons why employees are paid differently. Recruitment pressures. Market rates. Location. Experience. Skills shortages. Historic arrangements. Performance. Different responsibilities.
The problem comes when an organisation can’t establish why a difference arose or produce evidence supporting the explanation being given. And that’s particularly relevant for large employers where pay arrangements have developed over many years, across different sites, functions and management teams.
Three questions worth asking now
- Where do differences in pay exist? Don’t assume that having salary bands or a pay framework means there aren’t discrepancies underneath them. Look at basic salary, but also consider premiums, allowances, bonuses, overtime arrangements and other contractual benefits.
- Can you explain why they’re there? A difference isn’t automatically an equal pay problem. But if two employees or groups are being treated differently, you should understand the reason behind it. That’s particularly important where different roles or parts of the organisation have a significantly different gender profile.
- Can you evidence that explanation? This is the bit that’s easily overlooked. Knowing that a higher salary was probably agreed because a role was difficult to recruit isn’t the same as having evidence showing that this was actually the reason. The longer a pay arrangement has been in place, the harder reconstructing that decision can become. Good record-keeping around starting salaries, market adjustments, exceptional increases and other pay decisions can therefore make a significant difference.
Don’t wait for a claim to understand your position
Equal pay risk isn’t always obvious. Differences can build gradually through entirely ordinary commercial decisions – different starting salaries, recruitment pressures, historic pay arrangements, acquisitions, location-based differences or managers exercising discretion.
You may look at your arrangements and find you’re good as gold. But having tested your position gives HR teams, senior leaders and Boards considerably more confidence than simply assuming everything is fine.
And if you do identify something that warrants attention, finding it proactively gives you the opportunity to understand and manage the risk.
How can we help?
Our employment lawyers carry out Equal Pay Risk Reviews to help employers understand where potential exposure may sit.
We’ll agree the scope based on the size and complexity of your organisation, the range of roles involved and your pay arrangements.
That can include reviewing a representative sample of roles, locations or employee populations; identifying relevant pay differences; examining the decisions and evidence behind them; and distinguishing between differences with a clear rationale and areas that may require further investigation.
You’ll come away with a clearer picture of your position and practical recommendations for managing any risks we identify. Because when it comes to equal pay, it’s much better to know where you stand than assume.
This update is accurate on the date it was published but may be subject to change which may or may not be notified to you. This update is not to be taken as advice and you should seek advice if anything contained within affects you or your business.
