In Skills Development Scotland v Buchanan the Employment Appeal Tribunal (EAT) held that where a pay disparity arises on a transfer under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations (eg, due to higher transferor pay levels), this may provide the transferee employer with a 'material factor' defence to an equal pay claim, even where it fails to take steps to narrow the pay gap, such as freezing the comparator's pay to enable the claimants to catch up. There is no requirement to take such steps within a particular timeframe, at least where the comparator has a contractual right to pay rises according to "normal arrangements" and those arrangements include firm-wide increases.

It is well established that the preservation of terms under TUPE can provide a gender-neutral defence to equal pay claims. The EAT has now confirmed that the mere passage of time does not change this - TUPE can remain the reason for the pay differential years later. Provided that the decision to continue the pay gap is not tainted by direct or indirect sex discrimination, the employer will still be able to establish a defence.

In this case the reason for continuing the disparity was to comply with the comparator's contractual right to the firm-wide level of pay increase and was therefore gender neutral. The absence of such a contractual right may make it easier for a claimant to suggest that a decision to perpetuate a pay disparity is related to gender.

Although this ruling is good news for transferees, they should continue to look out for statistical gender bias between the higher and lower-paid groups. This could be sufficient to establish prima facie indirect discrimination, requiring the transferee employer to provide objective justification for failing to address the disparity. There may also be sound industrial relations reasons to bring about a gradual realignment of salary levels after a TUPE transfer.

For further information on this topic please contact Andrew Brown at Herbert Smith LLP by telephone (+44 20 7374 8000), fax (+44 20 7374 0888) or email ([email protected]).