Equal pay claims can be brought only where there is a contractual term which is modified or included as a result of the equality clause which statute deems to apply. If there is no such clause, the only option is a sex discrimination claim. This division originates from the split between the Equal Pay Act and Sex Discrimination Act, and is retained in the Equality Act 2010. The uncertainty over where the dividing line lies between these two types of claim may hand employers an easy win if an employee fails to make both claims in the alternative or within the three-month time limit for a sex discrimination claim, should this prove to be the correct choice (the time limit for equal pay claims is six months). The recent Court of Appeal ruling in Hosso v European Credit Management Ltd suggests that more discretionary benefits may fall on the sex discrimination side of the dividing line than previously thought.

In this case, an employee was eligible to be awarded share options under the terms of the share option scheme, but there was no term in the employment contract referring to the scheme. She claimed that the employer had exercised its discretion more favourably towards her male comparator than her. Her claim was out of time if properly framed as sex discrimination, but in time if equal pay.

It was argued that previous case law (concerning a discretionary bonus) should be interpreted as establishing that an equal pay claim is appropriate where a discretionary benefit is paid only because there is a contract of employment in existence. The court did not consider this sufficient and also rejected the suggestion that, once the employer had exercised its discretion, there was a contractual term requiring the employer to provide the options on which the equality clause could bite. The court ruled that the claim concerned the way in which the employer exercised its discretion under the scheme to allocate share options, and therefore did not involve an employment contract term that was modified or implied by virtue of the deemed equality clause. Therefore, the claim could be brought only as a sex discrimination claim.

An equal pay claim will be appropriate where the contract determines the amount of the benefit. The position is less clear where the terms of the contract govern eligibility for the benefit, but leave the amount to be decided at the employer's discretion, as it was not necessary to decide this point on the facts. However, the judge in this case suggested obiter (ie, in passing) that this would still be a sex discrimination claim.

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]).