We have been through a very significant period of change for Employment Tribunals over the past two years: with the introduction of fees, pre-claim conciliation and new Tribunal Rules, all of which are likely to reduce the number of Tribunal claims proceeding to hearing. In addition there are plans to narrow the Tribunals’ powers so that they can no longer make wider recommendations about action that employers should take to avoid discrimination; when this change takes effect (probably next April) a Tribunal will only be able to make recommendations aimed at addressing the discrimination or disadvantage to the individual who has brought the claim in question. It is somewhat ironic, therefore, that Tribunals are shortly to be given new powers to order employers to conduct equal pay audits in some circumstances.

This new power has the aim of benefitting all or parts of the workforce and increasing transparency in terms of pay and gender in an organisation . These new provisions are seen as a way of encouraging employers to address gender pay issues, with the risk of an equal pay audit being ordered against those who don’t.  The risk for employers is that claims under the Equality of Terms provisions in the Equality Act 2010 will have much greater repercussions. 

When must equal pay audits be ordered?

An audit can only be ordered that where an individual brings a successful tribunal claim concerning a breach of the equal pay provisions in the Equality Act: those are the sections which specifically deal with the right to equality in terms and gender pay discrimination (which were incorporated ,with changes, into the Equality Act and imported from the original Equal Pay Act 1970).  Only claims presented on or after 1 October 2014 are affected.

Where a tribunal finds that there has been a breach of the equal pay provisions it “must order the respondent to carry out an audit" unless one of the limited exceptions applies.

What will be ordered?

The Tribunal must:

  • specify the descriptions of persons or employees covered by the Order;
  • identify what gender pay information is in the scope for the audit i.e. which reward elements;
  • identify the period over which the analysis is required, as well as the timescale within which the order must be complied with;
  • ensure a respondent is given at least 3 months from the date the order is made in which to report back to the Employment Tribunal on the audit and its results.

The Tribunal will identify what categories of employees have to be considered in undertaking the audit.  Any order will also identify what elements of pay have to be considered and assessed by reference to gender: for example base pay, allowances, bonuses or indeed other benefits.  Having undertaken the analysis and identified any gender difference, the audit will have to specify and explain any potential equal pay breaches and “include the respondent’s plan to avoid equal pay breaches occurring or continuing".

In future, in the event of an equal pay claim being made an employer must think carefully, and from the outset, about the risk of such an order. It will be essential to ensure the organisation makes appropriate representations demonstrating, if possible, that it is a one-off claim and not part of a wider symptom of discrimination in the organisation. It is also important as part of any defence to convey positive diversity measures which the organisation has taken including around pay and reward. All too often a respondent focuses on rebutting and defending the allegations being brought, rather than the more positive messages it could convey.

Penalties

The procedure is set out in some detail within the new Regulations.  In addition to identifying in the order the return date by which the details of the audit must be reported back to the Tribunal, it will be for the Tribunal to confirm whether the audit complies with what was ordered.

If it is satisfied with compliance, an order to that effect will be issued.  However if the Tribunal is not satisfied that the audit has been completed (or indeed if no audit has been lodged with the Tribunal by the date specified) a further hearing will be convened at which the Tribunal may set a new date for compliance. At this point however, a respondent is at risk of incurring additional financial penalties.

There is the prospect of the Tribunal assessing the audit and concluding that it is not satisfied that it fully complies with what was ordered.  If that is the case, the Tribunal can order amendments to the original audit (to achieve compliance) and identify a new date for those further steps to be completed. At this point the Tribunal can also award a financial penalty against the respondent.  If further non-compliance occurs after the hearing, an additional penalty can be ordered.

The penalty for non-compliance with the new powers is up to a £5000 fine.  However it could be more than this on the basis that the Regulations make clear that the amount of each penalty or additional penalty under the Regulations is capped at £5000, but that could be one of a number and the cap is not a cumulative one. 

Under the provisions the penalty will be payable to the Secretary of State and not the Claimant(s) in the original claim.

Exceptions

There are a number of circumstances in which, despite the Regulations stating very clearly that a finding of breach of equal pay provisions means a Tribunal must order an audit, exceptions apply.  In addition to exemptions for micro and new businesses, the provisions make clear that if a respondent has already carried out an equal pay audit in the three years before the date of the original judgement, an order for an equal pay audit should not be made.  This is the most “black and white" exception; the other grounds on which an audit may be resisted by a respondent are subject to arguments and could include circumstances where the employer can satisfy the Tribunal:

  • an audit is not required as it is clear what action is needed to address the equal pay breaches (although presumably in such circumstances a more specific recommendation can be made) ;
  • there is no reason to think that there may be other breaches;
  • the disadvantages of an audit would outweigh its benefits.

When defending equal pay claims in future, respondents will need to ensure that their legal arguments, pleadings and evidence include preparation to dissuade the Tribunal from considering an equal pay audit. For example evidence that the issue in the particular case is a “one-off", is not systemic and demonstrating that its pay structure is already free of gender bias.

Implications & Notification to the Workforce

There are clearly a number of consequences to the provisions which are to be introduced, not least that the Government, in introducing this new power, recognises that employers are much more likely to settle claims as a way of removing the risk of an equal pay audit being ordered.

Employers will need to assess from the outset whether settlement is the right route, weighing in the balance the risk not just of an audit but the consequences which an audit being ordered may have in terms of inviting other claims or increasing its risk profile.

There will undoubtedly also be wider employee relations considerations bearing in mind that the audit will not just have to be disclosed to the Tribunal but the Regulations state very explicitly that within 28 days after the date the audit has been completed (once the Tribunal is satisfied with compliance) the employer will have to publish the audit on its website and ensure it remains there for at least 3 years from the date it is published. 

It must also notify all “persons" who were in the scope of the audit where they can obtain a copy. This new provision on publishing and sharing the outcome raises the prospect of further claims and means careful consideration will be required by employers of the communication and conduct of the audit and its outcome, both at a collective level and with employee groups. 

Very exceptionally this publishing requirement can be avoided if it would breach a legal obligation; it is unlikely that data protection issues will be considered a satisfactory reason for resisting publication (certainly not where, for example, anonymity can be adopted).  The Tribunal will have to be persuaded the publication is inappropriate and have been given powers to determine whether the employers grounds for resisting publishing is satisfactory or places it in further breach of its obligations and the Tribunal Order.

In the war for talent and in the context of benchmarking reward more generally, these publishing provisions could have a further significant impact. 

Future plans?

A final word in this area. No doubt we will begin to hear from all political parties shortly about their key policy commitments and manifestos and there may be further proposals and interesting differences between the main parties on the subject of equal pay.

Under the coalition and very much led, it seems, by the Conservatives, a voluntary approach to organisations being more transparent in their pay and equality issues (through the Think, Act, Report initiative) has been adopted by that party to date.

The Liberal Democrats have already confirmed publicly that they would look to force employers to publish pay data and this would be part of any commitment that a coalition involving this party would look to achieve. This would go beyond the equal pay audit tribunal powers (probably by reference to the size and nature of the organisation) but be a more general requirement to publish gender pay information.  It should be borne in mind that there remains an unused power to introduce such a requirement within theEquality Act 2010.  This power was introduced under Labour (in section 78 of the Equality Act 2010) so it will be interesting to hear what the Labour party position is on the provisions.