TUPE and equal pay, possibly the two employment issues that employers dread most! Not a lot of laughs in either, as a rule.

In Skills Development Scotland Co Ltd v Buchanan and Holland the EAT has, however, recently given a useful decision for employers which inherit employees on high salaries via TUPE and subsequently face equal pay claims from their existing (usually) female staff that they are being paid less than their new male comparators. It makes it clear that TUPE is a potential defence to an equal pay claim (that much we knew already) and that the mere passage of time by itself does not change this.

Ms Buchanan and Ms Holland were both Customer Service Managers at SDS. They found out they were being paid approximately £10,000 less than their new male colleague, Mr Sweeney. They presented equal pay complaints in the Employment Tribunal. SDS defended the claims by arguing that the pay disparity was down to TUPE, as Mr Sweeney had previously transferred to it from a different employer. At the date of the relevant transfer, Mr Sweeney had been on a higher salary than his new female colleagues. As SDS was required under TUPE to honour his contractual terms, this was the reason why he had been paid more than them at that time.

The claimants accepted that TUPE may have justified the original difference in pay, but said this was not sufficient to justify the continuing pay disparity – the TUPE transfer had taken place some 6 years earlier and yet they were still being paid roughly £10,000 pa less than him. The Employment Tribunal agreed and said that TUPE was no defence to their equal pay claims. It said that Mr Sweeney’s salary should have been red-circled and frozen, as SDS was under no obligation to continue to increase his salary, thus maintaining (at least prolonging) the pay differential.

The EAT disagreed. In its view the Tribunal had misinterpreted Mr Sweeney’s contract. This entitled him to whatever pay increases were being awarded by SDS under its “normal arrangements”. By awarding him annual pay increases SDS had therefore simply been complying with its contractual obligations. Furthermore, the Tribunal had lost sight of the key issue, namely whether there had been any sex discrimination in relation to the pay of the claimants and their male comparator. If, as was accepted, the reason for the initial pay difference was the TUPE transfer then the mere passage of time did not cause this gender-neutral explanation to lose its “non-sex” character. The mere fact that SDS did not address its mind to TUPE each time it increased Mr Sweeney’s salary did not mean that TUPE was not the reason for the continuing pay differential. As TUPE was and remained the cause of the pay disparity SDS was not required to justify the difference in pay.  

Is this fair? Quite possibly not, but the EAT was at pains to point out that the purpose of the equal pay provisions is to tackle gender pay discrimination, not to achieve fair wages. Does this mean that employers are no longer under an obligation to take steps to narrow the pay gap between male and female staff who TUPE-transfer across on different terms and conditions for doing the same job? Not quite. In this case SDS had a contractual obligation to increase Mr Sweeney’s salary. Furthermore, there was no suggestion that the initial pay differential was down to anything other than the fact the employees had TUPE-transferred across on different terms and conditions. If the reason for any initial pay differential had been gender-related, SDS would not have been able to point simply to the TUPE transfer to justify any continuing pay differentials. Whilst this decision may be helpful, employers still need to satisfy themselves that the real reason for any pay differential is the effect of TUPE and that there are no genderrelated factors at play.  

In any event it still remains good practice to be seen to seek to address any pay irregularities over time, even if they derive from a TUPE transfer. If they are not addressed this will only cause disquiet amongst the workforce and increase the likelihood of a legal challenge.