If the Asda equal pay claim was not a wake-up call to private sector employers, the latest claim involving Tesco should be.

Tesco is reportedly facing an equal pay claim potentially affecting up to 200,000 store-based staff, with possible costs estimated in the region of £4billion; this is hot on the heels of similar claims made by Asda and Sainsbury’s staff, and dwarfs Birmingham City Council’s £1bn-plus settlement bill some years ago. Equal pay claims are complex and there are significant associated difficulties, time and costs for both employers and employees in pursing and dealing with them.

Although private sector employers may already be grappling with the new requirement to report their gender pay gaps and which has recently grabbed the headlines, they should be equally alert to equal pay claims.

What is an equal pay claim?

The Equal Pay Act 1970 followed social pressures within the UK, such as female machinists striking for the same pay as men in the Dagehnam car factory, and paved the way for the concept of equal pay for equal work. The Act focusses on the differences in contractual terms between men and women, including pay, overtime rates and bonuses, holiday, sick pay and pensions. Separate sex discrimination legislation (now in the Equality Act 2010) cover non-contractual inequalities.

Equal pay legislation works by incorporating ‘sex equality clauses’ into employment contracts. These clauses apply where the employee is employed to do ‘equal work’, giving the benefit of more favourable terms enjoyed by employees of the opposite sex unless the difference is due to a non-discriminatory material factor. ‘Equal work’ means (i) like (the same) work, (ii) work formally rated as equivalent, or (iii) work of equal value, assessed according to the skills of (and demands placed upon) employees, and the value to the employer. If successful, a claimant may be awarded back pay and damages.

How does this relate to the Asda equal pay claim?

In Asda Stores Ltd v Brierley and others UKEAT/0011/17 the EAT decided that a predominantly female group of Asda’s retail staff were entitled to compare themselves with a predominantly male group of distribution depot employees on the basis that their jobs involve similar duties and, whilst not the same, have equal value.

Asda challenged the use of depot staff as comparators because they were paid under pay scales agreed after collective bargaining with the GMB (unlike retail staff), received different allowances, and worked on separate sites. The tribunal and the EAT rejected their arguments, holding that the comparison between female retail and male depot staff was permitted under both EU and domestic law.

This is not the end for Asda’s defence as the full case has yet to be heard – the claimants will still have to prove that their work is of equal value to their identified comparators’ – but it does reset the balance somewhat.

From what we know about the latest claim against Tesco they don’t appear to differ much at first blush, other than in scale. The Tesco claim appears to be following a similar approach (and is reportedly being run by the same law firm), and there are good reasons to suspect a tribunal would follow the reasoning in Asda and reach the same conclusion. The argument looks to be that the work that store-based staff do is similar – some of the duties overlap with their warehouse counterparts (lifting, stock-taking, restocking, carrying etc.), and the additional customer-facing and money-taking aspects are of equal value.

Scale is however a factor. Tesco has a large UK retail operation, employing around 460,000 staff – it has 3,739 stores across the UK in six different store formats (Asda, by comparison, has 630 stores) and around 23 wholly-owned distribution centres (having taken some additional warehouse operations in-house in 2017).

The additional difficulty in Tesco’s case is that the pay differences appear to be relatively significant. Tesco warehouse staff reportedly start at a higher basic rate and can earn more than £11 an hour, compared with the store-based staff rate on about £8 an hour. Add to this that store-based staff apparently agreed to forego double pay rates for Sunday working (whereas warehouse staff continue to receive the double rate), and this could mean that the backdated pay costs alone are significant.

What are the costs? Are there any likely further implications?

If the tribunal now goes on to find that the two groups of Tesco employees do work of equal value, and there are no genuine material factors to explain the discrepancy, it has been reported that the cost to Tesco could exceed £4bn. Tesco could be forced to pay affected staff the difference in earnings going back six years plus additional compensation, as well as to undertake an equal pay audit. Further, in order to prevent ongoing issues, it would need to increase basic hourly rates for female store-based staff as a starting point.

If Tesco were to simply raise hourly rates and back pay for female store-based staff but not their male counterparts, there is a clear risk of ‘piggyback’ equal pay claims from male store-based staff on the basis that they were clearly being paid less for doing exactly the same (store-based) role, so these costs should be factored in.

At this stage, it is hard to know whether the estimated £4bn cost to Tesco in the event female staff were successful in their claim is conservative, as it is unclear what factors (including any potential piggyback claims for male store-based staff or the increased future staff costs) have been taken into account.

Why is this suddenly becoming a problem for retailers in particular? Should other employers be worried?

In short, yes. Historically, private sector employers have not been overly concerned by equal pay claims, as these have been the preserve of public sector employers. This is partly because private sector workers have been slower to take action on equal pay matters, meaning it has been less of a burning issue, and probably in part due to the relative lack of unionisation amongst store-based workers.

Retailers have tended to treated store-based and warehouse staff as different parts of the business, and traditionally warehouse staff (who are generally male) have received better terms. Often this is as a result of union involvement in these types of working environment, unlike traditional retail units. It is likely that retailers are simply bearing the brunt of the movement of these types of claims into the private sphere, being large, wealthy employers with significant numbers of hourly-paid staff and having easily-identifiable pay differences across different parts of the business.

The issue for employers now is that private sector workers are increasingly aware of these issues and their rights, as are the unions – and the attendant claims can be costly.

What now for employers?

This case has wider implications for the retail sector. There are obvious parallels for companies who have store-based and warehouse staff with different gender groups and pay, but it is easy to see where this principle could be extended – as between online and store-based retail staff for retail businesses with separate online and bricks-and-mortar activities, for example – as well as to other sectors. Trade unions have been heavily involved in the litigation to-date, and retailers can expect to see unions using this as a segue into the retail side of operations.

With the introduction of the National Living Wage, unsteady profits, and increasing challenge from online-only and overseas businesses, the traditional bricks-and-mortar retail sector is facing an already tough future. Adding these claims into the mix, along with the potential publicity and brand damage, won’t help matters.

What should employers do?

For cost and reputational reasons alone, employers should get ahead and assess their exposure and then take suitable steps to resolve, redress and limit this.

  • Employers should be carrying out pay audits and paying particular attention to pay rates where there is a concentration of one gender, and areas where men and women carry out the same or similar roles with different rates of pay.
  • If there are differences in pay, bonus or other remuneration, employers should consider why those are and whether they are objectively justified and non-discriminatory.
  • Where there is a clear exposure, employers should consider how to contain this (both in order to limit costs of such claims and in order to minimise any reputational damage). Settlements and negotiation with staff are popular methods.

With the introduction of gender pay gap reporting as of April 2017 resulting in more information on gender pay becoming available within large employers, this issue is only likely to pick up steam.