The EAT has ruled that a woman who claimed she was granted fewer share options than a male colleague under a discretionary share option plan was not protected by equal pay legislation and must bring her claim under sex discrimination legislation.

Under the Equal Pay Act 1970 (the EPA) a woman could bring a claim for equal treatment with a male comparator in relation to contractual pay and benefits. A claim in relation to non-contractual pay and benefits would need to be brought under the Sex Discrimination Act 1975 (SDA). The SDA specifically excluded claims for a “payment of money regulated by the contract of employment”.

Ms Hosso was a senior analyst at a fund management company who was not granted as many share options as a male colleague. She subsequently brought a claim under the EPA.

The Employment Tribunal agreed at first instance with Ms Hosso’s contention that since the plan was contractual in its operation, it fell within the scope of the EPA. The Tribunal consequently ordered the company to pay compensation of £34,000.

However, the Employment Appeal Tribunal disagreed with the lower tribunal, finding that the share option plan operated in a genuinely discretionary fashion and was therefore a discretionary element of pay not covered by the EPA. Accordingly, Ms Hosso should have brought her claim under the SDA but was time-barred (as claims under the SDA had to be brought within 3 months from the date of the act complained of, whereas the EPA had a time limit of 6 months following the termination of employment).

The result in this case was not surprising given that both participation in the share option plan and the grant of share options under it were entirely at the employer’s discretion. In reaching its decision, the EAT considered the Court of Session’s decision in Hoyland v Asda. In that case, the court held that a woman who had not received her full bonus entitlement while on maternity leave should have brought her claim under the EPA (rather than the SDA). Although the bonus plan in Hoyland was described as discretionary, because all other employees received a bonus calculated in the same manner the court found it was, in fact, contractual. In Hosso, the EAT suggested that even if a plan is incorporated by reference into a contract of employment, provided that the way in which the employer determines the amount to be awarded and whether an award will be made in any given year is discretionary, the plan is not “regulated by the contract of employment”.

Claims in relation to acts occurring or continuing after 1 October 2010 must now be brought under the Equality Act 2010 (the EA). Equal pay claims must be brought under Chapter 3 of Part 5 of the EA and sex discrimination claims under Chapter 1 of Part 5 of the EA. The provisions in the EA dealing with whether claims should be brought as equal pay or sex discrimination claims are slightly different from those under the SDA. In practice, claimants will generally be advised to plead their claims under both Chapter 1 and Chapter 3 of the EA to avoid the pitfalls encountered in Hosso and Hoyland.

Both Hosso and Hoyland demonstrate that it will not be clear-cut when an element of pay is contractual and when it is non-discretionary and that the answer will turn not only upon the plan rules but also upon the tribunal’s findings of fact.