Employment tribunal statistics show that in 2007/2008 the Employment Tribunal Service received more claims for equal pay than for any other type of employment claim. While most of the claims lodged have been against public sector employers, the private sector may well start to experience similar claims. There have recently been a number of important developments relating to equal pay, in relation to collective agreements, pay protection and TUPE.

Collective agreement cannot justify discriminatory practice

In British Airways v Grundy, the Court of Appeal has held that discrepancies in pay between a claimant and her male comparators could not be justified simply by demonstrating that they had arisen as part of a collective bargaining agreement.

Impact on employers

In its judgment, the Court of Appeal made it clear that negotiators must be alive to the possibility that differentials arising from collective bargaining may be detrimental to employees of one gender. If they overlook this possibility and it results in an equal pay, they cannot then seek to justify the pay differentials and defend equal pay claims by reference to the collective agreement.

Pay protection schemes unlawful

The Court of Appeal has held that pay protection arrangements put in place by local authorities discriminated against women and could not be justified (Bainbridge v Redcar & Cleveland Borough Council and Surtees v Middlesbrough Borough Council).

The local authority defendants in these cases had carried out job evaluation studies and, through negotiation with trade unions, had graded staff onto a single pay structure. The purpose behind these agreements was to eradicate historical pay inequalities between men and women.

Inevitably, under the new structure, there were employees who received pay rises (mostly women) and others who were subject to pay cuts (mostly men). Pay protection arrangements had been put in place to cushion the impact on those receiving cuts by retaining their existing levels of pay for a year and then reducing their pay to the lower rates in stages over a further two to three years. It was mainly male staff who benefited from the pay protection arrangements as, historically, the female dominated posts had been paid less than their comparators.

The female claimants argued that the pay protection arrangements were unlawful as they unfairly protected the male dominated posts' pay and continued the pay discrimination against them.

The Court of Appeal accepted that discriminatory pay protection arrangements could be justified, but in these circumstances they were not. The employer's knowledge of the discrimination, their motive and intention were not relevant in deciding whether the arrangements were discriminatory, but were factors that could be taken into account in deciding whether the arrangements were justified.

Impact on employers

Not all pay protection schemes will be discriminatory but, where they are, employers will need to be able to justify them. The justification threshold is a high one and the employer needs to be able to show that the pay protection scheme corresponds to a real need and is an appropriate way of achieving their objectives and necessary to do so. An employer is more likely to be able to justify a pay protection arrangement where it has considered all the options and formed a business case, having calculated the costs of increasing female pay as opposed to simply "red-circling" male pay.

Transferee's liabilities for equal pay

The Employment Appeal Tribunal, in Sodexo Limited v Gutridge & North Tees & Hartlepool NHS Foundation Trust has held that, following a TUPE transfer, a transferee can be liable for the transferor's equal pay breaches.

This case involves employees who had been transferred from their NHS Trust employer to Sodexo. Some five years after the transfer they raised equal pay claims against Sodexo in relation to pre-transfer equal pay liabilities. Their comparators were male maintenance assistants who also worked at the hospital, but who had not transferred to Sodexo.

The EAT held that equal pay claims relating to the period prior to the transfer do transfer under TUPE to the transferee employer. However, the time limit for bringing such a claim is six months from the date of the transfer and in this case the employee's claims were out of time. They could therefore not recover back pay relating to the period prior to the transfer on this occasion.

However, the EAT went on to say that the equality clause implied into every contract of employment by the Equal Pay Act "bites" as soon as there is a case of an equal pay - there is no need for a legal ruling. As a result, at the time of the TUPE transfer the claimants had a contractual right to be paid at the same rate as their male comparators. This contractual right transfers under TUPE, putting the transferee under a continuing obligation to honour its terms. The claimants could therefore enforce the right to higher pay against Sodexo. The time limit for claims of this nature is six months from the end of the employee's employment with the transferee.

Impact upon employers

This may seem a harsh result for new employers who will face liability for historical equal pay claims even though they do not arise for years after a transfer.

Even where a transferee is able to obtain details of the pay structure as part of a due diligence exercise, it is unlikely to have sufficient detail to enable it to identify equal pay breaches that could potentially give rise to a claim. Where possible, transferees should seek warranties dealing with equal pay compliance and indemnities against such claims, particularly where equal pay is a live issue in the sector of industry in which they are operating.

New ACAS guide to job evaluation

In light of the increasing number of equal pay claims, employers may be interested in ACAS' new guide to job evaluation. ACAS considers that employers will be less vulnerable to equal pay claims if they implement job evaluation schemes. The guide considers the benefits and risks of undertaking job evaluation and explains how a job evaluation risk analysis should be established and implemented so that the employer can decide whether they should undertake a job evaluation scheme in their particular business.