The Equalities and Human Rights Commission (EHRC) has published a draft policy paper outlining how it will seek to enforce the gender pay gap reporting regulations. The EHRC's primary focus in the first year will on employers who have failed to publish their results. However, they indicate that, if capacity allows, they will also scrutinise the accuracy of the results and take enforcement action where necessary. In a worst case scenario, a non-compliant employer would have to comply with an EHRC investigation, have that investigation report made public and be forced to comply with an unlawful act notice or face an unlimited fine.
The Equality Act (Gender Pay Gap Information) Regulations 2017 came into force on 6 April 2017. They require all private and voluntary sector employers with 250 or more employees to publicly report a range of gender pay information each year. The first reporting deadline falls on 4 April 2018. Similar regulations apply to public sector employers with 250 or more employees, although the reporting deadline falls slightly earlier on 30 March 2018 (together, the Regulations).
When the Regulations were introduced there was no express mention of civil or criminal penalties for employers who failed to comply with the reporting obligations. However, the Explanatory Notes to the Regulations stated that it was the Government's view that a failure to comply with the Regulations would constitute an "unlawful act" within the meaning of section 34 of the Equality Act 2006. This, in turn, empowers the EHRC (the regulator with responsibility for enforcing the Equality Act 2010) to take enforcement action against offending employers.
The EHRC has recently published a draft policy paper on their intended approach to enforcement action for non-compliance with the Regulations. We report below on how the proposed enforcement action would affect private and voluntary sector employers.
How will the EHRC encourage employers to comply?
The paper stresses that enforcement action will only be necessary where employers do not comply with their reporting obligations despite "encouragement" from the EHRC to do so. The EHRC will take the following steps to encourage compliance:
- Promoting awareness: there will be a campaign targeted at employers and the EHRC will input into correspondence from the Government Equalities Office (GEO) to employers.
- Education: the primary focus here will be the provision of information - including real life case studies of employers who have reported their gender pay gap information - on the EHRC website
- Monitoring compliance: in conjunction with the GEO, the EHRC will monitor which employers have complied with the reporting obligations. Importantly, the monitoring is said to include both the publication and accuracy of the relevant information. It's not yet clear how the EHRC will be able to ascertain whether results are accurate from a superficial review of the published results. Perhaps where a zero or very low gender pay gap is reported, this will trigger scrutiny by the EHRC. Indeed, a number of employers who reported a 0% gender pay gap attracted attention from the press due to the statistical improbability of such results. In some cases, this led to the figures being corrected and re-submitted.
- Publicising compliance rates: the EHRC propose to publish the total number of compliant and non-compliant employers on social media just before and after the reporting deadlines.
- Promotion of enforcement work: the results of the EHRC's enforcement work will be promoted to encourage other employers to comply with their obligations.
What means of enforcement are available?
The paper highlights that the EHRC's preferred option is to seek an informal resolution with any non-compliant employers. In a nutshell, the informal procedure involves the EHRC writing to the employer to remind them of their reporting obligations.
The employer will then have 14 days to respond and confirm that they will: (i) publish the results for the previous reporting year within 42 days of the EHRC's letter; and (ii) they will comply with their reporting obligations for the forthcoming year. Where these assurances are given, the EHRC will simply check that the employer complies in both reporting years. If they do, then no further enforcement action will be taken.
Section 20 investigation:
If a non-compliant employer fails to comply at the informal resolution stage, the EHRC will commence an investigation into whether they have committed an "unlawful act". The employer will be provided with terms of reference for the investigation and have the opportunity to make representations before the investigation begins. The employer will be provided with a copy of the draft investigation report and given 28 days to make representations on it. A final report will usually be published on the EHRC's website within 14 days of any such representations. You can view an example of a section 20 investigation report here.
Employers can be served with a notice requiring them to disclose documents or give oral evidence as part of the investigation process. If the employer then fails to comply with that notice, or provides false documentation or oral evidence, it will commit an offence attracting an unlimited fine.
Section 23 agreement:
Where an employer is under investigation, they will be given a second chance to comply with their reporting obligations. The EHRC will offer the employer the chance of entering into a written "section 23 agreement" under which the employer must agree to: (i) publish the results for the previous reporting year; and (ii) comply with their reporting obligations for the forthcoming year.
The EHRC will give the employer two chances to enter into a section 23 agreement. First, it will be offered alongside the terms of reference for the investigation, and, second, it will be offered alongside the draft investigation report. In both cases, the employer will have a limited period of time to accept the offer.
Where a section 23 agreement is reached, the EHRC will simply check that the employer complies in both reporting years. If they do, then no further enforcement action will be taken. However, if the employer fails to comply, the EHRC will usually apply to the County Court in England and Wales (or the Sheriff Court in Scotland) for an Order requiring the employer to comply with the undertakings in the section 23 agreement.
Unlawful act notices and action plans:
If a non-compliant private or voluntary sector employer does not accept the offer of a section 23 agreement the EHRC will issue an "unlawful act notice". This will require the employer to prepare a draft action plan within a specified time frame, explaining how they will remedy the continuing breach of the Regulations and prevent future breaches. If the employer fails to produce the action plan, the EHRC will apply to Court for an Order requiring this to be produced.
Once the action plan is produced, the EHRC will either approve it or serve a further notice stating it is inadequate and requiring a further draft to be submitted.
If the employer then fails to comply with an action plan the EHRC can, again, apply to Court for an Order requiring compliance. If an employer fails to comply with such an Order then they will commit an offence attracting an unlimited fine.
Firstly, employers with 250 or more employees should ensure they have gathered their data and are ready to report their gender pay gap information by no later than 4 April 2018 (or 30 March if a public sector employer). A failure to do so could lead to enforcement action by the EHRC as outlined above. Employers will usually wish to avoid the time and expense of managing such action and would be well advised to either resolve the matter informally, or by way of a section 23 agreement. A failure to do could result in a time-consuming investigation, with the final report being made public. Inevitably, this would attract negative press coverage and damage employee relations.
Secondly, employers need to be confident that the results they report are accurate. The EHRC have said they will probe the accuracy of the results where they have capacity to do so and will, in appropriate cases, take enforcement action. Even the EHRC doesn't have capacity to do this in the first year post the Regulations, it is already clear that there is a high level of media interest in the gender pay gap results and any very unusual results are likely to be scrutinised. In addition, once the reporting deadline has passed, it is likely that the GEO and/or industry-specific press will look to compare the results of employers operating within the same sector. This exercise will throw further light on any atypical results.