Equal pay has come to the forefront of the employment field this month. A Council's pay protection scheme largely benefiting male employees was held to be indirectly discriminatory by the Court of Appeal. However, the Claimant's argument that the Job Evaluation Study had retrospective effect was rejected. In a separate case, the Employment Appeal Tribunal (EAT) held that the time limit for bringing an equal pay claim against a transferor in respect of pre-transfer liability runs from the transfer date. However, where a transferee continues the transferor's breach, the time limit for bringing an equal pay claim in respect of post-transfer liability is 6 months from the end of the Claimant's employment with the transferee.

REDCAR & CLEVELAND BOROUGH COUNCIL -V- BAINBRIDGE; SURTEES -V- MIDDLESBROUGH COUNCIL

THE FACTS

In order to eliminate pay inequalities between men and women, local authorities and trade unions established revised national terms and conditions for all Council employees (the Green Book) in 1996. This required Councils to carry out a Job Evaluation Study (JES) in a bid to grade their staff on a single pay structure.

JESs increased pay in many female dominated roles but led to pay cuts in other, predominately male, roles. Consent to these pay cuts was achieved by the implementation of a pay protection arrangement whereby those who suffered pay cuts would have their pay reduced gradually over a period of 2 to 3 years to cushion the impact. The majority of employees who benefited from the pay protection arrangements were men.

Equal pay claims were brought by women relying on male comparators whose jobs had been rated as equivalent under a JES. They claimed that the pay protection arrangements were discriminatory because they benefited predominately male employees. It was submitted that had the Claimants received equal pay, they too would have qualified for pay protection.

COURT OF APPEAL DECISION

Are pay protection arrangements discriminatory?

The Court of Appeal held that, in principle, pay protection arrangements are not unlawful, where they can be objectively justified. However, on the facts, the exclusion of the Claimants from the pay protection arrangements was due to pay inequalities that existed prior to the implementation of the Green Book. Without this discrimination, they would have received the same pay as their male comparators and consequently been included in the pay protection arrangements. Their exclusion from such arrangements was therefore unlawful and could not be justified. The Court of Appeal rejected the argument that the Council had undertaken separate negotiations with the two groups, which led to the difference in pay. This, they stated, did not objectively justify the difference in treatment where there was an obvious gender disparity between the two groups.

Do JESs have retrospective effect?

The Court of Appeal dismissed the Claimants' arguments that when a job is rated as equivalent during a JES, it follows that the job was equivalent prior to the implementation of the JES. The Court held that a JES does not have retrospective effect. In order to recover equal pay for a period which precedes the implementation of a JES, the result of a JES can be used as evidence of work of equal value, but such evidence is not of itself conclusive.

SODEXO LIMITED -V- GUTRIDGE AND OTHERS

THE FACTS

The Claimants transferred pursuant to TUPE from North Tees and Hartlepool NHS Trust (the Trust) to Sodexo Limited (Sodexo) in July 2001. 5 years later, equal pay claims were brought against both Sodexo and the Trust to recover pay for the past 6 years. The question for the EAT was whether the Claimants were entitled to bring claims for periods of employment with both the Trust and Sodexo.

DECISION OF THE EAT

Employment with North Tees and Hartlepool NHS Trust

Those parts of the claims relating to employment with the Trust were dismissed. The EAT followed the House of Lords decision in Powerhouse Retail Limited -v- Burroughs that, following a TUPE transfer, the time limit for an equal pay claim for breaches of the equality clause by the transferor begins to run from the date of the transfer. Therefore the Claimants should have brought their claims within 6 months of the date their employment transferred to Sodexo.

Sodexo’s ongoing liability

The EAT held that the Claimants' claims relating to employment with Sodexo should continue. The equality clause in the Claimants' contracts of employment had taken effect during their employment with the Trust. The Trust had failed to implement the equality clause by aligning the Claimants' pay with that of their male comparators. However, whilst the equality clause itself did not transfer under TUPE, the contractual rights created by it formed part of the Claimants’ terms and conditions of employment at the point of the TUPE transfer. Sodexo was therefore under an obligation to honour the enhanced terms created by the equality clause. Failure to do so following the transfer constituted a breach of contract on the part of Sodexo, which entitled the Claimants to bring equal pay claims in respect of any ongoing breaches by the transferee. The relevant time limit for bringing such claims was 6 months after termination of employment with the transferee.

CASE COMMENT

These cases are of particular significance to the public sector. Although pay protection arrangements are not illegal, the Court of Appeal emphasised the need to justify such schemes on an objective basis. Local authorities should ensure that they identify (and include) employees who could potentially fall within a pay protection scheme where they have a valid equal pay claim. This is the only means of evaluating the true cost of any pay protection scheme.

The decision in Sodexo confirms the ruling in Powerhouse that the 6 month time limit for equal pay claims relating to employment with the transferor begins to run from the date of the transfer, which is not, in itself, surprising. However, more controversially, transferees will be liable for any ongoing breaches of contract for failure by the transferor to implement an equality clause prior to the transfer. The basis of any claim (it appears) will be a breach of the Equal Pay Act rather than a straightforward breach of contract claim. This puts a heavy burden on transferees who may not have the means to undertake the necessary due diligence to assess the risk of such clauses. In practice, transferees will need to ensure that this risk is covered by carefully drafted indemnities in the transfer contract with the local authority.

PAY AUDITS

The Government is proposing to require public sector employers to conduct pay audits in order to publish statistics showing the gender pay gap. It is proposed that this requirement should also apply to private sector firms who perform public sector contracts. Although all private companies will be encouraged to conduct similar pay audits, at present there are no plans to make such audits compulsory for the private sector.