The recent decision of the Employment Appeals Tribunal (EAT) in the case of Sodexo Ltd v (1) Gutridge and others (2) North Tees and Hartlepool NHS Foundation Trust is significant for waste management companies who contract or intend to contract with local authorities. The case concerned the liability of a contractor (Sodexo) for back-pay arising from a claim for equal pay brought by an employee who had transferred to them under TUPE from an NHS Trust.

The Equal Pay Act 1970 (‘EqPA’) works by implying an equality clause into the contract of employment where there is unequal pay between male and female employees who are employed on equal work. Equal pay is at the forefront of the agenda for local authorities due to the implementation of a new pay and grading structure in April 2007. Unfortunately, some local authorities are still to implement the new pay and grading structure, and are still to negotiate an agreement with employees over back pay which is due to them as a result of their grades going up under the new structure. For waste management companies who contract with local authorities this means that there is a potential outstanding liability in respect of equal pay for those employees who have or will transfer to the company under the contract. This liability would transfer to the waste management company notwithstanding that the ‘breach’ occurred prior to the date they commenced the contract.

In the Sodexo case, the TUPE transfer took place in July 2001. In December 2006, the female employees who were employed as domestics / cleaners brought claims under the Equal Pay Act 1970 alleging that they had been paid less than certain male employees who were in jobs which were graded the same as theirs. They claimed back pay going back six years from the date of the claim, which covered several months during the period pre-transfer, when they were employed by the NHS Trust rather than Sodexo.

The Employment Appeals Tribunal (EAT) held that, as the claims in respect of the Claimants’ employment with the NHS Trust had been brought 5 years after the date of the transfer, they were out of time. If the claims had been brought within 6 months of the date of transfer then Sodexo would have been liable to compensate the Claimants for any back-pay which arose as a result of pay inequality pre-transfer. In respect of the claims arising during the period of the Claimants’ employment with Sodexo, these could be brought at any time within 6 months from the end of their employment with Sodexo.

Another key point arising from the case was that the Claimants were entitled to compare their pay with male employees who they had worked alongside at the NHS Trust before the transfer but who had not transferred to Sodexo. Provided the Claimants could show that the NHS Trust had been in breach of the equality clause before the transfer (by paying the male comparators more than them for doing work of equal value), their entitlement to the higher rate of pay would continue even after the transfer. This meant that Sodexo could be liable, and therefore be required to compensate the Claimants, in respect of an on-going breach of the equality clause post-transfer.

Practical pointers

  •  The need for proper due diligence and enquires to be made when bidding for or taking over a contract for waste management will be key. If proper enquires are not made then the company may inherit substantial liabilities for equal pay claims of which it has had no knowledge or control.
  •  The costs of having to defend such claims and the liability for compensatory back pay which can be awarded for up to 6 years prior to the claim should be taken into account when costing the contract.
  •  Where possible, the contractor should ensure that it has appropriate warranties and indemnities in place in the contract with the local authority which specifically deal with liabilities for equal pay.