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Material factor continues to operate as defence to equal pay claim

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A new EAT decision holds that, once justified, a material factor defence stands until a new decision on pay is taken.  In Co-Operative Group Ltd and anor v. Walker [2019] the EAT decided that, in the absence of a new decision displacing the original pay rates, a material factor which justified a difference in those rates could continue to be relied upon by the employer.

Background

Ms Walker was promoted to Chief Human Resources Officer in February/March 2014 when the Co-operative Group (Co-op) was in a financial crisis. Other members of the Executive Committee were considered to be critical to the survival of the Respondent company, and were therefore offered enhanced salaries with the aim of retaining their talent. This resulted in Ms Walker being paid less than other members of the Executive Committee.

An independent assessment of executive roles in January 2015 (by which time the Co-op had survived its financial difficulties) rated Ms Walker’s role as at least equivalent and/or of equal value to other male executives. When Ms Walker was dismissed in April 2017, she brought a claim for equal pay in relation to the period between 2014 and 2015.

Material factor defence

The Co-op relied on the “material factor” defence under s.69 Equality Act 2010, arguing that there were various justifications, unrelated to gender, for setting Ms Walker’s pay at a lower rate than her comparators in 2014. The Tribunal accepted the material factor defence was established as at February 2014 so the difference in pay was initially justified.  The factors were that:

  • Ms Walker’s comparators were part of the core team and therefore crucial to the short-term survival of the Company;
  • Ms Walker had only just reached executive level;
  • the “flight risk” with the comparators was more significant than with Ms Walker; and
  • the “market rate” for one of the comparators was higher than the “market rate” for Ms Walker’s role.

However, the Tribunal decided that “at some stage between February 2014 and February 2015”, when the assessment of executive roles was implemented, the importance to the Co-op of the comparators’ roles had declined relative to the work of Ms Walker, to such an extent that her work was deemed to be of a higher value. Therefore, any historic explanations for the difference in pay could not be relied upon.  They therefore found that Ms Walker was entitled to equal pay for an unspecified part of the period and left the relevant date to be determined at a remedies hearing.

The Co-op succeeded with its appeal. The EAT had issue with the Tribunal’s vague approach. It held that there was no evidence that the Co-op had made any decision to permit the unfair arrangements to continue, or that it had even realised that a problem had transpired. Ultimately, the EAT confirmed that the material factor defence continued to operate, until a further decision was taken or omitted in relation to the rate of pay. It would only be at such a point that the Co-op would be required to justify the difference in pay again.

Learning points

The employer in this case only had to rely on the material factor for a relatively short period in which no further pay decisions were made.  In that kind of situation, this is a very helpful decision for employers.  However, it should not be stretched too far.  Whenever changes to pay are being decided, it is important to be aware that what was once a good justification for a pay difference may have changed over time and faded into irrelevance. As pay rates often change quite regularly, the reasons for differentials need to be continually reviewed.

Please do get in touch with the PRM team at Dentons UK and Middle East LLP if you have any questions relating to the issues raised.