Paying employees differently because they do different jobs or command different market rates may seem perfectly reasonable. However, where two groups do work of equal value and have different gender profiles, a difference in pay can create an equal pay risk, even if the employer had no intention of discriminating. A recent Employment Appeal Tribunal (EAT) decision confirms, however, that specific recruitment and retention pressures can justify such a difference, where the employer can evidence them.
When can different jobs raise a pay issue?
Jobs do not have to be identical for differences in pay to become relevant. Two jobs can count as equal work even if they look very different, if they place comparable demands on the employees doing them. That was the issue in Next Retail Ltd v Thandi and others. The claimant group worked as shop-floor sales staff, while the comparators worked as warehouse staff. The employment tribunal (ET) had found that the two groups were carrying out work of equal value.
The retail workforce is predominantly female while the warehouse workforce is much more evenly balanced by gender. The EAT upheld the ET’s finding that the pay arrangements placed the predominantly female retail workforce at a particular disadvantage. Next therefore had to show that it could objectively justify the difference in pay.
Can an employer justify the difference?
An employer may be able to defend a pay difference by showing that it results from a genuine reason unrelated to sex. Where that reason puts women at a particular disadvantage, the employer must also show that relying on it is a proportionate means of achieving a legitimate aim.
Next relied on market forces and the need to recruit and retain sufficient warehouse staff. The EAT held that the ET had approached this issue incorrectly by focusing on why Next paid the retail staff less and whether Next could afford to increase their pay. The relevant question was why it paid the warehouse staff more.
On the ET’s own findings, Next needed to pay higher basic rates in its warehouses to recruit and retain sufficient staff. Those pressures did not apply in the same way to its retail workforce. The EAT concluded that the difference in basic pay was therefore justified. Importantly, this was not simply a case of warehouse work commanding a higher market rate. Next had shown a specific business need to pay the higher rate.
However, Next did not succeed on every aspect of its appeal. The EAT upheld findings against it in relation to some other pay terms, including night-time premiums and paid rest breaks, where the ET had found that cost-saving explained the difference, rather than a specific business need applying to the warehouse workforce.
What should employers take from this?
- Keep evidence of the reasons for higher pay. Where you pay one group more because of recruitment or retention pressures, keep evidence of those pressures and why they apply to that group. Recruitment data, vacancy levels, turnover, competitor pay and difficulties filling roles may all be relevant.
- Focus on the reason for the difference. The question is not simply why you pay one group less or whether you could afford to equalise pay. You should be able to explain the genuine business reason for paying the other group more and, where objective justification is required, why the resulting difference is proportionate.
- Do not rely on market rates in the abstract.There is an important distinction between paying more because a particular role genuinely requires a higher rate to recruit or retain staff and simply paying more because that type of role has historically attracted higher pay.
The decision gives employers useful reassurance that equal pay does not necessarily mean equal pay rates for work of equal value. Differences can be justified where there is a genuine business need to pay one group more. The key is being able to show why the difference exists, with evidence that supports the reason relied on rather than simply pointing to different market rates.
