Equal pay ruling: thousands of Next retail workers win equal pay claim

An employment tribunal has recently ruled that over 3,500 retail workers should not have been paid at lower rates of salary than warehouse operatives engaged by British retailer Next.

The retailer’s store workers, who are predominantly women, had successfully shown their work was of equal value to the work performed by the warehouse staff, over half of whom are men.

The basis for bringing an equal pay claim

If an employee and the person they are comparing themselves to of the opposite sex (comparator) perform equal work, an equality clause is implied into the employee’s contract. The effect of the implied equality clause is that the employee’s contract is to be treated as equivalent to the comparator’s contract.

An employer can prevent the effect of the implied equality clause if they can establish there was a “material factor” which caused the difference, and that factor was not discriminatory.

An employer will defeat a claim of direct discrimination if it can show that the material factor does not involve treating the employee less favourably because of their sex.

An employer will defeat a claim of indirect discrimination if it can show that the material factor is justified (i.e. a proportionate means of achieving a legitimate aim).

The employer’s defence

In relation to the indirect discrimination element of the claim, Next had argued that the difference in pay between its retail workers and warehouse operatives was justified by various material factors, including that salary and bonus rates for warehouse workers in the wider labour market are higher than for retail workers.

Next argued that its overarching legitimate aim was to ensure continued viability and resilience and successful business performance, and that it was proportionate to pay different pay to warehouse operatives and store workers where the market rate applying to those roles were different.

The Tribunal did not accept this argument regarding salary differences.  It drew the conclusion that while viability, resilience and successful business performance can be a legitimate aim, the differences were not proportionate.  Most importantly, it decided market forces, which are a common reason given for salary differences, cannot be used to trump discrimination.

What does this mean for employers?

This publicity of this decision will cause employees to raise questions about possible pay differences.  You will need to consider how you will respond, bearing in mind that you cannot enforce pay secrecy.

At this stage, the decision is legally binding on the parties to the claim only. The store workers will be entitled to compensation by way of back pay, calculated retrospectively from when they submitted their claims in 2018. Their contractual terms relating to salary will also automatically be equalised.

As these types of cases are decided based on the relevant specific facts, similar equal pay claim cases may have a different outcome. Next has also indicated its intention to appeal the decision, so it is possible that the Employment Appeal Tribunal may take a different view.

Nevertheless, employers should be mindful of key points considered by the Tribunal:

• Reliance on the position that market rate dictates pay for specific roles is not a straightforward argument. The Tribunal considered the market perception of retail work as being women’s work and warehouse work as being men’s work and whether the “market forces” factor would perpetuate systemic pay inequality, that equal pay legislation is intended to prevent. As Next benchmarked its higher warehouse salaries against the (historically and currently) predominantly male market for warehouse staff, the Tribunal drew the conclusion that this amounted to perpetuating systemic pay inequality.
• Saving money and maintaining profit cannot be the sole aim of paying lower rates to employees of the opposite sex performing equal work. Employers often rely upon a cost saving aim in these circumstances. Cost can be a legitimate aim, provided it is not the only legitimate aim, often referred to as the “cost-plus approach”. The Tribunal viewed the aims relied upon by Next to justify the lower rates of salary for store workers masked a “costs only” aim, which on its own does not justify the inequality.

Proposed changes to equal pay law

The Labour government has tabled a number of significant changes to the law governing employment, employer obligations and employee rights. The proposed changes include a new Race Equality Act, to enshrine in law the full right to equal pay for Black, Asian and ethnic minority people and to introduce ethnicity and disability pay gap reporting for employers with 250 or more staff.

No further details have been provided yet, and we anticipate the draft legislation will be published in the Labour government’s first 100 days.

How we can help

Please contact our employment team if you require advice or assistance.

For further details of anticipated changes proposed by Labour, please see our previous blog: What the Labour government means for you as an employer.

Read the full judgment.