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Men and women have the right to receive equal pay for equal work. If equal pay has not been received a claim can be brought in the Employment Tribunals under the Equal Pay Act 1970. Although sex discrimination is often also claimed, in practice equal value claims are often likely to be of higher value in terms of compensation in practice. In this article we focus what such claims mean and what is required to prove or defend an action under the Equal Pay Act.
There have been a series of high profile cases brought by female partners of law firms, accountancy practices, hedge funds and other LLPs involving equal pay claims and quite frequently a claim for sex discrimination on account of failure to promote or provide the opportunity to be promoted. Compensation awarded by the Employment Tribunals has been substantial, but many cases never reach the Employment Tribunals and are settled out of court by way of a compromise agreement.
Key areas covered in this article:
The domestic statutes which give effect to the right to equal pay are the Equal Pay Act 1970 and the Sex Discrimination Act 1975.
Although the language of the Equal Pay Act assumes that the rights which it confers will be exercised by women, the Act applies equally to men. The analysis which follows makes the same assumption as the Act.
The way in which the Equal Pay Act works is by implying an equality clause into a woman's contract of employment. The equality clause comes into play where the woman is in the same employment as a man (her 'comparator') who is engaged on:
The equality clause has the effect of eliminating any discriminatory differences between the contract of the woman and her comparator. It achieves this by modifying the woman's contract to bring it up to the same standard as the man's.
Equal pay operates in relation to all contractual terms and not just those concerned with pay. The object is to eradicate disparities in pay which are due to sex discrimination; it does not create a general right to equal pay for equal work. This is made clear by the long title to the Act, which describes it as: 'An Act to prevent discrimination as regards terms and conditions of employment between men and women'. This statutory purpose, which has been emphasised by the courts on a number of occasions, is to eliminate sex discrimination in pay, not to achieve fair wages. The Equal Pay Act gives effect to this principle by providing that the equality clause will not operate where the employer can show that a disparity between the contract of a woman and her comparator is attributable to factors other than sex.
Whilst the Equal Pay Act outlaws discrimination in relation to contractual terms, the Sex Discrimination Act proscribes discrimination in relation to non-contractual benefits, including benefits consisting of the payment of money. The two Acts form part of a single comprehensive code aimed at eliminating sex discrimination and they must therefore be construed and applied as a harmonious whole.
Whilst the Equal Pay Act and the Sex Discrimination Act constitute a single legislative code, the rights which the two Acts confer are mutually exclusive. Where the provision of benefits consisting of the payment of money is regulated by the woman's contract of employment, the Equal Pay Act applies. It is only where such benefits are not contractual in status that the woman can bring a claim under the Sex Discrimination Act.
The Equal Pay Act applies equally to direct and indirect discrimination. In essence, direct discrimination in pay occurs where the pay which a woman receives is depressed because she is a woman. However, the Equal Pay Act requires her to establish this by showing that she is in fact paid less than a comparable man. The employer's motive for paying the woman less is irrelevant. Direct discrimination can be established simply by showing that the woman's sex is the reason why she is paid less than a man; it does not matter whether the employer is actuated by deliberate bias against women or acts from benign motives.
In the context of pay, indirect discrimination occurs where the employer operates a pay practice which, although superficially gender-neutral is, in practice, disproportionately disadvantageous to women. Indirect discrimination can be intentional or unintentional. It is intentional where the employer is motivated by a covert desire to treat women less favourably. It is unintentional where the employer does not intend to cause any disadvantage to women but operates the pay practice to achieve some other purpose. Whilst intentional indirect discrimination is always unlawful, unintentional indirect discrimination is not unlawful if the employer can show that the pay practice is justified. Justification cannot, however, be established simply by showing that the practice is designed to achieve some legitimate non-discriminatory objective. The employer also has to prove that the practice is reasonably necessary to achieve the objective in question.
Unlike the Sex Discrimination Act, the Equal Pay Act does not refer expressly to indirect discrimination. The latter is nevertheless caught by the Equal Pay Act because an employer cannot rely on a pay practice which involves unjustified indirect discrimination to excuse a difference between the contract of a woman and her comparator.
There is a Code of Practice on Equal Pay ('the Code'). Its stated objective is 'to provide practical guidance and recommend good practice to those with responsibility for or interest in the pay arrangements within a particular organisation'. The Code is admissible in evidence in proceedings under the Equal Pay Act.
In the great majority of cases, the Equal Pay Act will provide a claimant with an adequate remedy. There is also a right to equal pay for employees who intend to undergo, are undergoing or have undergone a gender reassignment.
Although the Equal Pay Act is framed in terms which refer to women and their treatment in comparison with men, it applies equally to discrimination against men. In order to take advantage of the Equal Pay Act a woman must be employed in Great Britain.
The often blurred line between employment and self-employment does not impede the elimination of discrimination between men and women who perform work in a personal capacity. Self employed persons can be treated as 'employed' for the purposes of the Equal Pay Act . This means that partners, directors, senior executives and principals are all covered.
The equality clause is the mainspring of the Equal Pay Act . It is the mechanism which the Act uses to bring about contractual equality between men and women. All contracts of employment or service are deemed to include an equality clause. The equality clause comes into operation in three situations, namely:
The equality clause has two effects:
A woman is entitled to compare each distinct term in her contract with the corresponding term in the man's contract. It is not appropriate simply to compare the contracts as a whole. The employer's argument was rejected by the House of Lords, which held that a woman can claim the benefit of the equality clause whenever she can point to a term in her contract of employment which is less favourable than the corresponding term in her comparator's contract, irrespective of whether her contract, taken as a whole, is as favourable as his.
The House of Lords acknowledged that this construction could lead to 'leap-frogging', with men and women claiming parity with each other in relation to individual terms and thus achieving the overall enhancement of their contracts. They suggested, however, that an employer might be able to defend differently structured remuneration packages by relying on the genuine material factor defence if it can show that unfavourable terms in a woman's contract are offset by other terms which are more favourable.
There is for example, unlikely to be a breach where an employer stipulated that overtime rates would only be paid for hours in excess of the normal working hours of a full-timer with the result that part-timers were not entitled to overtime payments when they exceeded their individual contractual hours.
The equality clause will only bite on a term if it is less favourable than the corresponding term in the comparator's contract. Accordingly, a woman cannot rely on the Equal Pay Act to assert that she ought to be paid more than a man.
The equality clause operates by bringing the woman's contract up to the same standard as the man's. The employer is not allowed to consider that a category of employees have been paid too much and scale down - the Equal Pay Act only permits a scaling up. Employees in the disadvantages class if success in their claim before the Employment Tribunal will therefore receive compensation equal to the difference in pay.
Where the cost of providing equal benefits in the future is likely to be onerous, the employer may wish to downgrade the contractual terms of both the woman and her comparator. Although such action will be subject to the restrictions on an employer's power to vary contracts of employment, there is nothing in the Equal Pay Act to prevent an employer from equalising future benefits by removing or reducing a benefit previously provided on a discriminatory basis.
The Equal Pay Act applies to benefits which a worker receives 'indirectly' from his employer as well as to benefits received directly. This means that it governs:
It is a requirement that pay is focused on the gross amount of pay which men and women receive. It is immaterial that their net pay is the same after allowing for deductions which are imposed uniquely on the men.
The extent of the legislation is to prohibit discriminatory conditions of access to pay as well as discrimination in the quantum of pay.
A woman can only claim equal pay with a man who is in the same employment as herself and is engaged on like work, work rated as equivalent or work of equal value.
Under the Equal Pay Act, a woman must compare herself with an actual male worker; she cannot assert that a hypothetical male would be treated more favourably than she is. A claim can be brought on this basis under the Sex Discrimination Act, although the Sex Discrimination Act does not apply to benefits consisting of the payment of money which are regulated by the woman's contract of employment.
The choice of comparator is entirely up to the woman. There is nothing in the wording of Equal Pay Act to prevent a woman choosing as a comparator a man whose position is in some way anomalous. However, the fact that the comparator is a special case may provide the employer with a genuine material factor defence. A woman is entitled to select more than one comparator.
On the other hand, a 'scatter-gun' approach should be avoided as Employment Tribunals are alert to prevent abuse of the equal value claims procedure by applicants who cast their net over too wide a spread of comparators.
The first of the situations in which the equality clause in a woman's contract comes into play is where she is employed on 'like work' with a man in the same employment. The Equal Pay Act defines 'like work' in the following terms:
A woman is to be regarded as employed on like work with men if, but only if, her work and theirs is of the same or a broadly similar nature, and the differences (if any) between the things she does and the things they do are not of practical importance in relation to terms and conditions of employment; and accordingly in comparing her work with theirs regard shall be had to the frequency or otherwise with which any such differences occur in practice as well as to the nature and extent of the differences.
A difference in the degree of responsibility exercised by the woman and her comparator may be a difference of practical importance in relation to their terms and conditions of employment. It may preclude a finding of like work even where the tasks performed by the woman and the man are essentially.
The work of the applicant and her comparator must be compared as a whole. Where the work is partly the same and partly different, it is not like work. A woman cannot hive off part of the man's work and claim equal pay for those activities which she and the man have in common.
The second situation in which the equality clause operates is where the woman is employed on work rated as equivalent with that of a man in the same employment. The Equal Pay Act states that a woman is to be regarded as being employed on work rated as equivalent with that of a man if, but only if:
A claim for equal pay can be made where work is of equal value. A woman cannot bring an equal value claim if her chosen comparator is employed on like work or work rated as equivalent. It does not mean that a woman is debarred from claiming equality with a man employed on work of equal value because another man is employed on like work or work rated as equivalent and is paid the same as the woman.
The right to parity arises where the woman's work is of equal value 'in terms of the demands made on her (for instance under such headings as effort, skill and decision) .' The demands made under different headings must be assessed on a qualitative rather than a quantitative basis, so that the demand in terms of the number of hours worked is outside the scope of the evaluation. Moreover, the economic value of the work is immaterial, although that may be a factor that can be taken into account. Employment Tribunals often request job evaluation surveys to help them determine these issues.
Once a woman establishes that she is paid less than a man employed on like work, work rated as equivalent or work of equal value, the ball swings into the employer's court. It is then for the employer to show that the difference in pay is not due to sex discrimination. If it is unable to do so, the equality clause in the woman's contract will come into play. This is because a woman who shows that the conditions set out in the Equal Pay Act are fulfilled raises a presumption of discrimination, which the employer must rebut if it is to prevent the operation of the equality clause.
The employer's defence is contained in the Equal Pay Act which provides that an equality clause shall not operate in relation to a variation between the woman's contract and the man's contract if the employer proves that the variation is genuinely due to a material factor which is not the difference of sex.
Whilst it has always been clear that an employer is required to establish objective justification for a pay practice which involves indirect discrimination, it was until recently uncertain whether an employer is also required to justify a pay differential which has no disparate impact between the sexes. The House of Lords has ruled that an employer is not required to justify its pay system in every case where unequal pay is alleged. The need to establish objective justification only arises, the House held, where the factor relied upon is indirectly discriminatory. If, an employer were required to establish objective justification for every difference in pay, the effect would be to turn the Equal Pay Act into a 'fair wages' Act requiring the elimination of disparities in wages even though they had nothing to do with sex discrimination.
The employer must establish its defence on the balance of probabilities. Where, however, the claimant alleges that the factor which explains the difference in pay is indirectly discriminatory, it is for her to prove that it is disproportionately disadvantageous to women.
The factors which can be advanced by an employer as justifying a difference in pay are numerous. The paragraphs which follow consider those which are most commonly relied upon.
Differences in the personal attributes of the applicant and her comparator may provide the employer with a defence. These may include factors such as seniority, skill, experience and training. Where, however, an employer relies on factors which have an adverse impact on women, its defence will not succeed unless it can show that their application is objectively justified.
'Red circling' occurs where an employee's salary is personally protected for special reasons, e.g. because he has been moved to his present position from higher paid work as a result of incapacity or because of a demotion. Where a woman claims equal pay with a man whose salary is artificially high for this reason, the employer may be able to provide a defence to the Equal Pay Act.
If the scheme produces a situation in which the average salary of female workers is lower than that of male workers, the burden of proof will be on the employer to show that it is not discriminatory.
Since women generally find it more difficult to work full-time than men, the difference between full-time and part-time working is not of itself a material difference other than sex. The employer will have to show that there are objectively justified grounds for paying full-time workers a higher hourly rate than part-time workers.
In summary, employers must be careful to avoid equal pay claims and claims for sex discrimination, both direct and indirect. Employers must be able to defend their position and provide objective justification for any pay disparities. It may, in some circumstances, be advisable to settle any equal pay claims by way of a compromise agreement to avoid costly litigation and adverse publicity.
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This paper is designed to provide a summary of the issues addressed. Therefore, it is not intended as a detailed commentary on the relevant law and any comments made should not be acted upon without first taking specific legal advice.