The Court of Appeal has held that the Employment Tribunal (‘ET’) was wrong to hold that material factors relied on by the Respondent as a defence to an equal pay claim ceased to apply at some point between when the decision was made on the level of salary and a job evaluation survey a year later.
- The law
The ‘equality of terms’ provisions contained in the Equality Act 2010 set out the law on equal pay and implements the principle that men and women should receive equal pay for equal work. This is achieved through implying a ‘sex equality clause’ into a woman’s contract of employment, providing the benefit of more favourable terms enjoyed by a man in the same employment doing equal work, unless the difference is due to a non-discriminatory ‘material factor’.
The Claimant was appointed Chief HR Officer for the Respondent in February 2014. Around the same time, the Respondent was in an unhealthy financial state and changes were proposed to the executive team, which included the Claimant. One change included enhanced salaries for retention of the executive staff and to reflect increased responsibilities. The Claimant’s salary was increased to £425,000 which was lower than the salaries of other executives. The Claimant was later dismissed in 2017 and brought numerous claims against the Respondent, including for equal pay relying on two male colleagues as comparators.
The Respondent sought to rely on the material factor defence for the difference in pay, highlighting four factors including, vital roles, executive experience, flight risk and market forces. The ET found that these material factors applied to the Claimant and her comparators at the time of their salary increases in 2014 and justified the pay differences at that time. It was however concluded by the ET that following a job evaluation study carried out in 2015, which found that the Claimant’s role was equal to that of her comparators, the “historical explanations” for the difference were no longer material and therefore the defence failed.
The Respondent successfully appealed to the Employment Appeals Tribunal (‘EAT’) who disagreed with the ET. It held that the tribunal was wrong to base their decision on the fact that that there had been a slide from a position where there were material factors which justified the pay differences, to a position a year later where the original justifications had gone. It was further held that before a prior legitimate decision could be set aside, a new decision had to be made which was tainted by sex discrimination. The Claimant appealed to the Court of Appeal.
The Court of Appeal dismissed the appeal and agreed with the EAT. It recognised that the ET was entitled to find that the job evaluation survey established that as of February 2015, the Claimant’s role was equal to her comparators but highlighted that this fact does not mean in itself that the claim should succeed. The critical question is instead whether the material factors relied on at this time had ceased to operate to explain the differences in pay.
It was concluded by the Court of Appeal that the ET’s classification of the material factors argued by the Respondent as ‘historical explanations’ overlooked the fact that there was at least one material factor which still explained this difference. Crucially, it was noted that “what matters is that it was indeed the explanation for the pay difference.”
- Implications for employers
The decision emphasises the importance of approaching such cases subjectively and looking at the actual motivations behind any differences of pay rather than objectively which seemed to be the method adopted by the ET.