Pay racket

City organisations need to watch out. As the Equal Pay Act builds up steam high-earners may start looking at what their peers are taking home, with a tribunal hearing the likely outcome. By John Cavanagh QC

In recent years there has been a number of sex discrimination and race discrimination cases involving well-paid City workers. These have hit the headlines because the sums involved are so high and, sometimes, because of the salacious nature of the allegations. Partly as a result of these cases, most large employers are alert to the importance of ensuring that there is no discrimination or harassment on the grounds of sex, race, disability, sexual orientation, religion or belief and, from October 2006, age at the workplace. In the face of the high profile of such discrimination cases, it is easy to overlook another, just as important, branch of the law of equal opportunities. This is the law of equal pay.

The Equal Pay Act

It is now more than 30 years since the Equal Pay Act 1970 came into force, but there is still a long way to go towards obtaining pay equality for women. Statistics published by the Equal Opportunities Commission for 2005 show that hourly earnings of women in full-time employment were, on average, 18 per cent less than men in full-time employment.

In the past couple of years, there has been something of a boom in equal pay claims in employment tribunals. A number of very large-scale equal pay claims are currently proceeding through the tribunals and appellate courts in which the sums at issue run into many millions of pounds. However, these claims generally involve large numbers of relatively low-paid female claimants and public sector employers, such as local authorities and health trusts. There have in contrast been surprisingly few equal pay claims brought by high-earning employees of City banks, financial institutions and the like. This is likely to change.

Many City employers are at risk of equal pay claims that may not only lead to very large awards in favour of claimants, but which may also force them to introduce far more structured and transparent pay models than has necessarily been the case in the past.

How a claim works

In order to bring an equal pay claim a person must select one or more comparators of the opposite sex. A comparator is someone who is employed either on like work, work rated as equivalent or work of equal value with the work of the claimant. The act imports an equality clause into contracts of employment, which entitles the claimant to the same level of pay and benefits as the comparator, unless there is a genuine material factor (GMF) explaining or justifying the differential.

An equal pay claim can be brought by a woman using a male comparator, even if a mixture of men and women do the claimant’s job, and even if a mixture of men and women do the comparator’s job. It is nevertheless relevant to identify whether the claimant’s job is predominantly done by women, and the comparator’s job is predominantly done by men, because if that is the case it may well be necessary to justify the differentials in pay, whereas if the gender balance between the two jobs is roughly equal and there is no other reason to conclude that the differential is caused by sex discrimination, it is only necessary to explain, not justify, the difference in pay.

If a claimant succeeds in their equal pay claim, they are not only entitled to the same pay and benefits as the comparator for the future, but are entitled to arrears of pay for six years. So, for example, if a female bank employee who has received only a small annual bonus successfully claims that her work is of equal value to that of a male employee who has received annual bonuses worth many hundreds of thousands of pounds per annum, the arrears of pay could amount to millions.

Most contested equal pay claims revolve around one or both of two issues. The first is whether the claimant’s job is of equal value with their comparator’s. This can be a very difficult assessment, as it involves making comparisons between completely different jobs, such as painters and cooks, or university lecturers and accountants. The other issue is whether there is a valid GMF. In cases where the pay imbalance has a disparate impact upon women so that the differential needs to be justified, tribunals often tend to be sceptical towards the GMFs advanced by employers.

Defence difficulties

Many City institutions are particularly vulnerable to equal pay claims. The difficulty in comparing highly specialised jobs means that it will be difficult to deal with equal value challenges in which a claimant says they are entitled to the same pay as someone elsewhere in the organisation doing a completely different job. The experts used by tribunals and parties to give evidence about job comparisons do not generally have expertise relating to highly paid occupations.

Opaque bonus arrangements cause particular difficulty. If there is no clear audit trail to explain why one person receives a large bonus and their colleague a much smaller one, the employer may struggle to justify why two people receive such different pay. This is a particular problem for performance-related bonuses that are paid on the basis of ‘feel’ rather than some objectively measurable standards. The payment structure will not be transparent and so will probably be viewed with suspicion by a tribunal.

The consequences for an employer against which a successful equal pay claim is brought can be serious. Not only might the employer have to pay out a large sum by way of arrears of pay to the successful claimant, but colleagues in a similar position to the successful claimant, including male employees, may make ‘piggy-back’ claims. Also, the disclosure process may bring out into the open the secretive world of discretionary bonuses. Employees not directly involved in the litigation may become disgruntled when they see what their colleagues are earning.

The only way to avert further equal pay claims might be for the employer to re-examine its pay practices, perhaps put an end to the culture of discretionary bonuses and commission a full-scale job evaluation study, with consequent adjustments to the rates of pay for various jobs.

There are always losers as well as winners, as the result of job evaluation schemes, and the price to be paid for introducing a pay structure that is Equal Pay Act-compliant, is that employers have to deal with the employee relations problems that result from having to reduce the pay of some of the workforce.

So why have so few equal pay claims been brought so far against City institutions? This is in part because most, although not all, equal pay claims are brought by trade unions, and high-earning employees are unlikely to be members of trade unions. Also, in the past, the high-earning City workforce was predominantly male, and a person who was dissatisfied with their bonus would not think that they might have redress via the Equal Pay Act. As time moves on, however, the strong likelihood is that we will begin to see more high-profile equal pay claims involving high-earners, and the current trickle may become a flood.

John Cavanagh QC is a barrister at 11 King’s Bench Walk Chambers

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