Pay and dismay

Public sector lawyers, and particularly public sector employment lawyers, are very familiar with uncertainties in case law. A good example was the constant litigation associated with the Transfer of Undertakings (Protection of Employment) Regulations 1981 (Tupe). This case law uncertainty now seems destined to apply to equal pay litigation for the next few years.

The mass equal pay litigation, which initially commenced against local authorities in the North East, pursued by Stefan Cross Solicitors, is widely known, but this has rapidly spread across the country and to other sectors, most notably the health sector. Such litigation is now also actively being pursued by other claimant lawyers and trade unions on behalf of their predominantly female members. A number of cases are progressing to appeal and considerable sums of money have changed hands by way of compensation payments and settlement sums.

Overturning decisions
Even points that we formerly thought were clear have been litigated again and taken to appeal. One example is the question of who is an appropriate comparator in a school situation. This had already been determined in Governing body of Blessed Edward School v Rawlinson (2003), but the issue was taken to appeal in Dolphin v Hartlepool Borough Council (2006).

Another example is the issue of the relevant limitation period for equal pay claims once the worker’s employment has ended, particularly when there is a significant change in job role. This was considered in Marriott v Oxford & District Cooperative Society (1970) and was recently determined again in Degnan v Redcar & Cleveland Borough Council (2005).

Other recent appeal decisions, such as that of the European Court of Justice (ECJ) in Cadman v Health & Safety Executive (2006), have also confused the position. In that case it was held that employers do not have to justify using length of service as a criterion for determining pay, even if this has a disparate impact between the sexes, unless an employee raises serious doubts that the length of service criterion is appropriate. This now begs the question: what will be ‘serious doubts’?Unfortunately the ECJ has not provided guidance in this respect, and therefore we can anticipate further litigation on the point. The decision in Cadman seems at odds with the age discrimination legislation, which requires justification of length of service criteria beyond five years.

In the midst of this state of complexity, public sector employers and their advisers have focused on either defending, or negotiating their way out of, their potential back-pay liability under equal pay legislation.

Accordingly, a number of public sector employers have responded to identified pay differentials across the workforce by the negotiation of settlements with potential claimants. These negotiations have often proceeded with the assistance of the trade unions, which are mindful of the need to balance the interests of the various sections of the workforce to retain jobs and service provision.

Such negotiations often arise as a result of the introduction of new pay and grading systems to redress pay differentials and improve salaries of those staff whose grades have improved following a new job evaluation exercise (the winners) at the same time as cushioning the impact on those staff whose salaries will go down under the new system (the losers).

Two recent case law developments have made this strategy plan more difficult. The recent decision of the Employment Appeals Tribunal (EAT) in Redcar & Cleveland Borough Council v Bainbridge (2006) will not be welcome news for public sector employers, which are negotiating new pay and grading systems, including pay protection for the losers, but only new grades (and sometimes back pay) for the winners.

In this case the tribunal considered pay differentials between predominantly male and predominantly female groups of employees that had arisen due to historical bonus payments. The tribunal found that, in some instances, the council did not have a genuine material factor defence for making bonus payments to certain categories of staff and not to others.

However, the tribunal went further and found that, given that such payments were discriminatory, it followed that the pay protection arrangements negotiated as part of the new pay and implementation systems were also discriminatory, notwithstanding the contractual entitlement of the male employees to receive such pay protection.

The EAT reluctantly upheld the tribunal’s decision on this point, acknowledging the ramifications from a financial and industrial relations perspective. The EAT did say that pay protection of discriminatory pay could still be lawful providing it was justified objectively, which Redcar was unable to do.

Pay protection
What, then, happens if public sector employers cannot afford to bring all of the workforce up to the same level of those who are receiving higher levels of salary than that determined under new pay and grading schemes? Negotiation with workforce representatives springs to mind. However, therein lies a problem.

First, in Bainbridge the trade union had negotiated the pay protection arrangements as part of the new single-status pay and grading system, yet the arrangement was still found to be discriminatory.

Second, trade union/employer negotiations have recently suffered a blow following the first instance decision of the Newcastle Employment Tribunal in the case of Allan v GMB (2006) arising out of the Middlesbrough Council equal pay litigation.

The tribunal found that the trade union had indirectly discriminated against its female members in its negotiation of the single-status agreement by placing more emphasis on pay protection for predominantly male groups of staff than rightful back pay for predominantly female groups. The union’s liability arose due to the way the back pay offer was ‘sold’ by the union to the female groups of staff. This case is currently being appealed to the EAT.

Avoiding discrimination
So what can public sector employers and their advisers do to navigate their way through the maze? They should consider their payroll and staff records to establish who is paid what, when and why. Bainbridge makes pay protection unlawful only if the original payment was discriminatory and only then if it cannot be justified objectively. Therefore it is essential to investigate any pay differentials to establish if they are discriminatory in full or in part to ascertain a strategy moving forward.

If such payments can be demonstrated not to be discriminatory, then both the employer and the trade union can show that they have behaved appropriately and may still progress implementation strategies.

If it is discovered that the pay differential is discriminatory, the public sector employer will have the difficult decision of whether it can uplift salaries to the highest level immediately rather than protect the losers until the winners catch up. If it cannot afford to do so, what are its options?The ultimate option may have to be termination of the losers’ contracts and re-engagement without the additional element of salary. This will clearly not be a popular option with the employees and the trade unions. Industrial action may result, which in turn could affect public service provision. The sad reality is that this may be necessary to avoid liability for further discrimination.
Shirley Wright is a partner at Eversheds