Market forces prevail in Next equal pay appeal
In a significant reversal of the 2024 Employment Tribunal judgement, the Employment Appeal Tribunal (EAT) has held in Next Retail Limited and another v Thandi and others that recruitment and retention pressures can justify a pay differential that disproportionally impacts workers of one sex as compared to another. The decision, which will be a major set-back for claimants in other ongoing equal pay litigation, has wider implications for employers setting pay in light of challenging market conditions or facing equal pay claims involving comparisons between different roles.
Background
The long-running litigation was brought by thousands of predominantly female retail sales consultants. The claimants were paid less than warehouse operatives, a workforce with a higher proportion of men, whose work an Employment Tribunal found to be of equal value. To justify the pay differential Next relied on the “material factor” defence under section 69 of the Equality Act 2010, arguing that it had to pay the higher warehouse rate to recruit and retain sufficient staff to maintain the warehouse service.
The Employment Tribunal accepted that market conditions required higher warehouse pay, but found that the driver for the pay differential disproportionately impacted women. On that basis, Next’s defence depended on it being able to establish that its aims in paying different rates were legitimate and the measure proportionate to those aims. The Tribunal considered that Next’s failure to raise retail consultants’ pay was based on cost alone because the business could have afforded to match the warehouse rate – it being established that relying on cost factors alone is not legitimate. Next appealed the point to the EAT.
The decision
The EAT upheld Next’s appeal on basic pay.
The EAT held that the relevant question was why differential had arisen in the first place, not why it had not been corrected – in other words, the question was why warehouse operatives were paid more, not why the retail consultants had not been given the same uplift. On the Tribunal’s own findings, the higher warehouse rate reflected genuine market pressure and the need to recruit and retain staff; it was therefore not a “costs only” aim.
The EAT also held that the differential was proportionate. Without paying the market rate, Next risked being unable to operate its warehouses effectively, while the same recruitment and retention pressure did not apply in its stores. In short, Next paid what it needed to pay for sound business reasons. However, the ruling was not a complete victory: findings concerning some other terms, including night and overtime premiums and paid rest breaks, were not overturned.
The claimants have indicated that they intend to appeal the basic pay decision, so we may see further movement on this important point.
Practical implications for employers
The decision does not give employers a blank cheque to rely on “the market”, but it provides some comfort (for now) to employers setting pay in the face of strong and diverging market pressures.
Employers should continue to be alive to equal pay risks and scrutinise pay structures for unexplained disparities, particularly where different roles show gender-biases. Where pay differentials for work that may be considered of equal value are identified, these must still be explained by a genuine material factor, and any indirectly discriminatory effect must be objectively justified. Employers relying on market pressures, including recruitment and retention issues, should keep contemporaneous evidence of labour-market conditions, vacancies, turnover and the operational consequences of paying less. They should also assess each element of remuneration separately: a justification that succeeds for basic pay may not justify premiums, breaks or bonuses.
If you would like to discuss the implications of the decision for your organisation, please contact a member of our Employment team.
Subcribe to news and viewsThe ruling has wider significance because the question of whether “market forces” can justify paying different rates for work of equal value is central to other long-running claims against some of the UK’s biggest retailers, including supermarkets Tesco, Asda, Morrisons and J Sainsbury.
https://www.ft.com/content/314ef6d6-6c82-4f3f-8e47-7aff135a1dbe?syn-25a6b1a6=1
