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How to comply with equal pay legislation

The Equal Pay Act was first introduced in 1970 in order to try and achieve equality in pay rates for men and women performing the same job. The Equality Act 2010 has more recently been introduced to replace the 1970 Act, in an attempt to reduce the significant gender pay gap which still exists. As an employer, it’s key legislation that you must comply with.

What is equal pay legislation and what effect does it have?

The Equality Act 2010 means that employers must give men and women equal treatment in their terms and conditions of employment (including basic pay, overtime rates, hours, annual leave and pension) if they are employed to do like work, equivalent work or of equal value in terms of effort, skill or decision making. An employee of the opposite sex working for the same employer, doing like work of equal value is a comparator and an employer would need to show a different, fair reason for the difference in pay and that this wasn’t based on gender to successfully defend such a claim. It is now unlawful to prevent employees talking about their pay rates with colleagues, employees are entitled to know how their pay is calculated and breakdown of their pay, and some companies are now required to provide gender pay gap information, so the Equality Act 2010 and the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (GPG Regulations) have the effect of making pay more transparent.

Gender pay discrimination

The UK average gender pay difference is between 12-21%, despite legislation to attempt to tackle this. There are a variety of reasons as to why there is such disparity between the pay of men and women, including historical differences between ‘women’s work’ and men’s (being addressed with equal value claims), limited part-time or flexible work in better-paid roles (being addressed through indirect sex discrimination claims and equal pay claims, particularly where the employer seeks to explain a pay differential where a factor has a disproportionate impact on women without objective justification).

However, differences in pay between men and women might be because of discrimination in some cases, and this is unlawful. If the cause of the pay differential is direct discrimination (treating someone less favourably because of their gender); harassment (unwanted behaviour related to a person’s gender or unwanted sexual conduct with the purpose or effect of violating someone’s dignity, or creates an intimidating, hostile, degrading, humiliating or offensive environment); indirect discrimination (when a rule for men and women puts either men or women at an unfair disadvantage); and/or victimisation (when an employee is treated less favourably than others because of a complaint about discrimination or support for someone who has made such a complaint), the pay or benefit difference between men and women will not be fair or justifiable and an Equal Pay claim and/or discrimination claim could be brought by an employee, in that case.

What should employers do to comply with equal pay legislation

There are many things that an employer can do as a matter of best practice to avoid falling foul of equal pay legislation, and, depending on the size and nature of the employer, there are now specific legal obligations which an employer must comply with under Equal Pay Legislation.

  • Job evaluation scheme (JES) - This is not mandatory but is an objective analytical procedure to rank jobs in a non-discriminatory way into salary bands ensuring those roles in the same band are paid in the same way unless a material factor applies. If a thorough analytical review has been carried out an employer better protects themselves from equal pay claims in the future, if all employees within the same band of equivalent value are paid the same and it can be demonstrated objectively how roles are banded. Employers should be wary as in the short term the JES may give rise to backpay claim, but should take comfort in the fact that the JES is only representative of the roles’ value at the time of the JES and not before and so if there is an inconsistency which has been fixed by a JES this is not conclusive evidence that backpay would be due.
  • Equal pay review – If employers do not wish to go as far as to undertake a JES, they can voluntarily choose to carry out an equal pay review to correct any gender-based pay inequalities. In addition though, employment tribunals are now also able to order employers to carry out equal pay audits when they have been found to have breached equal pay law. As above, the problem with finding inequalities is that there is then a risk that employees will bring a backpay claim for the historical difference in pay between them and a comparator and so this will need to be dealt with sensitively and specialist legal advice is recommended.
  • Gender pay gap reporting – There was a failure to engage businesses to voluntarily provide gender pay gap information and so since 6 April 2017 mandatory gender pay gap reporting has been required by large private companies (over 250 employees) and public sector employers. It is unlawful not to provide the information and the government has suggested it will run checks for non-compliance, and publish league tables by sector of gender pay gaps. Further information about gender pay gap reporting can be found in disclosing information about gender pay differences, below.

How to create an effective equal pay policy

In every contract of employment there is now implied 'equality clauses'. The ‘sex equality clause’ gives a woman 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’. Further, the ‘maternity equality clause’ gives the woman the benefit of a pay rise, or entitlement to a bonus, which occurred during her maternity leave. These clauses are implied and so do not need to be drafted, but do need to be complied with.

In terms of drafting an effective equal pay policy, this must be bespoke and relevant to the specific business activities of the company it is drafted for. It is critical that the policy makes clear that equality and diversity is central to the business and that once drafted the policy is well publicised and accessible to all employees and that managers and HR are trained in implementing the policy consistently.

Contained in the policy as a minimum should be the rights and responsibilities of those who the policy applies to, who is responsible for the policy, procedures for dealing with complaints and interaction with other policies as well as how employers will deal with breaches, review procedures and how the policy will be implemented and updated. If you would like assistance in drafting an equal pay policy please contact our specialist employment lawyers.

Disclosing information about gender pay differences

As mentioned above, under the Equality Act 2010 a ‘pay secrecy clause’ is unenforceable in preventing an employee telling colleagues about their pay and it is unlawful to victimise an employee for making or seeking a relevant pay disclosure within the business.

Under the GPG Regulations, private and voluntary sector employers with at least 250 employees must collect and publish information about their gender pay gap. Separate gender pay gap reporting regulations affect the public sector. Reporting is required on:

  • Overall gender pay gap figures for relevant employees, calculated using mean, median average hourly pay.
  • The proportion of men and women in each of four pay bands to show how the gender pay gap differs across different levels of seniority.
  • The difference between men and women’s mean and median bonus pay over 12 months.
  • The proportion of male and female employees who received a bonus in the same 12-month period.
  • A written statement, signed by a senior individual in the business, confirming that the gender pay gap information is accurate.

Employers must look at their gender pay gap each April and report on it within 12 months and report every 12 months following that date on their own website (which must remain available for 3 years) and on a government website. Employers can include a narrative explaining any pay gaps and any action to be taken, but a narrative is not mandatory.

Enforcement measures for gender pay reporting are unclear at the moment: the Equality and Human Rights Commission may have some useful enforcement powers and the government has said that it will check for non-compliance and publish tables, by sector, of employers' reported gender pay gaps, and may establish a database of compliant employers, but there are no specific enforcement measures in the GPG Regulations.

How to decide what is ‘like work’, ‘work rated as equivalent’ and ‘work of equal value’

In order to decide what is fair pay across different roles an employer should look at what is equal work and to do this they might look at ‘like work’, ‘work rated as equivalent’ and ‘work of equal value’.

  • Like work: as it sounds, means that the work carried out is the same or broadly similar and any differences do not materially impact on the value of the role as it is not that big a difference in reality, or is not a difference which frequently affects the role.
  • Work rated as equivalent: This type of claim could only be brought by an employee after an employer has performed a JES and the employee must demonstrate the demands made on a worker have an equivalent rating for the role being compared to theirs under the JES (that is, they have the same numerical ranking or they fall within the same salary band); or the jobs were not given an equivalent rating, but would have been if the JES had not been made on a ‘sex-specific system’ (which means that ‘for one or more of the demands made on a worker, values for men are set differently from those set for women’). A ‘work rated as equivalent’ claim can also be made if the comparator is lower rated than the claimant employee’s work.
  • Work of equal value: this is not ‘like work’ or ‘work rated as equivalent’, but otherwise equal in relation to effort, skill, decision making and other ‘demands made’ on the claimant and her comparator. Similarly to where work is ‘rated as equivalent’, where work is of higher value than a comparator the claimant can bring a claim for work of equal value. In equal value cases the two jobs being compared need to be reviewed in detail as against each other to judge if they are in fact of equal value in all the circumstances and the considerations will differ depending on the roles being compared. This can be a complex task and the employment tribunal has discretion in these cases to appoint an independent expert to report on whether it considers the roles to be of equal value.

Who is a comparator in an equal pay claim?

Comparators in equal pay claims must:

  1. Be of the opposite gender to the claimant (they are generally female due to historic differences, but can be male, for example if they are ‘piggybacking’ off a female claim to level her pay with another male who is paid more for equal work);
  2. Be a current or previous employee (this can be more than one but should not be too wide and can be a predecessor but not a successor in the same role);
  3. Be (or have been) working ‘in the same employment’ (for the same employer at the same establishment or on common terms of employment); and
  4. Be actual, not hypothetical (this must be a real individual not what an employee might expect someone of the opposite gender to be earning).

Who can make an equal pay claim?

In addition to the above, only certain categories of individual qualify to make an equal pay claim. Employees, including apprentices and those who work from home are eligible with no qualifying period of service and whether full time, part time or on a temporary contract. Workers and some self-employed people required to perform a contract personally would also qualify. Job applicants are not eligible on the basis of a job offer being for lower pay than a comparator of the opposite gender, but in that case a sex discrimination claim could be considered.

Are there any exceptions to equal pay legislation?

All of the above must be complied with, but there is the ‘material factor defence’ (previously called the genuine material factor (GMF)) where an employer is legally able to pay a man more than a woman for doing equal work, if it can prove that the difference in pay is:

  • due to a material factor (this must be fundamental to the role and the circumstances and cannot be exaggerated for convenience); and
  • which is not directly or indirectly discriminatory (this can be difficult for an employer to prove as the factor must not involve treating the claimant less favourably than the comparator because of her sex and if the factor results in the claimant and other women doing work equal to hers being put at a particular disadvantage compared to men doing equal work, the factor must be objectively justified as a ‘proportionate means of achieving a legitimate aim’).

The employer has the burden of proving that the material factor is the real reason for the difference in pay, that it is significant, and not related to gender when seeking to rely on the material factor defence.

The employer must ensure that a decision about pay is not ‘sex tainted’ for example a link between the claimant's sex and the difference in pay may be as a result of job segregation, or pay structures which disadvantage women more than men because they generally work shorter hours or have shorter service and employers should think carefully about this before deciding on levels of pay. Examples of material factors which might be successful, depending on the facts of the case are past performance, length of service, geographical differences and skills shortages in certain roles.

If a woman establishes that the material factor relied on by her employer is indirectly discriminatory, the employer can successfully defend the claim if it can objectively justify the difference in treatment. In order to be objectively justified a material factor must:

  • Correspond to a real need by the employer.
  • Be an appropriate means of achieving the objective.
  • Be necessary to achieve the objective.

Objective justification does not need to be shown where there is no suggestion that the case has been ‘tainted by sex’, but an employer cannot bat away a particular disadvantage just by showing the underlying reason for the disadvantage was not itself related to sex.

'Appropriate' and 'necessary' must be considered with the principle of 'proportionality', balancing the needs of the business against those of the individual employee and the discriminatory effects they may encounter, and whether there is a less discriminatory method which would achieve the same. In other words the employer must show that its material factor is 'a proportionate means of achieving a legitimate aim'. This can be a high hurdle and so other options must have been considered carefully before a difference in pay rate is awarded.

How is an equal pay claim made and how should an employer respond?

Equal pay claims are usually brought in employment tribunals and should be brought within six months of the last date of employment in a normal case. Before bringing a claim, individuals should first consider submitting some questions to the employer and/or if they are an employee, submitting a written grievance.

Equal pay law relates to equality clauses that change the employee’s contract of employment and so a breach of equal pay law is a breach of contract, and can therefore be brought as a claim in the civil courts too. The High Court and county courts can hear breach of contract claims, and the limitation period in that case is six years. If the court decides that a claim or counterclaim relating to an equality clause could more conveniently be disposed of by an employment tribunal (no equal pay claim can be more conveniently disposed of by a tribunal if it would then be rejected by the tribunal as being out of time though) the court may strike out the claim, the court may refer particular questions about the operation of the equality clause to an employment tribunal for determination, and may stay the court proceedings until that decision is made. However, a tribunal cannot transfer proceedings to the court by an indefinite stay of the tribunal proceedings, or any other way.

The most obvious way an employer can respond is by seeking immediate specialist legal advice on the equal pay claim and this is highly recommended. An equal pay claim is one of the trickier claims to defend and requires specialist knowledge. In order to best defend an equal pay claim an employer should then carefully study the history of the job role in question and that of the comparator. The specific benefits or pay will then need to be considered in detail and reasons as to why a comparator has been paid more will need to be looked at in conjunction with the work actually done by the individuals involved, which will probably involve talking to line managers. If dealing with equal pay issues in grievances and in an Equality Act Questionnaire, employers must be careful as defences they wish to rely on later may depend on what has been said and may be weakened by those responses.

Employees would be well advised to prepare well for the tribunal hearings, particularly in the early stages where there may be a case management hearing and try to gain as much control as possible over the number of comparators and the deadlines for submitting information and documents. An employer can even respond to an equal pay claim by asking a tribunal to make a declaration as to the rights of the parties in any dispute about the operation of an equality clause. Again, specialist legal advice and representation is advisable when defending an equal pay claim in an employment tribunal.

Employers should try where possible to meet with line managers and comparators and find out as much detail as possible about their roles and the demands placed on them, and how these compare to the claimant, and if an independent expert is appointed be as co-operative and forthcoming as possible with requested information.

Alternatively, in an attempt to avoid the employment tribunal or civil courts and/or to try and maintain a working relationship with the claimant, an employer may wish to settle the equal pay claim and so may respond by putting forward a without prejudice offer to settle the claim, with or without the help of a solicitor.

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