Employment Appeal Tribunal Overturns Equal Pay decision against Next

Central to the case were allegations that retail workers (who were predominantly female) were paid in a discriminatory manner because they earned less than warehouse workers (who were predominantly male).  The Equality Act 2010 requires employers to pay equal pay for equal work.  However, the work does not always have to be identical; if men and women are performing different work of equal value, they must be paid at the same rate.  The EAT’s decision confirms that, an employer may be able to deviate from this rule when there is a material factor which explains the difference in pay. 

In this case, the EAT acknowledged that there were substantial differences in the recruitment and retention methods to keep the warehouse adequately staffed.  The retail positions were generally able to be filled by recruiting done on the Next website, coupled with referrals and social media.  Prior to COVID, there were usually at least 30 applicants per vacancy and after COVID, the submissions per open role significantly increased.  Agency workers were not required in order for Next to meet its retail needs.  For warehouse workers, on the other hand, Next used recruitment platforms and other paid services to recruit a sufficient number of warehouse staff.  They also recruited from abroad.  Agency workers were needed to meet the warehouse needs. As such, Next developed financial incentives to assist with warehouse recruiting.

Both the EAT and the tribunal found that there had been no direct discrimination.  Lawyers for the claimants had argued that, because Next had relied on a market forces argument without verifying that the market forces were not historically discriminatory, Next had directly discriminated against the retail workers by paying the warehouse workers more for “traditionally men’s” work. These arguments were not successful in this context.  However, the EAT agreed with the tribunal that the retail workers had experienced particular disadvantage because they were being paid less for work of equal value. 

Despite agreeing that there was a prima facie case of indirect discrimination, the EAT found that the tribunal had erred in its finding that the pay differential had not stemmed from legitimate aims (such as recruitment and retention) and that the tribunal also erred in its assessment of proportionality when analysing the market forces factor.  The EAT essentially found that the tribunal had incorrectly focused on the reasons for the retail workers’ lower pay rather than on the reasons for the warehouse workers’ higher pay. 

While differences in pay that focus on costs savings only cannot be justified, in this case, the EAT found that the difference in pay was justified by a legitimate aim (to retain and recruit warehouse workers when it had been difficult to do so).  Put simply, the business reasons that incentivised Next to pay warehouse workers higher wages did not apply to retail workers. The EAT decided that the pay differential was a proportionate means of achieving a legitimate aim.    

This case should not be read as a market forces argument succeeding as a blanket defence to indirect discrimination claims.  It is necessary to show specific differences in the market and business needs of a particular role if a pay discrepancy between roles is putting one sex at a particular disadvantage.  The pay differential cannot be based on cost savings alone.  Additionally, it is not enough to simply base wages on traditional wage rates that may reflect a historically discriminatory undervaluation for traditionally “women’s” work. 

This case does not mark the end of the recognition of undervaluation of traditionally “women’s” work, but it does clarify that, in circumstances where there are material differences in business needs in incentivising workers in a particular role, the defence of material factors will be significant.  A small number of other findings made by the tribunal on terms like paid breaks and overtime wages were not overturned by the EAT; Next will likely appeal those points.  For example, the EAT found that even though warehouse workers could be paid more given the circumstances, it was not legitimate for the warehouse workers to have paid rest breaks while the retail workers did not as this was purely a cost savings measure, and not justified by a legitimate business need.  The EAT was not persuaded by arguments that the paid rest breaks had been bargained for by the union and that unpaid rest breaks were industry standard for retail in the UK.       

If you are facing a workplace challenge as a worker, or are unsure about your obligations to ensure pay structures are in line with equality laws as an employer, our expert employment team is here to help.  Contact Alexandra Hubbard, or a member of our Employment team on 020 8290 0440 to arrange an appointment.

This article is for general information purposes only and does not constitute legal advice. Specific advice should be sought for individual circumstances.