Current and former store-based workers at Next have won their 6 year-long equal pay claim and are set to receive an estimated £30 million in compensation. This Employment Tribunal (ET) decision is significant as it's the first equal pay group action in the private sector to reach a decision of this kind.
Background
More than 3,500 store-based workers brought claims against Next retailer for equal pay, direct and indirect sex discrimination, alleging that their role was of equal value to work carried out by warehouse operatives who were predominantly male. The store-based workers (who were predominantly women) were found to have received between £0.40 and £3 less than the warehouse workers, with the Claimants' average salary loss totaling more than £6,000 each.
Under equal pay legislation, if a role is of equal value to another role, the 2 groups of employees must be paid equally unless the employer has a material reason (unrelated to sex) for the difference in pay. In 2023, the ET determined that both roles were of equal value based on the demands they involved. Therefore, this hearing was to determine what the reason was for the unequal pay, and whether this amounted to direct or indirect sex discrimination.
Next argued that their reason for paying the roles differently was unrelated to sex and was based on "market forces" for the roles in the industry, and that they therefore needed to pay this much to effectively recruit and maintain a certain quality of workforce.
Judgment
Next successfully defended the claims for direct sex discrimination, as the ET found that their reasons for the pay difference was largely due to profitability and not influenced by sex. However, the ET did find that, as women made up the majority of store-based workers, and males made up the majority of warehouse workers, this was enough to find that paying the store-based workers less had a disproportionate impact on women as a whole, and therefore this was indirect discrimination.
In order to defend this, Next needed to be able to justify the unequal pay by showing that it was a proportionate means of achieving a legitimate aim. Although the ET agreed that the amount Next paid the store-based workers was influenced by cost savings, they also found that it was not sufficient justification for paying them less when they were doing roles of equal value to the warehouse workers. The ET therefore found that Next did not have a legitimate aim, and even if they did, it would not be proportionate, because the business need was not sufficiently great to overcome the discriminatory impact.
The ET emphasised that allowing the market forces to be a "trump card" in equal pay claims would defeat the purpose of equal pay legislation and allow lower pay in certain sectors based on previous discriminatory practices. Employers will therefore need to go further to justify a difference in pay rates. Cost savings can be part of an employer's aim, but it needs to be combined with something else, otherwise risks falling short of meeting the requirement of it being a proportionate means of achieving a legitimate aim.
Comment
We understand that Next are looking to appeal this Judgment and so we do not anticipate other retailers will make any imminent changes to their pay regimes. Any EAT decision will be binding on future cases. It is worth noting that several similar equal pay claims are currently being heard in Tribunals against other retail giants including Asda, Tesco and Sainsburys. Whilst this Judgment is not binding on other tribunals, it seems that tribunals are well aware of this disparity in the private sector, and so we consider it likely that this is the direction other similar equal pay claims will be heading towards going forward. Particularly if the reasons relied upon by employers for the unequal pay is influenced by costs alone.
The key takeaway for employers is to be mindful that any decision to pay different roles of equal value unequal pay, based on profitability and costs alone, will be risky and could have serious reputational and financial ramifications. It is important for employers to be able to focus on more specific issues which could help demonstrate that the difference in pay is unrelated to sex and in circumstances where it disproportionately affects one gender over another, that their legitimate aim isn't just about saving costs, but is based on business needs at a particular time, i.e. so as to deter employees from joining competitors at a relevant period in time, or based on outputs where the other role cannot be measured in the same way.
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