Compensation & Benefits: Greater scope to challenge service-related pay criteria
Employers required to justify both the “adoption” and “application” of service-related pay criteria as Court of Appeal establishes a low hurdle for employees
The Equal Pay Act 1970 implements Article 141 of the EC Treaty in Great Britain whereby EU member states are required to ensure that men and women receive equal pay for equal work. As a result of European case law the Equal Pay Act is interpreted as prohibiting indirect as well as direct discrimination in relation to pay. However, where an employer can show that a differential in pay is due to a genuine material fact (“GMF”) this provides a defence to a claim. The GMF cannot be that the difference is sex. Where the GMF itself is indirectly discriminatory because it has an adverse impact on women as a group when compared with men it must be objectively justified by the employer.
An issue arises where length of service is relied upon by the employer as a GMF. The European Court of Justice (“ECJ”) has previously ruled that, even though women as a group are less likely to obtain length of service compared with men, employers do not have to show objective justification for it. The rationale is that rewarding experience is a legitimate objective of pay policy (see Danfoss case citation in Resources below). However, in a later case, the ECJ ruled that justification is required where a claimant provides evidence capable of raising “serious doubts” as to whether recourse to that criterion is “appropriate as regards a particular job” (see Cadman case citation in Resources below).
The new case
Challenging both the adoption and the application of service-related criteria
In Wilson v Health & Safety Executive the employment tribunal interpreted the Cadman case as deciding that, once an employer had shown that service-related criteria were appropriate for the employee’s particular job it was not then possible for the employee to challenge the way particular criteria were applied. The Court of Appeal has now rejected this approach recognising that it could lead to absurd results whereby just because service related criteria may be appropriate for a particular job does not mean that the employer should then be free to apply any criteria it has decided upon. The court must be free to consider the way in which service related criteria were applied.
“Serious doubts test”
The Court of Appeal also looked at the “serious doubts test” established by the ECJ in the Cadman case. It said that “serious doubts” covers the "spectrum of gravity from the non-frivolous to the very grave". The test did not present a high hurdle for the employee. It was "merely a sensible evidential requirement to ensure that the complaint has some prospect of success". What was required was "some basis for inferring that the adoption or use (as the case may be) of the length of service criterion was disproportionate".
Role of domestic employment law
The Court of Appeal also held that even if it was wrong about the employer being obliged to justify the application of a service-related pay policy under European law, domestic law would apply and an employee could rely on the Equal Pay Act.
So too, it found that if European law in fact, requires the employee to get over a “serious doubts“ hurdle which is higher than that interpreted by the Court of Appeal then an employee could again rely on domestic legislation where no such hurdle exists.
This case is of great practical importance to employers. Service-related criteria for determining pay do often adversely impact women as they are less likely to accrue continuous service as they leave employment to raise children.
The “serious doubts" test adopted by the Court of Appeal is a low hurdle for employees to satisfy.
More employers are going to have to be prepared to justify the adoption of such practices and the particular way in which these operate.
Employers with service related pay practices should review them to assess the risks of them being found indirectly discriminatory - are they a proportionate means to encourage the accrual of experienced workforce?
Danfoss (ECJ) case : Handels-og Kontorfunktionaerenes Forbund Danmark v Dansk Arbejdsgiverforening (acting for Danfoss) C-109/88  IRLR 532
Cadman (ECJ) case: Cadman v Health & Safety Executive C-17/05  IRLR 969
Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue, please seek specific advice relevant to your particular circumstances.