Employment Appeal Tribunal
The Equal Pay Act provides for equal pay between men and women in the same employment. It does this by implying an equality clause in their contract of employment where they are employed on “like work” to that of the employee of the opposite sex (the comparator), “work rated as equivalent” or work that is of “equal value” to that of the comparator.
The employer will, however, have a defence if the difference in pay is genuinely due to a “material factor” which is not a difference in sex.
In Sharp v Caledonia Group Services, the EAT departed from previous case law and decided that employers that put forward the material factor defence must “objectively justify” it in all cases.
Previously, UK law only required employers to objectively justify their reasons where the difference in pay affected more women than men. In practice it means employers will have to show that the reason for the pay disparity:
- is unrelated to sex
- relates to a real need of the employer
- was appropriate to achieving the objective pursued
- was necessary to that end and is proportionate.
In practice this means the difference must be sensible and necessary, rather than merely genuine. This represents a new and stricter test for the material factor defence.
In this case, Ms Sharp was employed as a financial accountant by Caledonia.She claimed she was receiving unequal salary and benefits (pay, bonus, company car, share options and medical insurance) compared with male colleagues doing work of equal value.
Caledonia put forward its material factor defence arguing that “historical considerations” justified the difference in pay. The tribunal accepted Caledonia’s reasons were genuine but Sharp appealed to the EAT on the basis that having genuine reasons was not enough. The EAT agreed.
In this case the EAT followed the EC decision of Brunnhofer v Bank der Osterrichischen Postparkasse  IRLR 571. Previously, UK authorities have only required such defences to be justified when they involved a prima facie case of indirect discrimination (such as paying employees who have previously job shared less than those who have worked full time).
It is no longer enough for an employer to show that it has a genuine, gender-neutral explanation for differences in pay. Where men and women perform equal work, the reason for a pay difference must reflect a legitimate business need and be a proportionate and appropriate means of achieving that need.
Sharp’s case had been supported by the EOC and the EAT has automatically granted both sides leave to appeal to the Court of Appeal.
What you should do
Carry out pay audits to check your organisation’s pay structures. They need to be transparent, fair and easy to understand. If no audit is carried out you will be more vulnerable to equal pay claims.
Check you have a logical rationale for any historical differences in pay. Even if you do, you should still review the pay, especially if the decision was made a long time ago, as the relevant person may no longer be available to give evidence if required.