In DLA Piper’s latest case report, the Court of Session held that limited liability partnerships (LLPs) that were contracted to carry out duties that were formerly carried out by a local authority were “associated employers” of the council for equal pay purposes.
Glasgow City Council and others v Unison claimants and another [2014] CSIH 27 CS
Facts
In recent years, there has been a shift away from the provision of certain public services directly by local authorities, resulting in a trend towards restructuring the provision of public services in the form of “arm’s length external organisations” (ALEOs) and other enterprises.
The appellants in this case were two LLPs and Glasgow City Council. The LLPs were contracted to carry out duties that were formerly carried out by the local authority.
Employment tribunal and EAT decisions
Employees of the LLPs, backed by Unison and Fox Cross, raised claims in the employment tribunal under the Equal Pay Act 1970 (now replaced by the Equality Act 2010). They argued that they were entitled to equal pay in relation to their chosen comparators, who were individuals directly employed by the council. They argued that the LLPs were under the council’s effective control, as demonstrated by the fact that, under the LLP agreements, they were required to implement any direction of the council and the council was entitled to “99.999% of the profits” of the LLPs. Essentially, it was argued that the LLPs were just extensions of the council, carrying out public functions but at a distance in terms of formal structure.
The employment tribunal held that the Equal Pay Act 1970 applies only to “companies” and this could not be interpreted to include LLPs. As the council and the LLPs were not associated employers, the Equal Pay Act 1970 did not apply.
In the alternative, the claimants argued that the council was the “single source” of employment for the purposes of EU law. The tribunal disagreed and held that, although the council had theoretical control over the LLPs, it did not actually exercise this control and therefore it could not be the “single source” of employment.
The claimants appealed to the EAT, which overturned the tribunal’s decision and found in their favour. The council and the LLPs then appealed the case to the Scottish Court of Session.
Court of Session decision
The Scottish Court of Session held that the term “companies” in the Equal Pay Act 1970 should be interpreted to include LLPs. An LLP is an economic entity with a separate legal personality from its members and a limitation of liability by definition. It has many features in common with a company. The Court of Session held that the Equal Pay Act 1970 should be interpreted to comply with the principles of the Equal Pay Directive. The council and the LLPs were held to be associated employers, and comparator employees were entitled to receive equal pay.
Once this was established, it was no longer necessary for the claimants to rely on the direct effect of art.157 and show that the council was the “single source”. However, the Court of Session made its view clear that the council could be the “single source” of employment, seeing as the LLPs were owned by the council and were subject to scrutiny from the council.
Implications
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In these times of outsourcing and restructuring, it is important for employers to remain vigilant in relation to equal pay issues as employees are transferred to different ALEOs or other branches of a corporate structure. The equal pay legislation has been broadly interpreted to apply to commercial entities with distinct legal personality, rather than restricted specifically to companies.
Employers should be mindful of the risk of claims and take steps to identify situations where comparator employees might exist in separate branches of the organisation and ensure that employees receive equal pay for equal work. In situations where two or more entities may be considered to be “associated employers”, a review of employees’ contractual terms and conditions with a view to ensuring equality between comparators is a valuable aspect of risk management strategy prior to an outsourcing or restructuring.
