Failure to report gender pay gap could result in more than reputational damage

Employers could face legal consequences if they fail to comply with the new gender pay gap rules, which were published in draft form yesterday.

It had been suggested in earlier drafts that organisations that failed to comply would effectively be “shamed” into doing so.

This is the first time there has been any suggestion of penalising employers for non-compliance, despite much speculation over the final content of the Regulations.

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 were finally published yesterday after many months of waiting.

There is a reference within the explanatory notes that accompany the Regulations that suggests a failure to comply with the new rules – which require employers with more than 250 employees to publish their gender pay gaps from April next year – would be an “unlawful act … which empowers the Equality and Human Rights Commission to take enforcement action”.

This would mean that the EHRC could use its powers to investigate employers who fail to publish their gender pay metrics if they are required to.

Kelly Thomson, legal director at law firm RPC, explained that the Equality Act 2006 gives the EHRC various enforcement powers in relation to “unlawful acts”.

She said: “Although the EHRC does not have unlimited resources, the powers at their disposal include powers to: investigate, issue unlawful act notices, require production of an action plan and apply to court for an injunction to restrain unlawful acts.

“Many employers will already feel that the potential reputational risk of non-compliance with the new gender pay gap reporting regime provides sufficient incentive.

“That said, the additional spectre of enforcement action by the Commission would give further teeth to the new requirements. The Government had previously indicated it would review the Regulations in the years following implementation to decide whether there was a need to introduce sanctions such as fines.”

It has been confirmed that large employers’ duty to report on their gender pay gap will come into force on 6 April 2017, and will apply to “relevant” employees in England, Wales and Scotland (but not Northern Ireland).

Employers must publish a report within 12 months of that date on their website.

Commenting on the suggestion that employers could be at risk of acting unlawfully, Clare Gregory, a partner in the employment group at law firm DLA Piper said: “This means that reputational issues may not be the only issue employers need to be concerned with if they do not meet their obligations in full.”

She added: “During the long wait, there has been much speculation, combined with no small amount of hope, that the final obligations on employers would be much less complex and confusing than outlined in the initial draft Regulations.

“To a small extent, the Government has addressed some of the concerns – for example there is much-needed clarification over how to calculate the quartile pay bands, which will contain the proportions of male and female employees in each band, ranked from lowest paid to highest paid.”

But Kirsti Laird, a senior associate at Charles Russell Speechlys, said that employers should not be too concerned over potential consequences as long as their practices are fair and nondiscriminatory.

“The new comment is not itself part of the Regulations – nowhere in the Regulations is there any suggestion of penalties or enforcement action.

“Failing to report a gender pay gap will not be an unlawful act in itself, it merely reminds employers that the EHRC has the powers to investigate, which it did already.”

Mark Crail, content director at XpertHR, added: “When the draft Regulations were first published, the suggestion was that employers that failed to comply would be named and shamed into doing so. There simply was no other means of enforcing them.

“So it comes as something of a surprise to discover in almost the final footnote to the final draft that the EHRC may now be able to take legal action against organisations that do not report their gender pay gap in line with the Regulations.

“In many ways, the change makes sense. Any organisation that decided to ignore the reporting requirement was probably not going to be too concerned about naming and shaming.

“But it does alter the scale and significance of the Regulations – and HR departments charged with the reporting task will now need to ensure they engage properly with their legal team and with the board about what they are doing.”