Legal opinion: the Equality Bill and pay transparency

The Equality Bill, currently completing its consultation phase in Parliament, will harmonise and strengthen discrimination law. This is necessary to unify discrimination legislation which has developed piecemeal over the past 30 years, resulting in disparate definitions and interpretations of unlawful discrimination.

Despite the Equal Pay Act 1970 (EPA) being in force for 34 years, a significant gender pay gap remains. The Equality and Human Rights Commission (EHRC) recently carried out the Employment and Earnings in the Finance Sector; a gender analysis survey. It found that between 2003 and 2008, 51% of the 1.3 million jobs in the UK finance sector were held by women. But the basic salary gender pay gap between women and men was 39%, rising to 47% for annual total earnings. On average, women received significantly lower (more than 5%) performance-related pay than men in 94% of cases.

The finance sector has one of the highest gender pay gaps. Women working full-time in the finance sector earn 55% less in gross annual salary than men. This compares to a pay gap of 28% for the rest of the UK economy. The Equality Bill will be used to address the pay disparities in the finance sector, a key part of the UK’s economy.

Equal pay and contract terms

EPA claims are complex, and although tribunal claims increased by 400% recently, until now equal pay has remained a largely public sector issue.

One difficulty for claimants is obtaining accurate pay information of comparators – colleagues of the opposite sex. The finance sector has shrouded pay in secrecy; discussing it can be a contractual breach and bonus systems are often not transparent.

The EPA creates a contractual remedy for pay inequality between genders. Remedy for inequality in treatment lies under the Sex Discrimination Act 1975 (SDA). These Acts are mutually exclusive; the EPA covers pay, and the SDA covers treatment. An EPA claim relies on identification of a higher paid actual comparator of the opposite sex employed by the same employer in the same work or work of equal value or work rated as equivalent. A hypothetical comparator (less cumbersome) can be relied on under the SDA, but not the EPA.

The Bill will not allow hypothetical comparators for an EPA claim, but will allow a claim of direct sex discrimination relating to “contractual pay” where there is no actual comparator. For example, if a female employee can prove she would be paid more if she were a man, she would not be able to bring an EPA claim, but under the proposed changes she could bring a claim for direct sex discrimination relating to pay inequality. Time limits will be shorter than under the EPA, and recovering six years’ back pay differentials could be uncertain. Nevertheless, claims will be simplified as the legislation is more familiar and there will be less reliance on information from the employer to formulate the claim, revolutionising pay claims.

Pay transparency

In Barton v Investec Henderson Crosthwaite Securities Ltd, the EAT noted that it was “a vital component of the City bonus culture that… individuals’ bonuses are not revealed”, and that if employees were able to compare bonuses “the bonus system would collapse”.

But the Bill will prohibit pay secrecy clauses that prevent employees from having “relevant pay discussions”, giving women the information from which to make a claim.

Gender pay reporting

The Bill also provides for a power to require large employers (those with 250 employees or more) to report gender pay gap information. This will be a concern in the finance sector.

In the consultation process, the government committed not to use this power unless sufficient progress on gender pay gap reporting is not made. The EHRC has commenced consultation on gender pay reporting in the private sector.

The Conservatives meanwhile have committed themselves to introducing mandatory equal pay audits for employers of any size that lose an equal pay claim.

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