Next retail workers win equal pay claims

Six years ago, a group of mainly female store-based workers at Next brought an equal pay claim.  They argued that their work as retail consultants was of equal value to the work done by Next’s warehouse operatives, who are predominantly male, and they should be paid the same. They first succeeded in showing that the two jobs were of “equal value”, as we previously explained. The Employment Tribunal (ET) has now ruled that a number of the differences in pay could not be justified. This means that the claims have largely succeeded, and up to £30 million may be payable in compensation.  

Equal pay claims are notoriously slow and complicated. There are a number of other similar equal pay claims being brought against other retailers including Tesco and Asda, but the Next claims are the first to reach a conclusion. The outcome is therefore attracting considerable interest – although it is (so far) only an ET decision and will not be binding in other cases. 

ET finds that equal pay claims succeed

If two jobs done by a man and a woman are of equal value, an employer must pay the same rate for both jobs unless there is a material factor which explains the difference.  This factor cannot involve direct sex discrimination, for example deliberately paying less for a job that is stereotypically “women’s work”. If the factor is not direct discrimination but puts one sex at a disadvantage, meaning it is potentially indirect discrimination, the employer must justify this by showing it is a proportionate means of achieving a legitimate aim. These were the issues that the ET needed to consider in this case.

There was indirect discrimination

Next had argued a number of factors which explained the pay difference, including market forces, recruitment and retention, and business viability and productivity. The ET had to decide whether these raised issues of direct or indirect discrimination.

The ET decided that these factors did not involve direct discrimination, as the reasons were all about cost and profitability, rather than being influenced by sex.  

However, the ET went on to find that there was indirect discrimination, based on the statistics about the make-up of each workforce. The retail sales workers were 77.5% women over the relevant period, while the warehouse workers were 53% men. This was enough to show that paying the retail workers less had a disproportionate impact on women, particularly when taken together with the fact pay benchmarking was done against a wider warehouse market with a largely male workforce. This meant that Next needed to justify using these factors to set pay, by showing they had a legitimate aim and this was proportionate.

Difference in basic pay was not justified

Next had argued that they used these factors to achieve the aims of viability, resilience and successful business performance. They needed to set basic pay for warehouse workers at the market rate to recruit effectively and ensure the required level and quality of workforce.  

The ET accepted this was why the warehouse workers were paid at a certain rate.  However, the ET did not accept that this was a valid justification for continuing to pay retail workers less for doing equal work. Paying the retail workers a higher rate of basic pay would cost more, but this meant the reason was all about cost saving. As we have written about before, costs alone cannot be used to justify unequal pay – it is not a legitimate aim. The ET went on to find that, even if this aim was legitimate, it was not proportionate because the business need was not sufficiently great to overcome the discriminatory effect of the lower basic pay. The ET was concerned that allowing market forces to be a “trump card” would defeat the object of equal pay legislation, by maintaining lower pay in particular sectors due to discriminatory practices in the past. 

This finding meant that Next had been wrong to pay lower basic pay to the retail workers.  The ET also made similar findings in relation to special pay awards for warehouse workers, different Sunday premiums, different cut-off times for night premiums, different overtime premiums, the removal of paid rest breaks for retail workers, and long service awards. The reasons for these differences were all essentially about saving costs and so could not be a valid justification.

Different bonuses and other premiums were justified

The ET did find that a number of bonuses and other premiums were justified. These were based on business needs at the relevant time, were not solely based on cost, and were proportionate in the circumstances.  

These payments included a productivity bonus paid to the warehouse workers which was directly linked to output, where retail work could not be measured in the same way. They also included a £1 per hour bonus paid during a period when the warehouse pay was significantly adrift from the market rate paid by competitors, and an attendance bonus that was paid at one particular warehouse in order to try and stop workers joining a nearby competitor. A higher public holiday premium paid to warehouse workers for a period of time was justified because the warehouses had different 24/7 operating requirements and Next had shown that they had difficulties in finding sufficient staff otherwise.

Where does this leave us?

The first thing to note is that Next have already said they will be appealing this decision, so it is possible that a higher court will view things differently. This case was also decided on its own specific facts, meaning that other similar retail claims might not be decided in the same way. As a result, it is unlikely that retailers will make immediate changes to their pay arrangements, particularly as the National Living Wage is likely to increase in April - the decision recognised that differences in pay had reduced materially over the life of the case because retail pay had increased to reflect increases to the National Living Wage.  

Nevertheless, there are some useful points to think about.

• Using “market forces” to justify unequal pay is risky, particularly if there is an obvious difference in numbers of men and women doing each job. This is because the market rate for a job may be based on historic views of the value of “men’s” and “women’s” work. Continuing to follow these rates will be perpetuating pay discrimination. As in this case, ETs are aware of this problem. This is most likely to be an issue where market forces are being used to justify broad structural differences in pay. There may well be less of an equal pay risk if you pay a premium to hire a particular individual quickly because of market forces at the time, as this is a more targeted approach that is not based on categories of work.
• The saving of costs alone is unlikely to be a good justification for unequal pay – especially if the underlying concern is maximising profit, rather than emergency cost-cutting to save a business. If two groups of employees are doing equal work but are paid differently, this decision suggests it is no excuse to say that group 1 is paid more to recruit and retain them, and it is just too expensive to pay the same to group 2. Saving costs can be part of the employer’s aim, but it needs to be combined with something else too (a “costs plus” argument, as we have written about here). Rather than focussing on overall profitability, we may see retailers focus on more specific issues that could help to show that their aim is not just about saving costs. For example, an emphasis on the profitability of retail stores, in the context of needing to ensure that it is sustainable to retain a physical retail presence at all.  
• Next successfully justified some bonuses and premiums by showing they were specifically connected to the needs and challenges of warehouse work, such as extra payments made for a particular period of time when they risked losing workers to a competitor. You are more likely to be able to justify a pay difference if it is tied to a clear business objective (which is not simply about cost), and for a limited period of time.
• Productivity bonuses were also justified because this was important in warehouse work but could not be measured in the same way for retail work. Although we are unlikely to see immediate changes pending an appeal, if the decision is upheld there may well be a move towards equalisation of basic pay combined with more role specific incentive arrangements. 

Lewis Silkin has extensive experience of advising clients on large scale equal pay litigation and we can also assist with gender pay gap reporting. You can find further information here or please get in touch with your usual Lewis Silkin contact.

Thandi and others v (1) Next Retail Limited (2) Next Distribution Limited – judgment available here.