Bonuses and Pay Protection challenged at the Employment Appeal Tribunal

24 February 2011

In a recent combined appeal (Bury v Hamilton and others and Sunderland City Council v Brennan v others), two Local Authorities challenged Employment Tribunal (ET) decisions rejecting their defences under the Equal Pay Act 1970. The claims related to productivity bonuses and pay protection.

Facts
Manual workers, typically male, benefited from a productivity bonus scheme whereas jobs carried out typically by female employees did not. Following the implementation of single status pay agreement the Local Authorities withdrew the bonus schemes and agreed pay protection arrangements under which those employees who had previously received bonuses continued to receive payments albeit for a finite period.

The Employment Tribunal decisions
Both Local Authorities relied on a Genuine Material Factor (GMF) defence that the female employees’ jobs were not suitable for a performance-related bonus, such as the productivity bonus.

The ETs rejected these defences. They found that over time, the productivity bonuses had, in reality, become automatic pay entitlements and not dependent on performance. Having no link between the bonus and productivity throughout the period of pay disparity, the Local Authorities’ explanation were found to be 'sham'.

There were various appeals all heard by the Employment Appeal Tribunal (EAT) together, including a cross-appeal by employees against the rejection of their claims to pay protection. With respect to the pay protection arrangements, Bury Council argued (in particular) that to extend pay protection to the claimants would have been impracticable and unaffordable.

The Employment Appeal Tribunal
The EAT upheld the ETs' decisions that the Local Authorities had failed to establish GMF defences. The EAT decided that although the starting point of section 1 (3) is that the employer must show that the difference in treatment is ‘genuinely’ due to the factor on which it seeks to rely, it is not ‘helpful’ for tribunals to approach this question by considering whether the employer’s explanation was dishonest. The burden on the employer at the first stage of the analysis is simply to show at a factual level how the state of affairs complained of has occurred. Therefore the Local Authorities had satisfied the first stage in providing an explanation for the differential, namely the difference in the nature of the jobs of male and female employees.

In focusing on the ‘sham’ issue, the ETs had missed the real point, that is whether the explanation was indirectly discriminatory and if so, whether such discrimination could be justified. The fact that the Local Authorities had established that the schemes were not discriminatory at their inception did not mean they were not discriminatory in later years. The finding that the bonuses no longer had a link with productivity meant that the non-payment of equivalent sums to female employees could not be justified.

The EAT allowed the cross-appeals by female employees against the ETs' decisions that the GMF defences were established in respect of temporary pay protection arrangements aimed at cushioning the effect of the withdrawal of the bonus scheme. The EAT held that employers will not be able to justify withholding pay protection from claimants without advancing "cogent and specific reasons for what is in effect a continuation of past discrimination". The EAT observed that Bury Council’s two main reasons were impracticality and excessive cost of implementing pay protection for female employees.

The EAT held that practicality was not a material consideration in proving objective justification. Furthermore, it held that a Local Authority could not prove unaffordability by mere assertion. A case of justification on that basis could only be proved by adducing detailed evidence of the costs themselves and the financial context to enable the tribunal to reach an informed view, and the Local Authorities had failed to do that in this case.

Comment
In the EAT’s judgment both the GMF defences failed on justification. The EAT cautioned tribunals against focusing on whether or not an employer’s explanation is dishonest or a sham. At the first stage an employer simply needs to provide a factual explanation for the differential treatment. This approach appears to be confirmed in the Equality Act 2010 where there is no longer an express requirement for ‘genuineness’ in material factor defences.

Hill Dickinson LLP offers a wealth of experience in this area with its own specialised team in equal pay. We can provide employers with guidance and assistance in this area.