Is length of service sufficient to justify differences in pay?

28 October 2009

In the recent case of Wilson-v-Health and Safety Executive and another, the Court of Appeal has given guidance as to when, in equal pay claims involving challenges to length-of-service related pay, an employer must provide objective justification of the pay differential.

The Equal Pay Act 1970  provides that an employer will avoid liability for paying a woman less than a man who does like work, work rated as equivalent or work of equal value if it can show that the difference in pay "is genuinely due to a material factor which is not the difference in sex” (commonly known as a GMF defence).

However, the situation was slightly different where an employer relied upon length of service as a GMF explaining a pay differential. Although women are less likely than men to attain long service, the ECJ, in two important European cases - Handels-og Kontorfunktionaerenes Forbund Danmark v Dansk Arbejdsgiverforening (Danfoss) and Cadman-v-Health and Safety Executive- held that employers would not always have to show objective justification for the length of service pay criterion in order to avoid equal pay liability. 

In Cadman-v-Health and Safety Executive (2006) the ECJ held that employers will not always be required to show specific justification for using length of service as a pay criterion. However, in a departure from Danfoss, ruled that justification will be required where a claimant provides “evidence capable of raising serious doubts” as to whether that criterion is appropriate “as regards a particular job”.

Mrs Wilson was employed by the HSE as an Inspector.  In 2002, she presented an equal pay claim taking as comparators three male inspectors who were paid more, partly due to longer service.  The HSE’s incremental pay scale linked pay to length of service over a ten year period.  Mrs Wilson accepted that, given the nature of her job, performance was likely to improve with experience. But, she claimed, a ten-year period was too long. 

Applying the ECJ’s decision in Cadman, the EAT held that an employer is required to justify the adoption of the criterion where the claimant had serious doubts about its appropriateness.  However, the EAT saw no rationale for limiting the “serious doubts” test to the question of whether any length of service criterion was appropriate for a particular job.  Rather, such doubts could also arise as to the period over which a length of service criterion affected pay.  The EAT referred the case back to the Employment Tribunal to determine whether there were “serious doubts”.

The HSE appealed against the EAT decision and Mrs Wilson appealed against the remission to a differently constituted tribunal. 

Dismissing the HSE’s appeal, the Court of Appeal upheld the EAT decision that an employer can be required to provide objective justification for the way in which it has applied the length of service criterion as well as its adoption in the first place.  However, the Court of Appeal lowered the threshold for satisfying the test finding that the “serious doubts” test was a preliminary evidential requirement that should be applied before a trial to determine if the complaint has some prospect of success.

Comment

The Court of Appeal’s ruling suggests that length of service, applied over a long period i.e. more than 5 years, in a professional context, might fall foul of equal pay law.  Furthermore, the Court of Appeal’s test for “serious doubts” is less onerous than the “high hurdle” set by the EAT.  In order to satisfy that test, employees will only need to provide some evidence that their complaint has some prospect of success, making it far easier for them to require employers to objectively justify pay structures based on length of service.  It is, therefore, important to examine long-term incremental pay schemes and consider whether they genuinely reflect experience-related performance improvement.

This case may have important consequences for employers operating service related pay scales and, if they are to be maintained, employers should be able to produce evidence which explains why they have adopted and maintained the particular service thresholds.