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Indirect discrimination: when disparate impact is not enough
Those practitioners who have had no involvement in the mass equal pay litigation of the last 20 years may have remained blissfully unaware of the decisions of the Court of Appeal in Armstrong v Newcastle upon Tyne NHS Hospital Trust  IRLR 124 and Gibson v Sheffield City Council  ICR 708. Those decisions will now, however, assume more general prominence, as the analysis contained therein forms the cornerstone of Underhill LJ’s exposition of the law of indirect discrimination in Naeem v The Secretary of State for Justice  EWCA Civ 1264.
In an equal pay claim, once the claimant has pointed to a better paid comparator of the opposite sex, the burden shifts to the employer to show that the difference in pay is due to a material factor that is not directly or indirectly discriminatory. Should the employer point to an ostensibly neutral factor explaining the differential, the claimant may adduce evidence suggesting that the factor is in fact tainted by sex discrimination. The paradigm example of this in the mass equal pay claims against local authorities and NHS Trusts was an argument by the employer that the differential was down to a bonus introduced to improve productivity, which would be countered by statistics demonstrating that such “productivity” bonuses were only paid to those working in predominantly male jobs. The question that arose in Armstrong and Gibson was whether, once the claimant had established that e.g. the payment of productivity bonuses in particular jobs impacted disparately on men and women, the employer could have a second bite at the cherry, and prove that, despite appearances, the disparate impact in fact had nothing to do with sex.
The Court of Appeal in Armstrong held that the employer could. The Court of Appeal in Gibson, Pill LJ dissenting, reached the same conclusion, although the reasoning suggests that the circumstances in which the employer would be able to prove that the disparate impact was not in any way related to sex would be limited. Importantly, however, in Gibson, Smith LJ also said that her reasoning was not limited to indirect discrimination in the context of equal pay claims. In her view, it was always open to a respondent, whether in a pay or non-pay indirect discrimination claim “to demonstrate that, notwithstanding the appearance that the practice puts women at a particular disadvantage, in fact the apparent disadvantage has arisen due to factors which are wholly unrelated to gender.”
Naeem is factually a fairly straightforward case. The claimant is a Muslim prison chaplain. He brought a claim of indirect religious and race discrimination arising out of the pay progression scheme operated by the Prison Service. The scheme contained a length of service criterion meaning that, subject to satisfactory performance, pay would increase in annual increments until the employee reached the top of the scale. Progression to the top of the scale would take a number of years. It was agreed that the Prison Service had only begun to employ Muslim chaplains in 2002, owing to a limited need for their services, whilst it had employed Christian chaplains for many years before that. As a result, some Christian chaplains had reached the top of the pay scale, but no Muslim chaplains had done so. The average basic pay of Muslim chaplains was materially less than that of Christian chaplains.
The ET held that the pay progression scheme did place Muslim chaplains, and Mr Naeem, at a particular disadvantage, but concluded that it was justified. The EAT disagreed, holding that the “pool” within which particular disadvantage should be determined should consist only of those employed since 2002, as those employed before 2002 (when the Service did not employ Muslims) were in “materially different circumstances” from those employed thereafter. Within the post-2002 pool, there was no particular disadvantage to Muslims.
The Court of Appeal took a different approach. Underhill LJ accepted the claimant’s argument that it was necessary to consider the impact of the length of service criterion on the actual population to which it was applied – which suggested a particular disadvantage to Muslims. However, relying on the reasoning in Armstrong and Gibson, he held that the enquiry under s. 19(2)(b) did not end at that point. It was open to the employer to go behind the bare fact that Muslim and Christian chaplains had different lengths of service and establish why that was the case. He concluded that it was not the use of the length of service criterion which put Muslim chaplains at a disadvantage as it was not the legally relevant cause of that disadvantage. The “material cause” of the disparity was the more recent start dates of the Muslim chaplains, which did not reflect any characteristic peculiar to them as Muslims; rather, the fact that there was no need for their service as employees prior to 2002.
This reasoning also reflects the decision of the Court of Appeal in Essop v Home Office  ICR 1063, where the Court held that that it is necessary for a claimant in an indirect discrimination claim to show not merely that a particular PCP disadvantages both her and the group sharing her protected characteristic, but also why that is the case. Underhill and Lewison LJJ in Naeem did, however, make it clear that Essop did not establish that the burden of proving “the reason why” will always remain on the claimant. The claimant may be able to establish a prima facie case of indirect discrimination e.g. through the type of statistical disparity which was relied upon in Essop, which the respondent may then be able to rebut by pointing to a reason for the disparity which has nothing to do with the protected characteristic. This was not, in my view, entirely clear from the Essop decision itself, and this clarification brings that case more into line with the Armstrong and Gibson line of authority.
In my view, the weakness in the Court of Appeal’s analysis in Naeem is that there is no real explanation as to why the fact that the Prison Service did not need to employ Muslims prior to 2002 is any more “legally relevant” a cause of the Muslim chaplain’s disadvantage than the fact that the Service has chosen to use a pay progression system that relies primarily on length of service. To put it in another way, why should an employer not be required to produce objective justification for a pay progression system it has chosen to retain and that, over a period of many years, rewards Christian chaplains at a level Muslim chaplains cannot achieve? The CJEU in Chez Razpredelenie Bulgaria AD v Komisia za Zashtita ot Diskriminatsia  IRLR 46 held that:
“indirect discrimination may stem from a measure which, albeit formulated in neutral terms, that is to say, by reference to other criteria not related to the protected characteristic, leads, however, to the result that particularly persons possessing that characteristic are put at a disadvantage”,
which appears to cover precisely this case.
I understand that applications to appeal have been made in both Essop and Naeem; a Supreme Court consideration of these complicated issues appears inevitable in the near future.