New Equal Pay Guidance from the Court of Appeal

In Samantha Walker v The Co-Op Group Ltd, A2/2019/3016 the Court of Appeal held that material factors persisted even though the circumstances of the claimant and the comparators had changed and also cast doubt upon the correctness of a previous decision by the Court, Benveniste v University of Southampton[1987] ICR 615,a case which has been relied upon by equal pay lawyers for over three decades.  In this blog, Anna Beale, an equal pay specialist at Cloisters considers the importance of the judgment.

Mrs Walker, formerly the Co-Op’s HR Director, compared her work to that of two other directors, Mr A and Mr F. All three were on an Executive Committee in 2014 tasked with first rescuing, and then restoring, the Co-Op which was then in serious financial difficulties. Mr A and Mr F were already on the Executive, and their pay was increased from £450,000 to £550,000. Mrs Walker was newly promoted onto the Executive and her salary was increased from £215,000 to £425,000.

The ET accepted the Co-Op’s case that in 2014 there were material factors which distinguished Mrs Walker from her comparators. These were:

  • Vital roles – the Co-op saw Mr A and Mr F as vital to the immediate survival of the Co-op. They were part of the core team who, with the CEO, refinanced the Bank and reformed governance to restore its reputation. Mrs Walker’s HR function was important but not regarded as vital in the same way.
  • Executive experience – the Remuneration Committee considered that Mrs Walker was newly promoted to the Executive and unproven at that level, unlike others on the team at the time (including Mr A and Mr F) and so a rise from £215,000 to £500,000 as originally proposed was deemed to be excessive.
  • Flight risk – it was crucial ‘in the eye of the storm’ to maintain stability and the top team of people and support the interim CEO. The previous CEO had recruited Mr F as his Chief of Staff and Mr A as his corporate lawyer, but then left abruptly. Their following him was regarded as a serious risk which could damage the Co-Op’s recovery.   
  • Market forces (this applied to Mr A only) – he had been a partner in one of the Magic Circle law firms, and therefore market forces applied to retain him at that salary.

However, the ET went on to find that, after the recovery period (in or around October 2014), Mrs Walker’s job had increased in importance and the comparators’ jobs had decreased in importance. Mr F was given notice in January 2015.

Hays carried out a job evaluation study which the ET found was accepted by the Co-Op in February 2015. This showed that Mrs Walker’s job was scored higher than either that of Mr A or Mr F. The ET went on to find in paras. 317-318 that:

‘317…At some stage between February 2014 and February 2015 in our judgment the importance to the respondent of the roles carried out by the claimant’s comparators declined relative to the importance to the respondent of the work being done by the claimant, particularly in respect of the recovery phase. In our judgment the value of the claimant’s job had on the basis of the job evaluation study, albeit by slim margins, overtaken those of her comparators by the time of the study.’

318. In these circumstances we find that the historical explanations for the pay differential given at the time the pay was set were no longer material at the time of the Hay job evaluation study and that value of the claimant’s work was equal.’

As a result, Mrs Walker was able to claim the difference in pay since some time (to be determined at the Remedies Hearing) between October 2014 and February 2015, together with bonuses of up to 100% of base salary and LTIP options.

The Co-Op appealed to the EAT on the material factor issue and Mrs Walker cross-appealed on the issue of whether her dismissal was tainted by sex discrimination. The EAT (Lord Summers, the new Scottish President of the EAT, sitting in London) upheld the material factor appeal, and dismissed both the sex discrimination appeal and cross-appeal.  On the equal pay matter, he held that even if a material factor had ceased to apply in fact, a new decision or a fresh request for reconsideration was necessary before it ceased to apply as a defence.

The principal issue in Mrs Walker’s equal pay appeal to the Court of Appeal was when and how a material factor may cease to be a defence.

The Co-Op accepted that the materiality must be judged at the time of the Hearing and not at the initial decision, but claimed that at least one, if not more, material factor(s) still applied for each comparator in 2015, and that the ET had not been entitled to find otherwise. In 2015, both Mr A and Mr F were still more experienced than Mrs Walker and were necessary to the recovery phase as well as the rescue phase; the ET had not made findings about this. Market forces still applied to Mr A. 

Mrs Walker’s argument in contrast was that, certainly in the case of Mr F, the factors no longer applied to him and had evaporated. The fact that he had been given notice in January 2015 showed that his retention was no longer relevant, his experience was no longer valued, and his presence was no longer regarded as necessary during the recovery process.

Mrs Walker also argued that the EAT had wrongly distinguished Benveniste.  In that case, the claimant was appointed as a lecturer, but was told that she would be paid less than her male comparators because the department was in financial difficulties. By the start of the next academic year, those financial constraints no longer applied but her pay was not equalised to that of her male comparators. Neill LJ said at p. 628A:-

‘The case was argued on the basis that the 1981 constraints came to an end at the end of that year or of that academic year. In my judgment, therefore, the material difference between the Applicant’s case and the case of the comparators evaporated when the financial constraints were removed.’

Mrs Walker drew an analogy with Benveniste, maintaining that, once her role assumed more importance than Mr F’s, and he was regarded as disposable, the material factors had also ‘evaporated’. She argued that nothing in Neill LJ’s judgment, or in Underhill J’s judgment in Secretary of State for Justice v Bowling [2012] IRLR 382, consideringbutdistinguishing Benveniste, required a fresh decision. In Bowling, the claimant and her comparator did equal work, but he was put on a higher spinal point that her because he was deemed to have greater experience.

Upholding the employer’s appeal, Underhill LJ held that the initial reason for the pay differential was not related to sex; and the continuing pay differential was explained by the fact that, as a consequence of the initial decision, he was placed on a contractual pay scale and had a right to progress along it.

‘To label [an explanation for a difference in pay] as “historical” is not helpful. All causes are, in one sense, historic in that they occur in the past: the real question is whether they have ceased to operate as an explanation for the differential complained of as at the date under consideration.’

Thus at the relevant time in Bowling, the reason for the pay differential was the operation of the contractual pay scale, not the original decision to place the comparator on a higher spinal point. This does not suggest that a fresh decision is required before a material factor defence can be said to expire.

Mrs Walker pointed to s. 66 of the EqA:

(1) If the terms of A’s work do not (by whatever means) include a sex equality clause, they are to be treated as including one.

That modification is automatic; the trigger is the circumstances and not a specific act. Mrs Walker also argued that, if an employee had to ask for equality, or a fresh decision had to be made, arrears could never be claimed for the period before that request or decision – see Hartlepool Borough Council v Llewellyn (at paragraph 30).

The Court of Appeal relied upon Lord Nicholl’s speech in Marshall v Glasgow City Council [2000] 1 WLR 330, where he distinguished between an explanation and objective justification at p 359:

When section 1 is thus analysed, it is apparent that an employer who satisfies the third of these requirements is under no obligation to prove a ‘good’ reason for the pay disparity. In order to fulfil the third requirement he must prove the absence of sex discrimination, direct or indirect. If there is any evidence of sex discrimination, such as evidence that the difference in pay has a disparately adverse impact on women, the employer will be called upon to satisfy the tribunal that the difference in pay is objectively justifiable. But if the employer proves the absence of sex discrimination he is not obliged to justify the pay disparity…. The factor relied on must have been the cause of the pay disparity. Another possibility is that the factor must be material in a justificatory sense. The factor must be one which justifies the pay disparity. As already indicated, I prefer the former of these two interpretations. It accords better with the purpose of the Act…..’

On the need for a fresh decision, Bean LJ disagreed with Mrs Walker on two counts. First, he held that in Benveniste

‘…as is so well known as to be a matter of judicial knowledge, “[academic] salaries seem to be fixed at the beginning of the academic year”: the annual consideration of lecturers’ pay was an obvious fresh decision, if any was required’.

Bean LJ did not, however, reach a concluded view on whether a fresh decision is in fact required; nor did he explain why that should be so, based on the wording of s. 66 of the EqA.

Second, he held that because Benveniste was decided before Marshall, it ‘must therefore be viewed with caution’. This accorded with the Co-Op’s submission that when Neill LJ had used the phrase ‘justification’ in Benveniste (at 627G),

‘There was no justification for the lower rate of pay other than the circumstances existing at the date of her appointment’.

It is unclear whether Neill LJ was talking about objective justification; but the suggestion that Benveniste may no longer apply is surprising, especially as it was cited to the House in Lords in Marshall but was neither referred to in the speeches nor overruled. 

Having dealt with Benveniste, Bean LJ considered the material factors advanced by the Co-Op. He said that there may have been an argument that Mr F’s role was no longer ‘vital’ but not that Mr F’s experience had evaporated as a material factor.

‘The ET did not find, and there is no material referred to in their decision in reliance on which they could have found, that the greater executive experience of Mr Folland by comparison with Mrs Walker had ceased 11 or 12 months later to be causative of the difference between his pay and hers. Whether it justified the difference was not a question for the ET: that is the ratio of Marshall’.

Arguably, this confuses explanation, objective justification and materiality. There is no need to provide objective justification where a material factor is not discriminatory. But if the explanation tendered no longer applied at the relevant time, then it was no longer material. This is a different issue from whether it is, or should be shown to be, objectively justifiable. Bean LJ’s analysis also omits the important point that the original rationale for the pay differential as recorded by the ET was not simply that Mr A and Mr F were more experienced at executive level, but that Mrs Walker was unproven at that level. That factor would indeed “evaporate” with time.

Bean LJ then went on to suggest that the fact that Mr F was given notice did not affect the question of his pay level on the basis that he was a flight risk – ‘either he remained a comparator or he did not’. But in any event, the experience factor was enough for the Co-Op to succeed on its defence.

In his judgment, Males LJ, agreeing with Bean LJ, held that the ET had made insufficient findings of fact to justify the conclusions it had reached. Had it asked itself why Mr A was paid more than Mrs Walker in 2015, the ‘only possible answer’ was that it was (at least) because of market forces (this was accepted as correct by Mrs Walker). As for Mr F, Males LJ held that the reason for the pay differential in 2015 was the same as in 2014, namely the fact when he was appointed, he was performing a vital role to which he brought executive experience and the Co-Op did not want him to leave. Again, it is not clear that this conclusion was based on a thorough analysis of the ET’s reasoning.

Males LJ also doubted whether Mr F was a comparator at all.

‘On the face of things, it would appear that Mr F was an employee who had been given notice, essentially because he was being paid more than was really justified by his role in the company, and was due to leave within a few months. I find it hard to see how such an employee can be a valid comparator for the purpose of sections 64 to 70 of the 2010 Act’.

It is not clear whether Males LJ meant that there was a clear distinction in skills between Mrs Walker and her comparator or that, as he was leaving, he should not have not been a comparator at all. Neither seems to be correct; indeed, Mr F would have remained a valid comparator even after his departure, based on his pre-departure terms.

In Bury v Hamilton MDC [2009] ICR 1426, Underhill LJ said at para. 31:

‘…. we do not accept that showing that the schemes were not discriminatory at their inception necessarily means that they were not discriminatory ten or twenty years later. The explanation, or cause, of a state of affairs is not definitively established simply by showing its historical origins. In the case of direct discrimination it may be pertinent to consider not only why the differential in question first arose but why it has been maintained, particularly if the relevant circumstances may have changed….’

Whilst this passage arises in a different context, it demonstrates that there is a distinction between the origins of a pay differential and the maintenance of a pay differential. In Mrs Walker’s case, there was an explanation for the differential in 2014, but it fell to the courts to determine whether, given the change of circumstances, that explanation still applied; how long it would continue to apply; and in what circumstances it might cease to apply.  For the reasons given above, it is not apparent that the Court fully grappled with the first of those questions, and, perhaps as a result, the judgments are silent on the latter two. The decision leaves the law in a somewhat unsatisfactory state, both on these issues, and in relation to the status and import of Benveniste. It is to be hoped that further clarification will be provided before too long.

28 August 2020