Equal pay: when can market rates justify paying jobs differently?
Sometimes employers have to pay more for particular jobs simply to attract and keep enough people. But what happens if those jobs are predominantly carried out by men, while employees doing work of equal value are predominantly women?
The Employment Appeal Tribunal’s decision in Thandi v Next provides some useful guidance.
What happened at Next?
More than 3,500 predominantly female retail sales consultants brought equal pay claims comparing themselves with warehouse workers, a small majority of whom were male. The two groups performed very different roles, but their work had already been found to be of equal value.
The warehouse workers were nevertheless paid more.
Next argued that there was a straightforward business explanation. The market rate for warehouse workers was higher, and it needed to pay that rate to recruit and retain sufficient staff. The same recruitment pressures did not apply to its retail workforce.
The employment tribunal initially rejected Next’s justification for the difference in basic pay. However, the EAT held that it had approached the question incorrectly.
Paying the market rate necessary to recruit and retain sufficient warehouse staff was capable of being a legitimate business aim. Importantly, the evidence showed that Next was paying what it needed to secure sufficient warehouse workers, and no more.
The fact that Next could potentially have afforded to increase the pay of its retail employees did not mean that paying warehouse workers more could not be justified.
Next therefore succeeded in its appeal concerning basic pay and certain other elements of remuneration, although the retail employees remained successful in relation to some other differences, including paid breaks and overtime and nighttime premiums.
What does this mean for you?
The decision does not give employers a free pass to pay different groups differently simply by pointing to “market rates”.
If market forces are creating a pay differential, HR should be able to explain and evidence what is happening. For example, are particular roles genuinely harder to recruit into? What salary does the business need to offer to attract suitable candidates? Are there retention difficulties? How was the relevant rate determined?
It is also worth keeping those reasons under review. A pay differential which could be justified by recruitment difficulties when it was introduced may become harder to explain if the market subsequently changes.
The practical message is that pay differences between male and female-dominated roles deserve scrutiny, even where there appears to be a commercial explanation. Market forces may provide a defence, but employers will be in a much stronger position if the evidence behind their pay decisions has been identified and recorded at the time.