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Forty-six years since the Equal Pay Act 1970, the gender pay gap persists despite years of litigation. The impending regulations have come at an important time, says Daphne Romney QC
In August, figures published by the Institute for Fiscal Studies suggested the overall gender pay gap (GPG) is now 18%, widening in the 12 years after having children (Gender Wage Gap, BN186).
This does not just affect women’s earnings, but also pension, bonus, shift pay, and any other payment calculated on an hourly rate.
Equal pay is the comparison between a man’s and a woman’s pay and vice versa. It principally arises in three ways: (i) the woman does ‘like’ work to the man; (ii) the woman does work rated as equivalent to a man’s in a job evaluation scheme; and (iii) the woman does work of equal value to a man. It is often the case that women with caring responsibilities, for children, the elderly or disabled, can only work part-time around their caring duties or when they can get cover. GPG is also explained by opportunity; women who take maternity leave are often viewed as less ‘committed’ than their male counterparts. For example, the National Management Salary Survey by the Chartered Management Institute, published in August, found that male managers were 40% more likely to get promoted than female managers.
A decade of public sector litigation
Over the past decade, public sector equal pay litigation has fallen mainly into five categories:
Growth in private sector litigation
Principles from these cases affect new litigation firmly centred on the private sector. Shop-floor workers (about 70% of whom are women) are seeking to compare themselves to male distribution warehouse workers – a typical example of occupational gender segregation. There are over 7,650 issued claims in the ASDA litigation for example, and 400 issued claims in the more recent Sainsbury’s litigation. With no job evaluation scheme in play, claimants will need to establish equal value to their comparators. If they succeed, the employers must show a material factor defence. Where there is occupational gender segregation in workplaces, such as predominantly female clerical staff or assembly-line workers as opposed to maintenance men or drivers, the potential for litigation is the same. Following the Supreme Court’s decision in Abdulla v Birmingham City Council [2013] IRLR 38, employees can bring their claims in the civil courts, with a six-year limitation period, as opposed to claims in the employment tribunal, where there is a six-month limitation period, in both cases time running from the end of employment. As claimants can recover for up to previous six years from the date of claim (five in Scotland), this could present a very large bill. Birmingham City Council has, to date, paid £1bn in compensation, and the bills for the supermarkets and other very large employers could be astronomical.
The new regulations: timeline and rationale
It has never been easy to find out what colleagues actually earn and the mechanism of asking questions through Equal Pay Questionnaires was abolished in April 2014 (under the Enterprise and Regulatory Reform Act 2013 (Commencement No. 6, Transitional Provisions and Savings) Order 2014). It was common practice that contracts would expressly prohibit employees from discussing their salary with others. Section 77 of the Equality Act 2010 (EA 2010) made such clauses unenforceable but the employee is under no obligation to answer and is only protected in the event that the question is posed for the purposes of identifying discrimination on the basis of a protected characteristic – something that may not be readily apparent at the time of asking. Where the employee works in the public sector, the Freedom of Information Act 2000 could be utilised.
Whilst s 78 of the EA 2010 enabled the Secretary of State to make regulations concerning equal pay audits, the section was not brought into force. Instead, the Government introduced the Think, Act, Report policy to encourage voluntary reporting. Although 290 organisations signed up for the scheme, only seven actually reported the figures. In March 2015, s 147 of the Small Business Enterprise and Employment Act 2015 came into force, providing that regulations under s 78 of the EA 2010 had to be made within 12 months ‘for the purpose of requiring the publication of information showing whether there are differences in the pay of males and females’. Section 78 itself came into force in August 2016.
In July 2015, David Cameron launched the consultation Closing the Gender Pay Gap, which proposed GPG regulations for private sector employers. Draft regulations were published in February 2016 and a second consultation followed, with the anticipation that they would be laid before Parliament this summer and come into force in October. However, there has been some delay and it is now anticipated that they will be laid before Parliament this autumn and become law in April 2017.
On 18 August 2016, the Government launched a consultation on public sector GPG under s 153 of the EA 2010, which enables regulations to be introduced to impose specific duties on public authorities to comply with the public sector equality duty (Mandatory Gender Pay Gap Reporting – Public Sector Employers). The approach will be the same as for the s 78 regulations as the Government has announced that it wants a consistent approach between the two sets of obligations. This will apply only to England as the powers in Wales and Scotland are devolved. The new Regulations will modify and enlarge the existing obligations under the Specific Duties Regulations (Equality Act (Specific Duties) Regulations 2011). As a result, both private and public sector employees will have some access to information about pay where they work. However, that information still lacks the specificity they would require to get a clear picture. ●
Contributor Daphne Romney QC, Cloisters
Reading the road ahead: what the GPG regulations might contain
Employer: Information is to be provided by the actual employer, and not across groups of employers (reg 1(2)(b)). This might encourage employers to segregate employees into different entities for the purpose of making the relevant information harder to come upon, although this would be a fairly drastic step for employers to take.
Threshold: The draft regulations apply to public or private sector employers with 250 or more employees, which the Government has estimated at some 11.3 million employees. (It was felt that a figure below 250 employees would put too heavy a burden on smaller employers.)
‘Employees’: The draft regulations apply to ‘employees’ rather than ‘workers’ – which reg 1(2) defines as someone who ‘ordinarily works’ in Great Britain and whose contract is subject to UK law. The Government will probably change this to accord with s 83 of the EA 2010 to include those who contract personally to do work, some self-employed, apprentices, zero hour workers and potentially also LLP members.
Pay: Reg 1(2) of the draft regulations refers to ‘gross hourly pay’ and reg 2(3) defines ‘pay’ as calculated before deductions for ‘PAYE, national insurance, pension schemes, student loan repayments and voluntary deductions’. Reg 2(1)(a) includes ‘basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and other pay (including car allowances paid through the payroll, on call and standby allowances, clothing, first aider or fire warden allowances)’. Maternity pay, paternity pay and shared parental leave should be included in the final regulations, given they also appear in the public sector GPG consultation.
Exclusions: Reg 2(1)(b) excludes overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits. It is not quite clear what is and what is not included in overtime pay given the decision on holiday pay in Bear Scotland v Fulton [2015] IRLR 15 which would include guaranteed compulsory overtime, voluntary overtime and non-guaranteed overtime.
Bonus pay: Reg 2(2)(a) of the draft regulations defines bonus pay as including ‘payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commission’ which poses an interesting problem. The words ‘received and earned’ suggest that deferred bonus is not included in the definition. Reg 6 of the draft regulations only refers to ‘received’ as opposed to ‘received and earned’ which is confusing. They also do not explain when long-term investment plans and cash equivalents of shares are deemed to have vested.
Mean and median: Regs 4 to 6 of the draft regulations provide that the employer must provide details about the mean and median pay for its male and female employees, set out as a percentage of the man’s pay. Reg 1(2) defines the mean as ‘the sum of all values in the list divided by the number of values’, whilst the median figure looks for the middle figure on the basis that it is less likely to be skewed by high or low earners.
Quartiles: Reg 7 of the draft regulations provides that the information concerning gross hourly rates is to be placed into four quartiles, starting with the lowest (A) and ending in the highest (D). There is no requirement to identify the financial limits of the actual quartiles. The requirement is only for the numbers of men and women in each quartile, not their grades or pay bands within those grades.
Reporting period: The draft regulations provide that information should be calculated on a data snapshot of the figures as at 30 April each year. The public sector GPG consultation puts the date at 4 April 2018 so the finalised regulations are likely to stipulate the same date.
Enforcement: s 78 EA 2010 provided that regulations could impose penalties for failure to comply, but the draft regulations contain no such provision. The Government is considering whether defaulters should be publicly named and shamed and a tribunal could presumably draw adverse inferences from either no, or falsely, published information.
Daphne is based at Cloisters Chambers. An expert in high-value, very complex litigation, Daphne has a broad range of clients, from well-known multi-national companies to high profile and non-high profile individuals with cases in the High Court, ET, EAT and Court of Appeal in all types of employment claims. Daphne achieved a record settlement in a major equal pay claim against Birmingham City Council.
This does not just affect women’s earnings, but also pension, bonus, shift pay, and any other payment calculated on an hourly rate.
Equal pay is the comparison between a man’s and a woman’s pay and vice versa. It principally arises in three ways: (i) the woman does ‘like’ work to the man; (ii) the woman does work rated as equivalent to a man’s in a job evaluation scheme; and (iii) the woman does work of equal value to a man. It is often the case that women with caring responsibilities, for children, the elderly or disabled, can only work part-time around their caring duties or when they can get cover. GPG is also explained by opportunity; women who take maternity leave are often viewed as less ‘committed’ than their male counterparts. For example, the National Management Salary Survey by the Chartered Management Institute, published in August, found that male managers were 40% more likely to get promoted than female managers.
A decade of public sector litigation
Over the past decade, public sector equal pay litigation has fallen mainly into five categories:
Growth in private sector litigation
Principles from these cases affect new litigation firmly centred on the private sector. Shop-floor workers (about 70% of whom are women) are seeking to compare themselves to male distribution warehouse workers – a typical example of occupational gender segregation. There are over 7,650 issued claims in the ASDA litigation for example, and 400 issued claims in the more recent Sainsbury’s litigation. With no job evaluation scheme in play, claimants will need to establish equal value to their comparators. If they succeed, the employers must show a material factor defence. Where there is occupational gender segregation in workplaces, such as predominantly female clerical staff or assembly-line workers as opposed to maintenance men or drivers, the potential for litigation is the same. Following the Supreme Court’s decision in Abdulla v Birmingham City Council [2013] IRLR 38, employees can bring their claims in the civil courts, with a six-year limitation period, as opposed to claims in the employment tribunal, where there is a six-month limitation period, in both cases time running from the end of employment. As claimants can recover for up to previous six years from the date of claim (five in Scotland), this could present a very large bill. Birmingham City Council has, to date, paid £1bn in compensation, and the bills for the supermarkets and other very large employers could be astronomical.
The new regulations: timeline and rationale
It has never been easy to find out what colleagues actually earn and the mechanism of asking questions through Equal Pay Questionnaires was abolished in April 2014 (under the Enterprise and Regulatory Reform Act 2013 (Commencement No. 6, Transitional Provisions and Savings) Order 2014). It was common practice that contracts would expressly prohibit employees from discussing their salary with others. Section 77 of the Equality Act 2010 (EA 2010) made such clauses unenforceable but the employee is under no obligation to answer and is only protected in the event that the question is posed for the purposes of identifying discrimination on the basis of a protected characteristic – something that may not be readily apparent at the time of asking. Where the employee works in the public sector, the Freedom of Information Act 2000 could be utilised.
Whilst s 78 of the EA 2010 enabled the Secretary of State to make regulations concerning equal pay audits, the section was not brought into force. Instead, the Government introduced the Think, Act, Report policy to encourage voluntary reporting. Although 290 organisations signed up for the scheme, only seven actually reported the figures. In March 2015, s 147 of the Small Business Enterprise and Employment Act 2015 came into force, providing that regulations under s 78 of the EA 2010 had to be made within 12 months ‘for the purpose of requiring the publication of information showing whether there are differences in the pay of males and females’. Section 78 itself came into force in August 2016.
In July 2015, David Cameron launched the consultation Closing the Gender Pay Gap, which proposed GPG regulations for private sector employers. Draft regulations were published in February 2016 and a second consultation followed, with the anticipation that they would be laid before Parliament this summer and come into force in October. However, there has been some delay and it is now anticipated that they will be laid before Parliament this autumn and become law in April 2017.
On 18 August 2016, the Government launched a consultation on public sector GPG under s 153 of the EA 2010, which enables regulations to be introduced to impose specific duties on public authorities to comply with the public sector equality duty (Mandatory Gender Pay Gap Reporting – Public Sector Employers). The approach will be the same as for the s 78 regulations as the Government has announced that it wants a consistent approach between the two sets of obligations. This will apply only to England as the powers in Wales and Scotland are devolved. The new Regulations will modify and enlarge the existing obligations under the Specific Duties Regulations (Equality Act (Specific Duties) Regulations 2011). As a result, both private and public sector employees will have some access to information about pay where they work. However, that information still lacks the specificity they would require to get a clear picture. ●
Contributor Daphne Romney QC, Cloisters
Reading the road ahead: what the GPG regulations might contain
Employer: Information is to be provided by the actual employer, and not across groups of employers (reg 1(2)(b)). This might encourage employers to segregate employees into different entities for the purpose of making the relevant information harder to come upon, although this would be a fairly drastic step for employers to take.
Threshold: The draft regulations apply to public or private sector employers with 250 or more employees, which the Government has estimated at some 11.3 million employees. (It was felt that a figure below 250 employees would put too heavy a burden on smaller employers.)
‘Employees’: The draft regulations apply to ‘employees’ rather than ‘workers’ – which reg 1(2) defines as someone who ‘ordinarily works’ in Great Britain and whose contract is subject to UK law. The Government will probably change this to accord with s 83 of the EA 2010 to include those who contract personally to do work, some self-employed, apprentices, zero hour workers and potentially also LLP members.
Pay: Reg 1(2) of the draft regulations refers to ‘gross hourly pay’ and reg 2(3) defines ‘pay’ as calculated before deductions for ‘PAYE, national insurance, pension schemes, student loan repayments and voluntary deductions’. Reg 2(1)(a) includes ‘basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and other pay (including car allowances paid through the payroll, on call and standby allowances, clothing, first aider or fire warden allowances)’. Maternity pay, paternity pay and shared parental leave should be included in the final regulations, given they also appear in the public sector GPG consultation.
Exclusions: Reg 2(1)(b) excludes overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits. It is not quite clear what is and what is not included in overtime pay given the decision on holiday pay in Bear Scotland v Fulton [2015] IRLR 15 which would include guaranteed compulsory overtime, voluntary overtime and non-guaranteed overtime.
Bonus pay: Reg 2(2)(a) of the draft regulations defines bonus pay as including ‘payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commission’ which poses an interesting problem. The words ‘received and earned’ suggest that deferred bonus is not included in the definition. Reg 6 of the draft regulations only refers to ‘received’ as opposed to ‘received and earned’ which is confusing. They also do not explain when long-term investment plans and cash equivalents of shares are deemed to have vested.
Mean and median: Regs 4 to 6 of the draft regulations provide that the employer must provide details about the mean and median pay for its male and female employees, set out as a percentage of the man’s pay. Reg 1(2) defines the mean as ‘the sum of all values in the list divided by the number of values’, whilst the median figure looks for the middle figure on the basis that it is less likely to be skewed by high or low earners.
Quartiles: Reg 7 of the draft regulations provides that the information concerning gross hourly rates is to be placed into four quartiles, starting with the lowest (A) and ending in the highest (D). There is no requirement to identify the financial limits of the actual quartiles. The requirement is only for the numbers of men and women in each quartile, not their grades or pay bands within those grades.
Reporting period: The draft regulations provide that information should be calculated on a data snapshot of the figures as at 30 April each year. The public sector GPG consultation puts the date at 4 April 2018 so the finalised regulations are likely to stipulate the same date.
Enforcement: s 78 EA 2010 provided that regulations could impose penalties for failure to comply, but the draft regulations contain no such provision. The Government is considering whether defaulters should be publicly named and shamed and a tribunal could presumably draw adverse inferences from either no, or falsely, published information.
Forty-six years since the Equal Pay Act 1970, the gender pay gap persists despite years of litigation. The impending regulations have come at an important time, says Daphne Romney QC
In August, figures published by the Institute for Fiscal Studies suggested the overall gender pay gap (GPG) is now 18%, widening in the 12 years after having children (Gender Wage Gap, BN186).
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