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Equal pay: material factor defence upheld

Equal pay: material factor defence upheld

The Employment Appeal Tribunal (EAT) held that a tribunal was wrong to find that an employer’s material factor defence to equal pay claim ceased to operate.

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KPMG in the UK

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In Co-Operative Group Ltd and anor v Walker, there was insufficient evidence that factors justifying a pay discrepancy ceased to be relevant. A material factor defence remains operational to justify the pay differential until identification of a further decision or omission to decide on pay.

Background

  1. In early 2014, Co-Operative Group Ltd (COG Ltd) promoted a female employee, Walker (W), to the role of Chief Human Resources Officer. On promotion, W’s salary was lower than that of the other board members, however this was justified by COG Ltd for various reasons (set out below).
  2. Subsequently in February 2015, COG Ltd carried out a job evaluation study (JES) illustrating that W’s work was at least equivalent to that of male group members, and/or of equal value. As a result, W’s pay was increased to be equivalent to the other board members. 
  3. W was dismissed in April 2017 and brought a claim for equal pay discrimination in relation to the 2014-2015 period between her promotion and the JES.

The material factor defence

COG Ltd sought to rely on a “material factor” defence under section 69 of the Equality Act 2010, asserting that there were non-sex-based justifications for setting W’s pay lower than that of her comparators in February 2014, and that those justifications persisted.

The employment tribunal accepted that the material factor defence was established as at February 2014, based on four factors:

  • Unlike W, COG Ltd saw the comparators as essential to the company’s survival (it was in financial difficulty at the time); 
  • W was newly promoted and unproven at executive level; 
  • there was a more significant “flight risk” with the comparators; and 
  • each comparator’s “market rate” was higher than W’s.

However, the tribunal found that “at some stage between February 2014 and February 2015” the roles of W and the comparators had become more comparable. Therefore, the “historical explanations” for the disparity ceased to apply at some point during that period.

The appeal

COG Ltd successfully appealed to the EAT on the basis that the tribunal should not be able to decide, without a basis for doing so, that the February 2014 material factors no longer justified the pay difference during the intervening period.

There was no evidence that COG Ltd had decided to permit the factors to cease to be relevant, or even noticed that there may be a problem.

While it is unnecessary to identify when COG Ltd became responsible for the unlawful sex discrimination, there must have been sufficient evidence that the transition from a legitimate pay award to an illegitimate one had taken place. It was only upon the effectiveness of the JES that the facts indicated that the original objective justifications no longer persisted. The tribunal had, effectively, extended the JES’ findings to the period prior to the study which was contrary to preceding case law.

Without evidence regarding whether the justifications persisted, and for how long, the tribunal could not speculate on the position between February 2014 and February 2015.

This meant that, provided that the February/March 2014 decision could not be impugned, the material factor defence continued to operate until a further decision or omission to decide on pay could be identified. It is at this point COG Ltd would be required to once again to defend the difference in pay.

Comment

This appeal demonstrates the potential difficulties with relying on historical material factor defences. The employer here was protected (on appeal) because they had taken steps to consider if their defence was still valid and had taken action as soon as there was evidence that it no longer was.  

How KPMG can help

This decision underlines the importance of the services KPMG provides in respect of evidencing the reasons for differences in pay, conducting regular equal pay audits and considering equal pay issues during pay reviews.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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