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Equal pay: material factor defence upheld by Court of Appeal

Equal pay: material factor defence upheld by Court of A

Court of Appeal – an employer’s material factor defence to equal pay claim did not cease to operate.

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Director, KPMG Law

KPMG in the UK

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In Co-Operative Group Ltd and anor v Walker, the Court of Appeal decided there was insufficient evidence that factors explaining a pay discrepancy had stopped being relevant just with the passage of time. A material factor defence remains operational to explain the pay differential until identification of a further decision or omission to decide on pay.

Background

In early 2014, Co-Operative Group Ltd (COG Ltd) promoted a female employee, Walker (W), to Chief Human Resources Officer. On promotion, W’s salary was lower than that of the other board members. This was justified by COG Ltd on the basis that:

  • Unlike W, COG Ltd saw the comparators as essential to the company’s survival (it was in financial difficulty); 
  • 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. 

In February 2015, COG Ltd carried out a job evaluation study (JES) illustrating that W’s work was equivalent/of equal value to that of male group members. W’s pay was increased to be equivalent to the other board members.

W was dismissed in 2017 and brought a claim for equal pay discrimination in relation to the 2014-2015 period between her promotion and the JES.

Material factor defence and the Employment Appeals Tribunal (EAT) 

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 the four factors considered by COG Ltd when W’s salary was determined on her promotion in early 2014.

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.

COG Ltd successfully appealed to the EAT on the basis that the tribunal would 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.

The material factor defence continued to operate until a further decision or omission to decide on pay could be identified.

Court of Appeal

The Court of Appeal dismissed W’s subsequent appeal.

The tribunal’s decision could not stand as at least one material factor continued to explain the pay differential in respect of each comparator.

In addition, W argued that the difference in pay was not justified. The Court of Appeal was clear that whether the material factor justified the pay differential was not a question for the tribunal – where the factor relied on was not related to sex, the question is whether that factor explained (not justified) the differential.

Comment

This case demonstrates the complexities of relying on historical material factor defences. The employer was protected (on appeal) because they took steps to consider if their defence remained valid and took action as soon as there was evidence that it no longer was.

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

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