Pay protection should have been extended to female staff (after withdrawal of bonuses to males)under the Equal Pay Act 1970

The genuine material factor defence under section 1(3) of the Equal Pay Act 1970 was not accepted by the EAT as productivity bonuses given only to males had long been automatically paid as part of the normal wage

Bury MBC v Hamilton and Sunderland City Council v Brennan [2011] UKEAT

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• Differences in pay must be genuinely due to a material factor (historic justifications for present pay discrepancies, however valid they might once have been, are not acceptable)
• That bonus schemes were originally non-discriminatory when introduced did not mean that in the relevant period of the claims the differential was still due to a non-discriminatory factor.
• The difference in gender break-down between those employees eligible for the bonus gave rise to Enderby-type indirect discrimination.
• The Councils’ section 1(3)Equal Pay Act 1970 defences in justification of the discrimination failed, along with their appeals.
• Excessive focus on the section 1(3) requirement that differences in pay should be genuinely due to the material factor advised against.
• The structured analysis of equal pay claims after Arden LJ in Armstrong v Newcastle upon Tyne NHS Hospitals Trust [2006] IRLR 124 commented on. Middlesbrough BC v Surtees [2007] ICR 1644 affirmed.
• Bury County Council failed in its defence (section 1(3) of the Equal Pay Act 1970) of the claims for pay protection on the grounds that the sums could not be calculated regarding when the obligation arose and that the claims were in any case unaffordable.
• Tribunals were warned (para.18) against treating the question of 'genuine or sham' as the normal starting-point in the structured analysis of equal pay cases.
• The terms 'sham or pretence' are 'essentially concerned with honesty', that 'an explanation which is a sham is one which has been deliberately fabricated in order to present things otherwise than as they are'.
• Hartlepool Borough Council v Dolphin [2009] IRLR 168 dicta disapproved.
• Wherever the pay differential has to do sex objective justification is required on ordinary burden of proof principles.

Bury and Sunderland CC female employees brought claims under the Equal Pay Act 1970 to receive backpaid the same bonus payments of male colleagues/comparators doing equivalent jobs as well as 'pay protection' payments after the bonuses were withdrawn. For good measure the women claimed sex discrimination against their trade unions the GMB and UNISON.

The main issue to be decided was whether on the basis of workplace job evaluations the Claimants and the comparators were doing comparable work and whether denying the payment of a bonus to the Claimants was 'genuinely due to a material factor other than the difference of sex' under section 1 (3).

The respondent argued a GMF defence that the difference in sex didn't account for the pay differential, that the bonuses were genuine performance related bonuses (PRBs) justified by efficiency, effectiveness and productivity which incentivised the employees to work more productively and thereby enabling the respondent to make efficiency savings, the work being done by fewer employees. The bonus was therefore self-financing.

According to the employer as time passed the bonuses stabilised so that it became no longer necessary or cost-effective to measure the performance of the employees as they were known to be working to the higher productivity. The male employees were however still earning genuine performance related bonuses despite these not being measured in the same way as before. The councils argued in contrast that the Claimants did not receive a bonus as their jobs were not suitable for efficiency savings.

The respondent cited King’s College London v Clark (EAT/1049/02) that this wasn't a sham as, 'A sham or non-genuine explanation is a false one, designed to disguise the true reason for the difference in pay, itself tainted by sex' whereas here there were real reasons for the payment of the bonus. The EAT accepted that there had been here no deception or intention to mislead and therefore no sham was involved. "We do not regard the focus on the question of whether the Council’s explanation was genuine (in the sense identified) or a sham as helpful. The Tribunal’s approach may be understandable because it seems to have reflected the way in which the case was put by the parties, but it nevertheless misses the real points, namely (a) whether the Council had in fact advanced a factual explanation, good or bad, for the different treatment of the Claimants and the comparators and (b) whether that explanation was tainted by sex." (para. 46)

Hartlepool Borough Council v Dolphin [2009] IRLR 168 was deprecated in that it treated the question of whether an explanation was a sham as the central question for decision. Tribunals were advised against, "treating the question “genuine or sham ” as the normal starting-point in the structured analysis of equal pay cases" as it is not typical that employers give dishonest explanations for pay differentials so that it would be misleading to point tribunals in this direction as a matter of course.

The EAT stressed that in indirect discrimination cases, the main area of argument is not whether discrimination took place, but whether it can be objectively justified (para. 30) and that since Wallace, an entitlement to equal pay depends on the existence of discrimination.

After the Napier HoL case (in line with Wallace and Marshall) it is only necessary for the employer to establish the explanation for the discrepancy in payment, and not to prove the validity of it. This need only comes in the second stage.

Unlike direct discrimination showing that the schemes were not discriminatory at their inception was not relevant to the schemes many years later on.

Once that the issue of sex discrimination was decided, the issue of pay protection came up whereby the council argued that as the comparators had, unlike the Claimants, received a withdrawn benefit (the bonus) only they were entitled to receive pay protection.

The EAT reasoned that the reason the Claimants did not receive a bonus was sex-tainted, therefore they needed to receive it in arrears, that the 'pay protection' simply a continuation of the previous discrimination so it could not be justified for the Claimants not to receive the same as the comparators (after Redcar and Cleveland Borough Council v Bainbridge [2009] ICR 133 and Middlesbrough Borough Council v Surtees [2007] ICR 1644).

Although the courts and EAT were sympathetic to submissions by councils about cascades of equal pay claims it was pointed out that equal pay legislation came into force in 1975 and employers had been given 5 years so as to eliminate sex discrimination in pay, employers have since been obliged to ensure that there was no sliding back into discrimination, and that there is a continuing duty to avoid sex discrimination in pay which councils only deal with in the face of successful claims made against them.

The EAT stated that employers will therefore not be allowed to let their pay structures fall out of compliance with the law in the absence of claims and then be allowed years to get into compliance. Indirect sex discrimination through the discriminatory application of a pay protection scheme may only occur where an employer justifies it using the Barry/Cadman test (Barry v Midland Bank plc [1999] ICR 859 p. 870 and ECJ in Cadman v Health and Safety Executive [2006] ICR 1623 para. 32).

Although the EAT allows for the possibility that councils can justify the continuation of past discrimination by withholding pay protection from women claimants, this will be difficult (para.57)

Practicability of payment is not normally relevant to the extending of pay protection to women (para. 72) and the Court of Appeal said in Bainbridge(para 75) that the employer when 'putting the need to cushion the men's pay reduction ahead of the need to bring the women up to parity with the men' must objectively justify the necessity of this, something not done in this case.

The councils' argument that the extending of pay protection was unaffordable could not be proved 'by mere assertion' and that this justification could only be proved by providing detailed evidence which the councils had not provide. Redcar therefore applied that no evidence on cost had been given and therefore the EAT ruled that no evidence was laid before the Tribunal so as to enable it to find that it had established that extending pay protection to the Claimants was unaffordable. The EAT found the Claimants were entitled to pay protection payments.

The background to this case is included in the judgments of the previous cases of Middlesbrough Borough Council v Surtees [2007] ICR 1644 ( paras. 2-11 (pp. 1647-8) and Cumbria County Council v Dow (no. 1) [2008] IRLR 91 - paras. 27-29 (pp. 94-95).

Redcar and Cleveland Borough Council v Bainbridge [2009] ICR 133, Pulham v London Borough of Barking and Dagenham [2010] ICR 333 (error in Pulham corrected), Strathclyde Regional Council v Wallace [1998] ICR 205, Glasgow City Council v Marshall [2002] ICR 196 , Court of Appeal in Armstrong v Newcastle upon Tyne NHS Hospitals Trust [2006] IRLR 124, Newcastle upon Tyne Hospitals NHS Foundation Trust v Armstrong [2010] ICR 674, ('Armstrong 2'), Nagarajan v London Regional Transport [1999] ICR 8773),Yorkshire Blood Transfusion Service v Plaskitt [1994] ICR 74, Tyldesley v TML Plastics [1996] ICR 356 (where no direct nor indirect discrimination found the defence succeeds even when the factor relied on is not objectively justified), Madarassy v Nomura International plc [2007] ICR 867 (prima facie case of discrimination and the shifting of the burden of proof to the employer),Gibson v Sheffield City Council [2010] ICR 708 ('structured analysis')

Villalba v Merrill Lynch & Co Inc [2007] ICR 494 paras. 104-117 (pp. 500-503) and Surtees paras. 45-55 (pp. 1658-60- there are two types of indirect discrimination where an employer must 'objectively justify' that he is not acting unlawfully a) where the employer applies a 'provision criterion or practice (PCP) which puts women at a particular disadvantage when compared with men (a 'disparate adverse impact') b) 'Enderby' indirect discrimination after Enderby v Frenchay Health Authority [1994] ICR 112 (European Court of Justice) where there is a pay discrepancy between male and female employees doing work of equal value.

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