In Equal Pay claims after a TUPE transfer, red circling will be accepted as a genuine material factor defence

The male worker was entitled to his pay increase along with the rest of the workforce despite historical discriminatory pay differences that led to his higher wage

Scotland Co Ltd v Buchanan & Anor (Equal Pay Act : Material factor defence and justification) [2011] UKEAT 0042_10_2505  

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• Red-circling constitutes a genuine material factor and therefore a defence to an equal pay claim

The EAT (Lady Smith) has ruled in Scotland Co Ltd v Buchanan & Anor that where there is a TUPE transfer red-circling of a worker's pay will constitute a genuine material factor justifying a disparity in pay between sexes.

In this case two women who complained of a significant pay differential between them and a male comparator doing work of equal value to them following TUPE transfers.  The defence to this which was upheld by the EAT was of 'genuine material factor' defence under s.1(3) of the Equal Pay Act 1970  whereby the employers held TUPE as explaining the differential in pay.

An equal pay claim brought on the basis that a transferred employee's pay should have been frozen until pay has equalised accross the sexes is therefore be subject to a defence.

The judge reasoned the decision as follows:

37.         We consider that Mr Linden’s submissions are well founded and are satisfied that the Tribunal erred in law.  Their findings in fact were demonstrative of there having been a genuine explanation for the pay disparity complained of which was not, in any way, gender related.  Although the language used by the Tribunal is that they did not accept that the reason advanced by the Respondent “was either genuine or material” (paragraph 82), they do not begin to suggest that this was a case of sham, fraud or pretence or, indeed, that the impact of TUPE was not highly material in the context of this case.  Rather, the reasoning set out in their judgment shows that they rely on the failure to take action to address the pay disparity sooner (by freezing Mr Sweeney’s pay) as having  broken the causal chain, allied to which is the suggestion that it was broken because they were not thinking about TUPE at each pay review.  Further, the basis for their view that action should have been taken by the employers appears to be that there was no contractual obligation to award pay increases to Mr Sweeney after April 2004.  Although Ms Jones approached her submissions on the basis that the Tribunal had “rejected” the Respondent’s explanation, properly understood, this was a “break in the causal chain” case, not one where the Tribunal had disbelieved the explanation tendered. 

Indeed, there is no doubt that they accepted that TUPE operated so as to impose Mr Sweeney’s pre-existing contract of employment on Scottish Enterprise and that that contract had not been varied.  Nor was there any suggestion that Mr Sweeney had waived any of his rights under it.  Further, the findings show that once his contract was transferred, it in fact operated so as to pay salary increases year on year.  There was no basis other than his contract for those payments being made.

38.         The relevant clause in Mr Sweeney’s contract (set out above) is, we consider, readily capable of being interpreted so as to entitle him to whatever pay increases were being awarded under his employer’s “normal arrangements” which, on the findings in fact were that percentage increases and PRP bonuses were paid to all employees each year “across the board”.  The Tribunal should have recognised that.  The ability, under the PRP scheme, to freeze the pay of an employee who was being overpaid, relied on by Ms Jones, is, we consider, neither here nor there, given the finding in fact that it was not the practice of Scottish Enterprise to freeze salaries.  Further, the terms of that policy did not effect any variation of Mr Sweeney’s contract of employment; its terms remained intact.  The Tribunal’s criticism of Scottish Enterprise for not having considered freezing Mr Sweeney’s pay is, accordingly, irrelevant – on their own  findings in fact, had they specifically considered the matter, the answer would have to have been that Mr Sweeney’s pay would not have been frozen.  The Tribunal failed, however, to recognise that; their thinking appears not to have proceeded beyond the fact that Scottish Enterprise could have frozen Mr Sweeney’s pay.  Further, given the terms of Mr Sweeney’s contract, any employer considering imposing a pay freeze on him would require to have recognised that that would, potentially, have amounted to a breach of the term to which we have referred.

39.         In the circumstances, we are not persuaded that the absence of any specific consideration of the effect of TUPE or of the question of whether or not Mr Sweeney’s pay could be frozen was such as to break the causal chain.  We agree with Mr Linden that the findings in fact show that TUPE was and remained the cause of the pay disparity.  The application of the employer’s standard approach to pay increases after April 2004 did not break the causal chain that emanated from the gender neutral fact of the effect of TUPE beginning in April 2002.

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