The Next case: Equal pay for equal work

Next’s predominantly female based store staff should be paid the same as the largely male warehouse operatives under equal pay for equal work laws. This Tribunal finding is expected to cost the high street retailer over £30m in compensation and back pay in addition to increased wages for store staff going forwards.

Equal pay: what is the law?

The Equality Act 2010 requires that men and women should receive equal pay for equal work, where equal work is defined as;

• Like work, i.e. work that is the same or broadly similar;
• Work rated as equivalent as a result of a job evaluation study; or
• Work of equal value, i.e. work which is not either of the above but is equal in terms of the demands made by reference to factors such as effort, skill, and decision making.

An employer can defend a difference in pay rate if there is a genuine different value to the work, attributable to a material factor not based on sex. However, a material factor that, in practice, has a disproportionately adverse impact on women will need to be objectively justified as a proportionate means of achieving a legitimate aim. Purely seeking to reduce business costs will never be accepted as a legitimate aim.

Thandi and ors v Next Retail Ltd and anor – The facts

In 2018, over 3,500 store-based staff brought an equal pay claim against Next. The Claimants argued that the work performed by the customer service staff in stores was of equal value to the retailer’s warehouse-based employees. As 77.5% of the store-based workforce were women and 52.78% of the warehouse staff were men, they argued that this was in breach of the Equality Act 2010.

An independent employment expert report analysed each of the roles, considering reference factors including knowledge, planning, organisation, communication, customer service and the physical demands of each role. At an earlier hearing, the store-based and warehouse-based roles were found to be of equal value.

Next argued that the difference in pay was due to material factors unrelated to gender, citing market forces and recruitment challenges as well as maintaining a round-the-clock workforce for the warehouses. Next also claimed that the increased rate of pay was to incentivise warehouse productivity and encourage consistent and high attendance, particularly during peak periods of demand. Although Next acknowledged that these factors put store workers at a particular disadvantage compared with the warehouse staff, it argued that they were proportionate means of achieving a legitimate aim.

The decision

The employment tribunal found that the difference in pay rates did not constitute direct discrimination (as the factors relied upon to justify the pay difference were driven by cost and profit, rather than gender). It did, however, amount to indirect discrimination, as the number of women and men that made up each workforce (both in Next and the market as a whole) meant that paying the store workers less had a disproportionate impact on women. The Tribunal also considered that, because of childcare responsibilities, women are more likely to take up part-time work, which explained the higher proportion of women in retail sale roles.

Additionally, the market forces argument was not a legitimate justification for the pay difference as it masked a “costs only” aim. The tribunal concluded that Next could afford to pay a higher rate of basic pay to retail staff to match the rate paid to warehouse workers, but priority was given to keeping labour costs low to maximise profitability. Even if this were a permissible aim, the payment of different sums of basic pay was not reasonably necessary to meet it.

Further, the Tribunal also upheld the store workers’ equal pay claims in regard to the following, saying that the material factors behind the pay differences were essentially about cost savings:

• "unconsolidated" pay awards for warehouse workers;
• different Sunday pay, night-time, and overtime premiums;
• the lack of paid rest breaks for retail workers; and
• different long service awards.

Next’s defence was successful in respect of certain bonuses and premiums paid to warehouse workers, as the justifications were based on business needs at the relevant time and were not solely on cost.

It has been estimated that the average award may amount to approximately £6,000 back pay per employee.

Comment

As this is a first-instance decision it is not binding on other cases. The decision was based on the specific facts of the case, so other similar retail claims may not be decided in the same way. We await the outcome of the long queue of other retail sector equal pay claims currently going through the tribunal system, including against Asda, Tesco, Sainsbury's, Morrisons and the Co-Op. In any event, Next has expressed its intention to appeal the decision.

Nevertheless, in the backdrop of this case and the new Labour government’s proposals to bolster gender pay gap reporting and mandate large employers to develop, publish, and implement action plans to close their gender pay gaps, we would recommend that retail employers seek to analyse their pay data and structures. This will be particularly important where market rates for jobs could be based on past discriminatory practices based on archaic views on “men’s” and “women’s” work. Retailers should consider each job role within their business and how workers should be categorised for the purposes of equal work of equal value, and remember that even small majorities will be influential in findings. Employers should also carry out equal pay audits (ideally with legal advice in order to benefit from privilege) to help identify differences in pay, so steps can be taken to address inequalities or objectively justify them where necessary.