Red is the colour

Fearnon and ors v Smurfit Corrugated Cases (Lurgan) Ltd

Employers can defend equal pay claims by showing that the difference in pay between the woman and the man has nothing to do with her sex. This is known as the material factor defence. In Fearnon and ors v Smurfit Corrugated Cases (Lurgan) Ltd (IRLR 2009, 132), the Northern Ireland Court of Appeal said that employers can only rely on the material factor defence of red-circling for a limited period of time, that is, as long as the factor retains “the essential attributes of genuineness and materiality”.

Basic facts

Ms Fearnon and two colleagues brought equal pay claims, comparing themselves with a manager, Wesley Warnock, who did the same or broadly similar work as them. He had started work as a costings clerk in about 1969 (the women joined in 1983) and was promoted to sales manager in 1988 or so, with additional pay for his new responsibilities.

In about 1994, following a transfer to Smurfit under the 1981 Transfer of Undertakings (Protection of Employment) Regulations (TUPE), Mr Warnock's supervisory duties were removed, but his job and salary were protected under a red-circling arrangement. He also continued to receive annual pay increases.

At a pre-hearing review, the women argued the Smurfit could not rely on red-circling as a genuine material factor defence for the difference in pay. They accepted that there had been good reasons for it back in 1994, but that there was no justification for continuing it and that the arrangement should have been reviewed long ago. Smurfit argued that the reason for protecting Mr Warnock’s pay was to maintain the protection to his terms and conditions afforded by the TUPE regulations and that time was not a relevant issue.

Tribunal decision

The tribunal said that the reason for the difference in salary was the 1994 TUPE transfer.

Noting that the women’s case was premised on the length of time for which the red-circling had continued, it concluded that “the mere fact of the red-circling continuing” was not enough to ‘make a case for the claimant’..

Smurfit was therefore entitled to rely on the arrangement as a genuine material factor defence. The women appealed and asked the Court of Appeal to decide whether the tribunal was correct in holding that the protection afforded by red circling is not time limited.

Northern Ireland Court of Appeal

The Court of Appeal agreed with the women. It made clear first of all that the onus was always on the employer to establish a genuine material factor. The tribunal, though, had approached the issue as though the claimants “were required to show that the once genuine factor had transformed into something that no longer qualified for that description’. They went on to say ‘We are satisfied that this approach would not be correct. It is for the respondent to show that the mooted factor retains the essential attributes of genuineness and materiality”.

It was therefore up to the tribunal to examine not only the motive for the introduction of red-circling, but also the reasons it had been continued. “It is wrong to assume that because it was right to institute the system, that it will remain right to maintain it indefinitely”.

The Court continued to criticize the tribunal’s approach, pointing out that it had not asked the company to produce evidence to justify continuing the practice. It had not considered whether the practice was in accordance with “current notions of good industrial practice”. Nor had it asked the company whether it could have phased out the difference in pay levels or made adjustments in earnings to equalise the salaries paid to the women and their comparator.

Instead, the tribunal seemed “to have accepted without demur the unvarnished claim that the reasons for the red-circling continued to apply, unsupported as it was by any evidence. Given that, as we have said, the onus of establishing this central tenet of the respondent's case rested on the employers, we cannot accept that this was a correct approach”.

The tribunal was therefore wrong to decide that the protection afforded by the material difference of red-circling was not time limited and the women’s appeal was allowed.