A Sell Out? What the Latest Next Equal Pay Ruling Means for Workers

By Matthew Pull, Partner & Head of Settlement AgreeBackground

More than 3,500 retail sales consultants employed by Next Retail Limited brought equal pay claims against the company, arguing that they were paid less than warehouse operatives despite an earlier tribunal finding that their jobs were of equal value. The retail workforce was predominantly female, while warehouse roles, whilst male dominated, had a more balanced gender profile.

Next argued that the difference in pay was not due to sex discrimination but to a number of "material factors", including market rates, the need to recruit and retain warehouse staff, the requirement to maintain a 24/7 warehouse operation, productivity incentives and wider business performance considerations. The company maintained that warehouse roles faced distinct labour market pressures and required higher rates of pay to attract and retain workers. 

The Employment Tribunal accepted that the retail workers had established a particular disadvantage because of the differing gender profiles of the two workforces. However, it found that Next had failed to justify the pay gap in relation to basic pay and several other contractual benefits, including paid rest breaks and long-service awards. The tribunal concluded that, in relation to basic pay, the company's justification amounted largely to cost-saving rather than a legitimate business aim. 

Next appealed to the Employment Appeal Tribunal (EAT), arguing that the tribunal had taken the wrong approach when assessing legitimate aim and proportionality. The claimants also cross-appealed, contending that the tribunal should have found direct sex discrimination because the employer relied on market forces that were themselves influenced by gendered labour market patterns. 

Outcome

The EAT allowed Next's appeal in significant part and dismissed the claimants' cross-appeal. It held that the Employment Tribunal had erred when assessing whether Next's reliance on market forces and recruitment pressures pursued a legitimate aim. The EAT found that the tribunal wrongly focused on why retail workers were not paid more, rather than considering why warehouse workers were paid more. The evidence showed that Next paid higher rates to warehouse staff because of genuine recruitment and retention pressures that did not apply to retail roles. 

The EAT concluded that the tribunal had incorrectly characterised Next's approach as a "costs only" exercise. Relying on established equal pay principles, it found that an employer is entitled to pay higher wages where there is a legitimate business need to attract and retain workers and where that rationale does not apply to another group of employees. The tribunal's conclusions on basic pay and some related benefits therefore could not stand. 

The EAT also held that the Employment Tribunal had applied an overly restrictive approach to the role of market forces when assessing proportionality. It confirmed that labour market pressures can justify pay differences in equal pay cases, provided the employer can demonstrate that the higher rates are genuinely required to recruit and retain staff. 

However, the EAT rejected the claimants' argument that direct discrimination must automatically be found whenever an employer relies on market forces. It upheld the tribunal's factual finding that Next's decision-makers were motivated by business and cost considerations rather than by gender, and that there was no evidence of conscious or unconscious sex discrimination in the setting of pay. 

Comments / Key takeaways

This is one of the most significant equal pay decisions of recent years and will be closely watched by employers facing large-scale comparisons between different parts of their workforce. The judgment provides important clarification on the scope of the material factor defence under section 69 of the Equality Act 2010. 

The EAT reaffirmed that market forces, recruitment difficulties and retention pressures can constitute legitimate explanations for pay differences. Employers are not required to equalise pay simply because they can afford to do so. The correct question is whether there was a genuine business reason for paying one group more, rather than whether the employer could have increased pay for the lower-paid group.

The ruling will be welcomed by employers defending equal pay claims based on comparisons between operationally distinct workforces. It confirms that tribunals must examine the reason for higher pay in the comparator group and assess whether that rationale is legitimate and proportionate, rather than focusing solely on the lower-paid employees' position. 

At the same time, the EAT did not dilute the broader purpose of equal pay legislation. The judgment confirms that statistical evidence of disadvantage can still establish a prima facie equal pay case, and employers relying on market forces must still demonstrate that the pay differential is objectively justified. The question will always be whether the reliance on those market forces is proportionate in the circumstances of the individual case. 

This may not be the final position in this case as both parties have indicated that they will appeal. An update will appear in a future edition.

Next Retail Ltd v Thandi and Others [2026] EAT 130