Employers can justify a difference in pay between a man and a woman if they can show they have a genuine material factor (GMF) defence. In Skills Development Scotland Co Ltd v Buchanan and Holland, the Employment Appeal Tribunal (EAT) said that once the employer has established a genuine explanation not tainted by sex, they don’t need to do anything else to resolve the difference in pay.
Ms Buchanan and Ms Holland started working for the same employer as their comparator, John Sweeney, in April 2002 when their jobs were transferred from different predecessor employers to Scottish Enterprise under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
All three then transferred (again under TUPE) to their current employer in 2008.
From 2004 to 2008 all three employees received routine “across the board” increases. As Mr Sweeney’s pay was not frozen, the pay gap between them remained in the range of £10,000 to £12,000. When the women lodged their equal pay claims in September 2008, Ms Buchanan was earning £42,612, Ms Holland £42,407 and Mr Sweeney £54,943.
The company claimed that the reason for the difference in pay was because of TUPE and that this constituted a GMF defence under the Equal Pay Act.
All three were employed as customer service managers and their jobs were agreed to be of equal value for the purpose of section 1 of the Equal Pay Act.
The Tribunal ruled that Scottish Enterprise had been obliged to honour Mr Sweeney’s salary level and his entitlement to pay increases at the time of the transfer in 2002.
However, once that entitlement ceased in 2004, it found that Scottish Enterprise failed to even consider freezing his salary which was, it said, high for his grade.
Rejecting the company’s argument that it was bound by TUPE to keep on paying the increases, the Tribunal said that it did not have TUPE “constantly in mind” when deciding annual pay increases and that there was a “lack of evidence generally to show that TUPE was the reason.”
Instead, it held that Scottish Enterprise should have taken steps to rectify the pay disparity by ‘red circling’ Mr Sweeney’s salary. But the Tribunal made no findings of sex discrimination.
The EAT, however, disagreed. It found there was a genuine explanation for the pay disparity which was not in any way gender related, and this was the 2002 TUPE transfers.
That continued to be the explanation for the difference in pay up to the date of the claim. There was nothing that happened subsequently that broke the causal link between the 2002 TUPE transfer and the pay disparity.
The EAT rejected the claimant’s argument that the Tribunal had found sex discrimination when it said that the 2002 TUPE transfer was not an explanation for the pay difference after 2004. Instead it said that the mere passage of time was not sufficient to make a gender neutral explanation sex tainted.
It concluded that the company’s application of its usual approach to pay increases after April 2004 did not break the causal chain between the “gender neutral” effect of TUPE and the pay disparity. TUPE was and remained the cause of the difference. The adoption of a PRP scheme did not break the chain of causation.
As there was no finding of sex discrimination the explanation for the difference in pay being due to TUPE was a sufficient defence in this case.
Equal pay claims are sex discrimination claims relating to pay or other contractual terms. Evidence of sex discrimination is required. The simple fact that the lower paid person is a woman (or two women in this case) and the man is higher paid is not enough on its own, even taking into account an average gender pay gap generally or in a particular company. Averages might provide supporting evidence to other more direct evidence but are not sufficient on their own. This case does not mean that TUPE is a cast iron defence. It will depend on the factual circumstances both prior to and after the transfer.