I work in HR for a large fashion retailer and have been put in charge of an equal pay audit of our pay structure. Mostly, I’m happy with the results of my review but I’m worried about the connection between length of service and the pay bands we use for our junior staff (other than those in Head Office). Essentially, each job title has a pay band and employees move one point up the pay band each year. There are ten points in each band.

I’ve seen all the press coverage about this issue recently but it’s left me none the wiser. I know that age discrimination is relevant too, but that aspect seems to be easier to justify, so I’m less concerned about it. Our normal lawyers are really sitting on the fence – please will you tell me straight whether this is a lawful pay structure or not?

Yours

Phil Ince-Caird

 

Dear Phil

The short answer to your question is no. The pay structure you describe is unlikely to be lawful. I say “unlikely to be” rather than “definitely not” because it’s conceivable that you have a compelling reason for this structure which you haven’t mentioned but, bluntly, that seems quite unlikely. Let me explain…

Length of service is recognised by the courts as being a legitimate factor for employers to reward in most cases. With increased length of service comes more experience, which often helps employees to better perform. There is also the objective of rewarding and encouraging loyalty (and the more stable workforce that derives from it). As you note, the new legislation about age expressly deals with length of service and exempts benefits which accrue up to five years or less at a particular level. Even for benefits accruing over more than five years, they will be permissible if it reasonably appears to the employer that they fulfil a business need (including the objectives already mentioned).

So far so good. The problem is because of the exceptions to this normal rule about length of service. The media coverage that you mention related to the ECJ decision in Cadman v Health & Safety Executive and I can completely understand why it left you confused, as conflicting accounts of the case were published by different newspapers. Briefly, Mrs Cadman received less pay than four male comparators who did the same job. The HSE said that the difference in pay was due to a genuine material factor (“GMF”), namely length of service. However, in equal pay claims if the GMF itself gives rise to inequality between male and female employees then the employer has to take the further step of showing that the GMF is objectively justified.

The point at issue in the case was whether length of service was a GMF which gave rise to inequality and hence needed special justification. Mrs Cadman claimed that special justification was required because length of service is harder for women to accrue, since they are more likely to take career breaks for maternity etc. Luckily for you, the ECJ disagreed and said that, in most cases, it is legitimate for employers to distinguish between employees based on length of service without having to objectively justify doing so because greater experience enabled employees to do their job better. Here comes the “but”.  It went on to say, however, that if the employee could bring evidence showing that this legitimate objective did not apply (because, for example, the additional experience did not improve the employees performance) then in those cases the employer would have to prove that reliance on length of service was objectively justified.

In your case, I would be concerned that ten years is too long a period over which to keep increasing salary based on length of service for employees of this type. It would be open to an employee who is at, say, point 3 of the pay band to argue that they should be receiving the same salary as someone, say, at point 6 or 10. This would be especially true if the job in question was relatively low skilled and could be mastered completely within a year or two, as may be the case for the jobs you’ve mentioned. I should also mention that the specific exemption within the age discrimination legislation is for length of service “benefits”. While most people expect that “benefits” will be taken to include pay, it would open to an employee to assert that it does not – pay and benefits are considered to be different things for most employment law purposes.

All in all I would recommend that you make some changes to your pay band structure to avoid the risk of successful claims. You needn’t abandon reliance on length of service requirements entirely but I suggest that you reduce the number of “points” in each pay band to, say, five.  Alternatively, you could consider “diluting” the link between pay and length of service by introducing a connection between pay and performance (ideally based on documented appraisals), which could include some recognition of experience but would not be completely determined by that. If you really can’t change the existing structure because it’s commercially too difficult, then you need to look carefully at objective justification and go through a formal consideration process to identify and document the objectives which you are seeking to pursue.

Finally a note of caution about equal pay reviews (and similar employment law compliance audits). Bear in mind that the documents you create are likely to be disclosable in any relevant litigation. This means that if you document areas of non-compliance such as this then you are potentially providing employees with compelling evidence that they have a legitimate claim against you. For this reason, you should only undertake such an exercise if either you can protect your findings by legal privilege (by involving your lawyers) or if you are prepared to fully tackle and resolve any issues which emerge. Good luck!

 

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