Factual and Procedural Background
Two appeals arise from claims brought by female employees employed by local authorities, hereinafter referred to as the "Bury case" and the "Sunderland case". The claimants sought equal pay under the Equal Pay Act 1970 for bonus payments received by male comparators and for subsequent pay protection payments following the withdrawal of those bonuses. The claims concern longstanding local authority bonus schemes historically applied predominantly to male-dominated manual jobs ("White Book" jobs), whereas predominantly female jobs ("Purple Book" and "Red Book") did not attract such bonuses. The introduction of "single status" agreements culminating in the "Green Book" sought to unify pay scales, resulting in the formal withdrawal of bonus schemes but with pay protection arrangements implemented to cushion affected employees.
The claimants in Sunderland began bringing claims in 2003, and those in Bury in 2007. Both sets of claims potentially cover arrears over six years or more. The claims included challenges to whether the non-payment of bonus and pay protection was due to a material factor other than sex under section 1(3) of the Equal Pay Act 1970. Employment Tribunals in both cases heard lead cases addressing these issues, with judgments delivered in 2009. Both councils appealed against the dismissal of their genuine material factor (GMF) defence, and in Bury the claimants cross-appealed against the rejection of their pay protection claims.
Legal Issues Presented
- Whether the councils' non-payment of bonus to female claimants was "genuinely due to a material factor other than the difference of sex" within the meaning of section 1(3) of the Equal Pay Act 1970.
- Whether the bonus schemes constituted a sham or pretence, thereby invalidating the councils' GMF defence.
- Whether the pay protection arrangements following the withdrawal of bonus payments were discriminatory and if so, whether they could be objectively justified.
- How the principles of direct and indirect sex discrimination, including the Enderby-type indirect discrimination, apply to the bonus and pay protection claims.
- Whether the councils established objective justification for the differential treatment in pay protection, considering knowledge of past discrimination, practicability, and affordability.
Arguments of the Parties
Councils' Arguments
- The bonus payments to male comparators were genuine performance-related bonuses (PRBs) linked to productivity, incentivising higher work levels and resulting in efficiency savings.
- The female claimants' jobs were unsuitable for PRBs, and no bonus scheme could be designed for their roles that would be beneficial or cost-effective.
- The councils denied direct sex discrimination and PCP-type indirect discrimination, and contended that any gender disproportion did not amount to Enderby-type indirect discrimination.
- The councils argued the GMF defence was established because the pay differential was due to the "bonusability" of comparator jobs, a material factor unrelated to sex.
- Regarding pay protection, the councils contended it was necessary to cushion the financial impact on former bonus earners, that it was impracticable to extend pay protection to claimants before primary claims were resolved, and that extending pay protection to claimants would be unaffordable.
Claimants' Arguments
- The councils' explanation lost its link to productivity over time and became a sham, undermining the GMF defence.
- The bonus schemes were indirectly discriminatory and could not be objectively justified.
- Pay protection arrangements represented a continuation of past discrimination and claimants were entitled to equivalent payments.
- The councils' arguments on practicability and affordability of extending pay protection were insufficiently evidenced and legally irrelevant.
- The councils' knowledge of potential discrimination was significant and should impact the justification analysis.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Middlesbrough Borough Council v Surtees [2007] ICR 1644 |
Background on local authority pay and bonus schemes; structured analysis of equal pay claims. |
Referenced for background and structured legal analysis of equal pay claims. |
| Cumbria County Council v Dow (no. 1) [2008] IRLR 91 |
Introduction to equal pay and job evaluation under the 1970 Act. |
Used to summarize the legal framework and principles applicable. |
| Strathclyde Regional Council v Wallace [1998] ICR 205 |
Interpretation of "genuinely due to a material factor" and sex discrimination principles. |
Guided the Court's understanding of the burden of proof and discrimination analysis. |
| Glasgow City Council v Marshall [2002] ICR 196 |
Clarification of structured analysis and sex discrimination tests. |
Supported the structured approach to evaluating equal pay claims. |
| Armstrong v Newcastle upon Tyne NHS Hospitals Trust [2006] IRLR 124 ("Armstrong 1") |
Structured analysis of equal pay claims and burden of proof. |
Formulated the structured analysis approach adopted by the Court. |
| Newcastle upon Tyne Hospitals NHS Foundation Trust v Armstrong [2010] ICR 674 ("Armstrong 2") |
Refinement of structured analysis and discrimination tests. |
Further clarified application of structured analysis in equal pay cases. |
| Nagarajan v London Regional Transport [1999] ICR 877 |
Definition of direct discrimination in equal pay context. |
Applied to distinguish direct discrimination from other factors. |
| Yorkshire Blood Transfusion Service v Plaskitt [1994] ICR 74 |
Illustration of non-discriminatory "mistake" defence under section 1(3). |
Referenced to show when GMF defence can succeed without objective justification. |
| Tyldesley v TML Plastics [1996] ICR 356 |
Similar to Plaskitt on non-discriminatory explanations. |
Supported legal principles on genuine material factor defence. |
| Villalba v Merrill Lynch & Co Inc [2007] ICR 494 |
Analysis of two types of indirect discrimination (PCP and Enderby types). |
Adopted to explain the nature of indirect discrimination in the claims. |
| Redcar and Cleveland Borough Council v Bainbridge [2009] ICR 133 |
Principles regarding pay protection and continuation of past discrimination. |
Applied to assess justifiability of pay protection arrangements. |
| Hartlepool Borough Council v Dolphin [2009] IRLR 168 |
Definition of "sham" explanation in the context of GMF defence. |
Used to clarify the meaning of "genuine" and "sham" in section 1(3) defence. |
| King's College London v Clark (EAT/1049/02) |
Definition of sham or non-genuine explanation. |
Adopted to interpret the genuineness requirement under section 1(3). |
| Smith v Avdel Systems Ltd [1995] ICR 596 |
Requirement of immediate and full removal of direct discrimination. |
Referenced to explain the illegitimacy of continuing direct discrimination via pay protection. |
| Barry v Midland Bank plc [1999] ICR 859 |
Principles of objective justification and proportionality test. |
Applied in assessing justification of indirect discrimination. |
| Cadman v Health and Safety Executive [2006] ICR 1623 |
Objective justification test under EU law. |
Used to guide proportionality assessment in indirect discrimination claims. |
| Snook v London & West Riding Investment Ltd [1967] 2 QB 786 |
Definition of "sham" in legal context. |
Referenced to support interpretation of sham as deliberate fabrication. |
| Pulham v London Borough of Barking and Dagenham [2010] ICR 333 |
Application of Bainbridge principles and evidential requirements for justification. |
Considered for evidential standards regarding affordability and justification. |
Court's Reasoning and Analysis
The Court began by outlining the historical context of local authority bonus schemes, noting their origin in productivity-linked payments predominantly awarded to male manual workers. It acknowledged the absence of job evaluation mechanisms across different employee categories and the slow progress towards unified "single status" pay arrangements, culminating in the Green Book implementation which withdrew bonuses but introduced pay protection.
The Court emphasized the structured analysis for equal pay claims under section 1(3) of the Equal Pay Act 1970, as refined by leading cases such as Wallace, Marshall, and Armstrong. This involved identifying the employer's explanation for pay differentials, assessing whether it was tainted by sex discrimination (direct or indirect), and applying the burden of proof and objective justification tests accordingly.
Regarding the bonus schemes, the Court rejected the Employment Tribunals' characterization of the councils' explanations as "sham" on the basis that a sham implies deliberate fabrication. The Court found no evidence of dishonesty or intent to conceal. Instead, the Court held that the councils did provide an explanation: the comparators' jobs were "bonusable" and the claimants' were not. However, the Court recognized that this explanation prima facie involved Enderby-type indirect sex discrimination due to the gender composition of the groups.
The Court found that the link between bonus payments and productivity had been lost well before the relevant period, meaning the councils' justification for differential pay was undermined. Consequently, the GMF defence failed except for certain claimant groups where gender disproportion was unclear; these cases require remittal for further factual determination.
In the Sunderland appeal, the Court similarly rejected the sham finding and held the councils had explained the pay differential. It accepted the claimants' case of Enderby-type indirect discrimination and found the councils failed to justify the differential because the bonus schemes no longer rewarded productivity. The councils' factual challenges to the Tribunal's findings on productivity were dismissed.
On pay protection, the Court reviewed the Court of Appeal's decision in Bainbridge, which held that continuation of past direct discrimination via pay protection cannot be justified, while continuation of past indirect discrimination requires a proportionality assessment considering employer knowledge and efforts to minimize discrimination.
The Court examined the councils' justification for pay protection limited to former bonus earners, accepting the need for industrial relations stability and practical difficulties in calculating entitlements for claimants before primary claims were resolved. However, it held that practicability was not a material consideration legally and that the councils failed to provide sufficient evidence on affordability to justify exclusion of claimants from pay protection.
The Court concluded the Employment Tribunal erred in law by accepting the councils' arguments on practicability and affordability without adequate evidential support, and that the claimants were entitled to pay protection payments calculated by reference to the bonus payments they should have received.
Holding and Implications
The appeals by the councils against the rejection of their genuine material factor defence are dismissed except for specific claimant groups where factual issues regarding gender disproportion require remittal. The claimants' cross-appeal in Bury regarding entitlement to pay protection succeeds.
The direct effect of this decision is that female claimants are entitled to equal pay including bonus payments and pay protection equivalent to that received by male comparators, subject to further factual determinations where necessary. The Court clarified the proper application of the "sham" concept and emphasized the structured analysis for equal pay claims, reinforcing the burden on employers to justify pay differentials objectively.
No new precedent was established beyond the application and clarification of existing principles, but the decision underscores the importance of detailed evidential support for employer defences in equal pay claims and the limited role of practicability and affordability absent proper proof.