Factual and Procedural Background
In 2007, a multiple equal pay claim was initiated by 86 catering assistants ("Claimants") employed initially by Company A, a local council, where the workforce was predominantly female. The Claimants sought to compare their roles with 14 predominantly male comparator job titles. It was conceded that the Claimants performed work of equal value to the comparators. Employment subsequently transferred from Company A to Company B, and then to Company C on 27 February 2007. Company C went into administration in early 2009, and administrators appointed on 9 January 2009 sold Company C's assets to Company D, which took over the Claimants' contracts as transferee.
The Employment Tribunal (ET) heard the case in May 2016, ruling that equal pay arrears not yet determined or quantified did not constitute a debt payable at the time of transfer, but if the claim succeeded, liability beyond the statutory guarantee could transfer to the transferee. Company D appealed to the Employment Appeal Tribunal (EAT), which held that undetermined equal pay arrears could constitute arrears of pay under the Employment Rights Act 1996 (ERA) and that Company D's liability was not extinguished by TUPE regulations, except for the guaranteed sums paid by the Secretary of State. The Secretary of State sought permission to appeal to the Court of Appeal on two grounds related to the interpretation of the ERA provisions. The appeal was granted and proceeded despite settlement between the Claimants and Company D, given the importance of the legal question.
Legal Issues Presented
- Whether a claim for equal pay that has not been determined at the time an employer becomes insolvent can constitute "arrears of pay" payable by the Secretary of State under Part XII of the Employment Rights Act 1996.
- Whether such equal pay claims are "debts" within the meaning of section 182 of the Employment Rights Act 1996.
Arguments of the Parties
Secretary of State's Arguments
- The phrase "arrears of pay" in section 184(1)(a) of the ERA should be interpreted consistently with other provisions of the Act (ss 220-224 and 234 ERA).
- "Arrears of pay" comprises an employee's weekly pay as defined in the ERA and only those claims specifically listed in section 184(2), subject to statutory caps.
- Claims for equal pay under the Equal Pay Act 1970, the Equality Act 2010, or Article 157 TFEU are not claims for arrears of pay under the relevant ERA provisions, as they are conceptually and practically distinct.
- The construction adopted by the Employment Appeal Tribunal (EAT) creates practical difficulties for the Secretary of State in assessing and managing claims, particularly given the limitations of information gathering powers and the timing of TUPE transfers.
- Section 184(1) requires payment of debts, not damages; thus, claims for damages in equal pay cases may not be covered.
Court's Discussion on Arguments
- The court noted that equal pay claims operate by statutory modification of employment contracts, implying equality clauses that create an entitlement to equal pay accruing payday by payday.
- Precedents confirm that the entitlement to equal pay is treated as accruing arrears of remuneration, even if not recognized or satisfied by the employer at the time.
- The court acknowledged differences between ordinary arrears of pay and equal pay claims but found many similarities and that equal pay claims fall within the contractual model and thus can be considered arrears of pay.
- The court accepted practical difficulties but held they do not override the statutory meaning.
- The court rejected the argument that claims for damages could exclude claims for arrears of pay in this context, noting the majority of claims are for arrears.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Abdulla and others v Birmingham City Council [2013] 1 All ER 649; [2012] ICR 1419 |
Confirmed the contractual mechanism by which equal pay rights are implied into employment contracts, creating an equality clause. |
The court relied on Lord Wilson JSC's explanation to confirm that equal pay claims represent statutory modifications of contracts, supporting their characterization as arrears of pay. |
| Sorbie and Others v Trust Houses Forte Hotels Limited [1977] 1 QB 931 |
Established that equal pay claims modify contractual terms to remove less favourable pay terms and substitute equal pay from the date the Act came into force. |
Supported the view that entitlement to equal pay is treated as accruing arrears, reinforcing that such claims fall within the concept of arrears of pay. |
| Reading Borough Council v James and others [2018] ICR 1839 |
Confirmed that the equality clause operates automatically to equalise pay terms without the need for tribunal declaration. |
Used to affirm that equal pay claims represent statutory modification of contract terms and thus arrears of pay. |
| Benson v Secretary of State for Trade and Industry [2003] ICR 1082 |
Held that certain contractual guarantee payments were not debts falling within the definition of arrears of pay under the ERA. |
The court distinguished this precedent as not assisting in determining whether equal pay claims fall within arrears of pay, noting the restrictive nature of s 184. |
| Connor v Secretary of State for Trade and Industry (UKEAT/0589/05/SM) |
Held that compensatory awards for unfair dismissal and protective awards under TUPE do not fall within s 184's definition of arrears of pay. |
Referenced to confirm that only debts defined in s 184(1) are covered, but did not resolve the equal pay claim issue. |
Court's Reasoning and Analysis
The court examined the statutory framework under Part XII of the Employment Rights Act 1996, which implements Directive 2008/94 guaranteeing certain payments to employees of insolvent employers. Section 182 obliges the Secretary of State to pay debts owed to employees on the employer's insolvency, provided the employee was entitled to payment on the "appropriate date" (the date of insolvency).
Section 184 defines qualifying debts, including "arrears of pay" for up to eight weeks, but does not expressly mention equal pay claims. The court considered whether undetermined equal pay claims constitute arrears of pay under s 184(1)(a).
The court analysed the contractual nature of equal pay claims, noting that the Equal Pay Act 1970 and its successor provisions imply equality clauses into women's contracts, thereby creating statutory modifications that accrue as arrears of pay. Precedents confirm that such claims represent entitlements accruing payday by payday.
The Secretary of State's argument that equal pay claims are conceptually distinct and thus excluded from arrears of pay was rejected, as was the contention that claims could be damages rather than debts. The court acknowledged practical difficulties in administering such claims but held that statutory interpretation must prevail over administrative concerns.
Ultimately, the court concluded that equal pay claims, even if undetermined at insolvency, can constitute arrears of pay payable under Part XII of the ERA.
Holding and Implications
The court DISMISSED the appeal.
The holding confirms that claims for equal pay, including those not yet determined at the time of employer insolvency, constitute arrears of pay under the Employment Rights Act 1996 and are therefore payable by the Secretary of State subject to statutory limits. This decision clarifies the scope of Part XII of the ERA and affirms the contractual nature of equal pay claims as debts. The ruling has direct effect on the parties by requiring the Secretary of State to meet such claims but does not establish broader precedent beyond the statutory interpretation at issue.