Factual and Procedural Background
This appeal arises from a decision of the Employment Appeal Tribunal ("the EAT") overturning an Employment Tribunal ("the ET") decision that had allowed a claim of indirect racial discrimination by sixteen contract workers ("the Claimants") against the Respondent, Company A. The Claimants worked under a contract with a third-party contractor, Company B, providing cleaning and maintenance services under Company A's management of certain public parks in The City.
Company A pays its directly-employed workforce the London Living Wage ("LLW"), a non-statutory recommended minimum hourly rate for London workers, but did not require its contractors, including Company B, to pay the LLW until November 2019. The Claimants, mostly of black or minority ethnic origin, contended that this failure constituted indirect racial discrimination contrary to section 41 of the Equality Act 2010.
The ET found that Company A had applied a provision, criterion or practice ("PCP") of paying LLW to its direct employees but not to contract workers, and that this PCP had a disparate impact on black and minority ethnic workers, using a comparison pool consisting of Company A's direct employees and Company B's employees on the cleaning contract. The ET also found no justification for the PCP.
The EAT allowed Company A's appeal, holding that the correct comparison pool must include all indirectly-employed workers under all Company A's contracts, not just those employed by Company B, and that the Claimants had failed to prove disparate impact on that broader pool due to lack of evidence.
Legal Issues Presented
- Whether Company A, as principal, was liable under section 41 of the Equality Act 2010 for indirect racial discrimination against contract workers employed by Company B.
- How to properly identify the PCP and the relevant comparison pool for assessing disparate impact.
- Whether Company A "applied" the PCP within the meaning of section 19 of the Equality Act 2010.
- Whether the ET erred in confining the comparison pool to Company B's employees rather than including all contractors' employees.
- Whether the EAT was correct to dismiss the claim rather than remit it for reconsideration.
Arguments of the Parties
Appellants' Arguments (Claimants)
- The PCP was the differential pay policy applying to all outsourced workers, not limited to Company B's employees.
- The Claimants relied on a comparison pool including all directly and indirectly employed staff of Company A.
- The ET was correct to find disparate impact based on the evidence relating to Company B's workforce as representative.
- The EAT erred in requiring evidence about all contractors and in dismissing the claim rather than remitting it for further evidence gathering.
- Company A effectively dictated the pay terms to Company B's employees, bringing the claim within section 41(1)(a) or alternatively (d).
Respondent's Arguments (Company A)
- The Claimants' complaint relates to terms of their contract with Company B, not terms imposed by Company A, so section 41 does not apply.
- The ET erred in confining the comparison pool to Company B's employees; the correct pool includes all contractors' employees, but the Claimants failed to prove disparate impact on that broader pool.
- Company A did not "apply" any PCP to the Claimants within the meaning of the Equality Act; any influence over pay was indirect and inherent in contracting-out arrangements.
- The differences in work and pay-setting processes between direct and indirect employees mean they are not comparable under section 23 of the Equality Act.
- The EAT correctly dismissed the claim and did not err in refusing to remit the matter to the ET.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Essop v Home Office (UK Border Agency) [2017] UKSC 27 |
Identification of the PCP and the relevant comparison pool in indirect discrimination claims. |
Confirmed that the PCP determines the pool and that the pool should include all workers affected by the PCP. |
| Dobson v North Cumbria Integrated Care NHS Foundation Trust [2021] UKEAT 0220/19 |
Logical identification of the pool following identification of the PCP. |
Reinforced that pool identification is a matter of logic, not discretion. |
| Harrods Ltd v Remick [1998] ICR 156 |
Purposive construction of discrimination provisions to provide remedies to victims. |
Guided interpretation of section 41 to achieve statutory purpose. |
| Allonby v Accrington and Rossendale College [2001] EWCA Civ 529 |
Scope of section 41 and distinction between employer and principal liability. |
Held that discrimination claims against principals must relate to principal-worker relationship, not contractual terms set by supplier. |
| Jafri v Lincoln College [2014] EWCA Civ 449 |
When EAT should remit cases to ET after error of law. |
Confirmed remittal unless only one possible outcome; applied here to deny remittal as no evidence supported claim on proper pool. |
Court's Reasoning and Analysis
The court began by analysing the scope of section 41 of the Equality Act 2010, which protects contract workers against discrimination by principals. It identified three key questions: whether the parties are in a principal-contract worker relationship, whether the principal has discriminated by applying a PCP, and whether the conduct falls within the specific heads of section 41(1).
The court accepted the ET's finding that Company A was the principal and the Claimants were contract workers, and that Company A had applied a PCP of paying LLW to direct employees but not requiring contractors to pay LLW. However, it rejected the ET's conclusion that the PCP applied only to Company B's employees, holding instead that the PCP applied generally to all contractors under Company A's outsourcing policy.
Critically, the court held that the Claimants' pleaded case embraced a pool of all direct and indirect employees, not just those employed by Company B. The ET's narrow pool was a fundamental error. Because the Claimants failed to provide evidence about the ethnic composition and pay of workers outside Company B, they failed to prove disparate impact on the pleaded pool.
Regarding whether Company A "applied" the PCP within section 19, the court found that the principal's influence over contractors' pay was inherent in contracting arrangements and did not amount to the principal effectively dictating terms of employment. The court emphasised the distinction drawn in Allonby between terms arising from the employer-worker contract and benefits or conditions imposed directly by the principal. The Claimants' complaint related to contractual pay terms set by Company B, not to conditions imposed by Company A as principal.
The court rejected the Claimants' argument that Company A effectively dictated pay terms, noting that competitive tendering and contract pricing naturally influence contractor pay but do not transform contractual terms into terms imposed by the principal.
On the issue of comparability under section 23, the court declined to decide as it was unnecessary given the conclusion on scope and evidential failure.
The court upheld the EAT's refusal to remit the case to the ET, reasoning that the Claimants had failed to prove their pleaded case and had not sought disclosure or evidence necessary to do so. The Claimants' tactical decision to limit their evidential case precluded a second chance.
Holding and Implications
The court UPHELD the EAT's decision allowing the appeal and dismissing the Claimants' claim.
The direct effect is that the Claimants' claim of indirect racial discrimination against Company A under section 41 of the Equality Act 2010 fails because they did not prove disparate impact on the properly defined pool of all directly and indirectly employed workers. The court clarified that section 41 does not extend to claims based on terms set by a contractor employer, even if the principal influences contract pricing.
No new precedent was established beyond reaffirming the distinction between principal-imposed detriments and employer contractual terms in the context of contract workers, and the proper approach to defining PCPs and comparison pools in indirect discrimination claims.