Ward Hadaway: Employment Focus
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Alex Clements
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When is service-related pay justified? It is not uncommon for employers to base the pay of their employees in accordance with incremental pay scales based on length of service. At first glance, this may appear to be an entirely fair and objective means of determining pay. Look more closely and the risk of expensive litigation may be lurking beneath the surface. Under both domestic (the Equal Pay Act 1970) and European legislation, women are entitled to the same pay as that of a male comparator (and vice versa) for doing like work, work rated as equivalent or work of equal value, unless there is a material reason which explains the pay inequality. However, where a pay structure appears to be gender neutral, but in fact, disproportionately adversely affects one gender (i.e. is indirectly discriminatory), then that pay structure must be objectively justified. This is a further hurdle for the employer who essentially then must demonstrate that the pay structure in place is a proportionate means of achieving a legitimate aim. Pay structures based on length of service are potentially indirectly discriminatory as women, in general, tend to have shorter service than men, due to childcare responsibilities. However, despite this, it has long been established by the European Court of Justice (ECJ) that service-related pay does not need to be justified as, in its view, length of service goes hand in hand with experience which, in turn, means employees are more able to perform their duties. This decision was revisited by the ECJ in 2006 in the case of Cadman v Health and Safety Executive in which the ECJ confirmed that justification would only be required where a claimant provides evidence raising serious doubts as to whether length of service does enable an employee to perform his or her duties better. In the case of Wilson v Health and Safety Executive, the issue was addressed again. That case concerned an equal pay claim where the pay structure in place rewarded length of service for up to 10 years. In that case, Ms Wilson was an Inspector with the HSE and claimed equal pay with three male comparators who had longer service. Eventually, the case came before the Court of Appeal to decide when the “serious doubts” test should be applied, and whether it should apply to the adoption of an incremental pay scale based on length of service, the application of such a pay scale, or both. The Court of Appeal has now handed down its judgement. In relation to the first issue, the Court of Appeal held that the “serious doubts” test was a preliminary issue to be considered by the tribunal before the substantive issues, and that it was for the employee to convince the tribunal that there was evidence that inferred that service-related pay was disproportionate and should be justified by the employer in that particular case, and that this did not create a high hurdle for claimants. Further, the Court of Appeal held that the “serious doubt” test applies to both the adoption of service-related pay scale and also the application of the pay scale. As a result of this decision, Ms Wilson was successful with her claim. However, uncertainties remain. The ability to justify pay based on length of service will be very job-specific and a pay scale for one group of employees may not be suitable for another, especially where the degree of skill required to carry out the role is different and where performance is unlikely to improve after a certain period of time. Employers using service-related pay scales should consider the following: • What were the reasons for introducing service-related pay and do those reasons still exist (i.e. can length of service be linked to experience and ability?). • Are different pay structures in place for different members of staff or is the pay-structure company wide? If the latter, is that appropriate for all jobs? • Over what period of time is length of service rewarded? Can the employer demonstrate that performance is still improving at this point? A service-related pay scale over a shorter period of time is likely to be easier to justify in general than one over, say, five years, but it will depend on the job in question. • If the pay scales in place cannot be shown to reward employees appropriately, they should be reviewed and new pay scales put in place after following a proper procedure to change the employees’ terms and conditions. Alex Clements is a Partner in the Employment Team at leading North law firm Ward Hadaway. She can be contacted on 0113 205 6710 or at alex.clements@wardhadaway.com .
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