Can You Justify Your Service-Related Pay Scheme?

The Court of Appeal has ruled (Wilson v Health and Safety Executive) on the correct approach to objective justification in equal pay claims that arise from service-related pay schemes which have a disparate impact on women compared with men.

Mrs Wilson worked for the Health and Safety Executive (HSE) as a health and safety inspector. She claimed that the somewhat complex pay system operated by the HSE, which determined pay in part by reference to length of service, constituted a breach of the Equal Pay Act 1970. She accepted that the nature of the job was such that performance would be likely to improve with experience for the first few years, but she did not believe that the HSE was justified in applying this criterion over a ten-year period.

In a similar case (Cadman v HSE), the European Court of Justice (ECJ) found that as a general rule the criterion of length of service is appropriate to attain the legitimate objective of rewarding experience acquired which enables the worker to perform his or her duties better. An employer does not generally have to produce specific proof in order to justify the practice unless a worker provides evidence ‘capable of raising serious doubts’ in the minds of the Employment Tribunal (ET) as to whether the link between pay and length of service is in fact rewarding experience that enables the worker to perform better. In that case, the employer must demonstrate the absence of unlawful discrimination.

Following on from this judgment, the Court of Appeal in Wilson v HSE held that an employer can be required to provide objective justification for the way a service-related criterion as a determinant of pay is used, as well as for its adoption in the first place. The circumstances in which this would be necessary – i.e. when the burden of proof switches to the employer to show that use of the length of service criterion is appropriate – are when the employee shows that there is evidence from which, if established at trial, it can properly be found that the general rule in Cadman does not apply. It is not enough that the evidence is capable of raising serious doubts. It must establish a basis for inferring that the adoption or use of the length of service criterion is disproportionate. In Lady Justice Arden’s view, the ECJ in Cadman was putting forward the ‘serious doubts’ test as a ‘filter on claims’, a preliminary test which still left the issues to be decided by the ET. As such, the requirement of ‘serious doubts’ is merely the counterpart of a length of service pay criterion not requiring justification in the usual case.

In the Court’s view, Mrs Wilson had fulfilled the serious doubts test and, on the ET’s findings in this case, her appeal was upheld.

The Court went on to say that even if it was wrong about the effect of the decision in Cadman, in domestic law the Equal Pay Act 1970 and the Sex Discrimination Act 1975 interpreted together place the burden of showing objective justification, including proportionality, on the employer and neither Act contains any exception for the length of service criterion.

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