The Employment Appeal Tribunal has handed down an important equal pay decision involving Next and thousands of its retail workers.
The case concerned predominantly female shop workers who were paid less than predominantly male warehouse workers. The shop and warehouse roles had already been found to be work of equal value.
That does not automatically mean the employees must receive identical pay.
Next argued that the higher basic pay received by warehouse workers was driven by the labour market. In particular, it said it needed to pay higher rates to recruit and retain enough warehouse staff.
The Employment Appeal Tribunal has now accepted that this could amount to a lawful justification for the difference in basic pay.
The claims were brought by 3,540 retail sales consultants. They compared their pay with warehouse operatives employed by Next.
An earlier Employment Tribunal decision had found that the work carried out by three lead retail claimants was of equal value to the work carried out by four warehouse comparators.
The dispute then moved to the next question: if the work was of equal value, could Next explain and legally justify the differences in pay and other benefits?
Under the Equality Act 2010, an employer can defend an equal pay claim where the difference is due to a genuine "material factor" which is not direct sex discrimination.
Where that factor places one sex at a particular disadvantage, the employer must also show that relying on it is a proportionate means of achieving a legitimate aim.
Next relied on several reasons for differences in terms, including:
The original Employment Tribunal accepted that market forces played a part in determining warehouse pay but decided that Next had not established its defence in relation to basic pay and several other terms.
Next appealed.
The Employment Appeal Tribunal found that the original Tribunal had taken the wrong approach when considering basic pay.
In particular, it said the relevant question was why Next paid the warehouse workers more.
Next's aim included recruiting and retaining warehouse staff in a labour market which required it to pay higher rates. Those recruitment and retention considerations did not apply in the same way to the retail workforce.
The Employment Tribunal had focused too heavily on why Next did not increase the retail employees' pay and whether it could afford to do so.
That was the wrong focus.
The EAT said it was not necessary for Next to justify why it had not simply increased the shop workers' pay to match the warehouse workers.
This meant the earlier finding against Next in relation to basic pay could not stand.
No.
The decision does not give employers a free pass to pay one group less simply by saying that "the market pays more" for another role.
An employer still needs to establish what actually caused the difference.
That may involve evidence about recruitment difficulties, staff turnover, competing employers, local wage rates, skills shortages or the amount the business genuinely needed to pay to attract people into particular roles.
The EAT's decision is also quite fact-specific. Next did not succeed across the board. The appeal did not overturn all of the findings concerning other differences in terms and benefits.
The practical lesson is not that different pay is unlawful.
It is that unexplained different pay is much harder to defend.
Many businesses have perfectly legitimate reasons for paying employees differently.
For example, an employer may need to offer a higher salary for a difficult-to-fill technical role. It may increase wages in one department because competitors are recruiting heavily from that particular workforce. It may also pay a premium for night work or particular working patterns.
Those decisions can be perfectly lawful.
The difficulty comes when, several years later, nobody can explain why the pay difference arose.
An employer facing an equal pay claim may need to show what the reason was at the time the decision was made.
A manager saying "that was the market rate" may not be enough if there is no evidence showing what the market looked like or why the additional pay was necessary.
Businesses do not need to produce a lengthy legal document every time someone's salary changes.
A sensible record may simply note:
That record may become very useful later.
Equal pay claims can go back several years and can involve groups of employees rather than just one individual. The person who originally made the pay decision may also have left the business by the time the issue is challenged.
Pay decisions should not be looked at entirely in isolation.
If the higher-paid group is predominantly male and the lower-paid group predominantly female, that should prompt the business to look more carefully at why the difference exists.
It does not mean the difference is necessarily discriminatory.
But the employer should be confident that there is an objective and evidenced reason for it.
The same principle applies where businesses have inherited different pay structures following acquisitions, operate different departments with historically separate salary arrangements, or regularly make individual counter-offers to retain employees.
Over time, those individual decisions can create sizeable pay differences which nobody originally intended.
The Next decision is useful for employers because it confirms that the Equality Act does not require every employee doing work of equal value to be paid identically regardless of commercial reality.
Different labour markets can justify different rates of pay.
But employers need to be able to explain the reason for the difference and, where the difference has a discriminatory effect, justify it.
For most businesses, the sensible approach is therefore quite simple: when you make an unusual pay decision, write down why.
That is considerably easier than trying to reconstruct the reasoning five years later.