Where next for retail sector after equal pay victory for shop staff?

A group of female employees working for fashion retailer Next have won an equal pay claim first brought 6 years ago, after the retailer lost its argument that paying those working in its stores (predominantly women) less than its warehouse operatives (majority male) was not sex discrimination. Next now face having to pay up to £30million in compensation.

The case – the first of its kind to reach a decision on this point in the private sector – ought to prompt retailers to examine the differences in pay and other benefits offered to different groups of staff and consider whether they need to make any changes to avoid a similar finding against them.

However, Next have already said they will be appealing this decision, so it is possible that a higher court will view things differently. This case was also decided on its own specific facts, meaning that other similar retail claims might not be decided in the same way (as we know Tesco and Asda are about to face the same challenges that Next saw). As a result, it is unlikely that retailers will need to make immediate changes to their pay arrangements, particularly as the National Living Wage is likely to increase in April. The Next decision already recognised that differences in pay had reduced materially over the life of the case because retail pay had increased to reflect increases to the National Living Wage.

The case: why was it discrimination?

Next employ approximately 22,500 staff in store positions (77.5% of which are female) and around 6,500 in warehouse roles (52% of which are male) - statistics not unusual for the retail sector, borne out of factors such as attraction to specific roles (according to statistics, 80% of warehouse roles across the country are held by men) and design of roles.

At a previous hearing, the Tribunal had already found that the work of store staff was equal to that of warehouse operatives (so the first hurdle in equal pay claims like this - whether the work is ‘of equal value’ - was achieved by the employees). The Employment Tribunal have now found that Next’s store staff have been underpaid compared with the retailer’s warehouse operatives and that this amounted to a breach of equal pay law as the reason for that pay differential was based on sex. It also applied to certain premium payments and long-service awards, so was far more wide reaching than simply “basic pay”.

Next argued that there were specific pressures on recruiting warehouse operatives, which justified a higher rate of basic pay for that group of employees. The Tribunal was satisfied that the difference in treatment related solely to cost and was not influenced by the sex of the employees undertaking the roles, so the difference was not directly discriminatory. In fact, they found that none of the terms in dispute amounted to direct discrimination. However, the Tribunal panel concluded that even if there was a legitimate aim achieved by Next in relation to having different pay for recruitment reasons, Next could not objectively justify that difference in basic pay as proportionate. The business need for paying different costs was not so great as to overcome the discriminatory impact on women of paying store staff a lower sum. In short, a purely financial reason (e.g. a wish to save on costs and boost profit) for a disparity in pay may not be sufficient to justify different pay awarded for different roles, especially where a retailer can afford to pay more than the market rate for a particular role but chooses not to do so (as the Tribunal decided was the case for Next). Similar conclusions were reached regarding some of the other terms of pay, such as Sunday premiums and long-service awards.

What was justified?

The ET did find that a number of bonuses and other premiums were justified. These were based on business needs at the relevant time, were not solely based on cost, and were proportionate in the circumstances. These payments included a productivity bonus paid to the warehouse workers which was directly linked to output, where retail work could not be measured in the same way. They also included a £1 per hour bonus paid during a period when the warehouse pay was significantly adrift from the market rate paid by competitors, and an attendance bonus that was paid at one particular warehouse in order to try and stop workers joining a nearby competitor.  

The risk for retailers

Many retailers employ staff on different roles such as those that applied in Next and the requirement (and demand) for warehouse staff has grown in recent years with the continued growth of online retail. Where retailers pay different pay (or offer different terms) to a particular set of staff, this places retailers at risk of equal pay claims. The risk exists even where the number of people in a role occupied by one sex is a small majority - as seen in the case of Next’s warehouse operatives.

Retailers may wish to remember:

• Using “market forces” alone to justify unequal pay is risky, particularly if there is an obvious difference in numbers of men and women doing each job. The market rate for a job may be based on historic views of the value of the work. There may well be less of an equal pay risk if you pay a premium to hire a particular individual quickly because of market forces at the time, as this is a more targeted approach that is not based on categories of work;
• Cost saving alone is unlikely to be a good justification for unequal pay – especially if the underlying concern is maximising profit, rather than emergency cost-cutting to save a business. Rather than focusing on overall profitability, we may see retailers focus on more wider issues to address factors, such as the need to keep physical stores viable and profitable;
• Next successfully justified some bonuses and premiums by showing they were specifically connected to the needs and challenges of warehouse work, or could not be measured in the same way for retail/store work - ie a pay difference linked to a clear business objective (which is not simply about cost);

As other cases are set to be heard in the Tribunal, including those pursued by Asda and Tesco workers, we wait to see how the equal pay landscape will unfold.

Contact the authors

For more information about this case, please contact the authors Kate Watkins and Alison Williams or your usual Mills & Reeve contact.