Consultation Open for Wide-Ranging Reforms to Equal Pay Framework

In a proposition echoing the pre-employment transparency requirements contained within the EU’s Pay Transparency Directive, the Government proposes introducing a new statutory requirement for all employers to publish pay information in job adverts, or in writing to a candidate before interview where no advert exists. Regulations would specify the exact requirements, for example the size of a salary range. How widely “pay” should be defined beyond basic salary for the purposes of such a requirement (e.g. whether variable elements and other financial benefits would also need to be published) will be the subject of careful assessment, with the consultation acknowledging that “an extensive scope could be more burdensome for employers”.

An equal pay audit is an existing process that is used to identify and address pay disparities between employees (usually men and women) who perform the same or equivalent work within an organisation. Whilst the Employment Tribunal currently has a legal obligation to order an equal pay audit where an equal pay breach has been established, this obligation is subject to a number of broad statutory exceptions. The consultation highlights that, to date, only one equal pay audit has ever been ordered by a Tribunal, with the exceptions having been relied upon in all other instances. The Government therefore proposes to significantly limit these exceptions, such that a Tribunal would be required to order an equal pay audit in response to all findings of equal pay breach, save for where an audit which meets the requirements has already been completed by the employer in the previous 3 years.

In addition, the Government proposes mandating that Tribunals order non-discriminatory job evaluation schemes on the basis of sex, race or disability, alongside equal pay audits, in response to a finding of pay discrimination. This would require offending employers to systematically assess and record the relative value of roles across their organisation.

The consultation proposes reinstating a standard questionnaire procedure for pay discrimination claims. The questionnaire (which was abolished in 2013) was previously used to allow claimants to ask specified questions of their employer to help them identify an appropriate comparator and obtain information about pay components that they may not have had access to in order to facilitate early resolution of some disputes. Its reinstatement is proposed on an optional basis in pay discrimination disputes, although a Tribunal could draw an inference from a failure to answer within a set time or an evasive or equivocal response.

Should the questionnaire be introduced as proposed, the Government commits to a redesign of the questionnaire form in partnership with employers, trade unions and other stakeholders to make it simpler and more targeted than its predecessor, focusing exclusively on pay discrimination. Specific guidance for employers on how to respond to questions in the form is also proposed.

Against the background of persistent backlogs in the tribunal system and the complexity and length of equal pay disputes, the consultation reiterates the Government’s commitment to establishing a new Equal Pay Regulatory and Enforcement Unit, with the intention of entrenching a more proactive and preventative approach to equal pay enforcement.

The Unit’s remit would cover pay discrimination under the equal pay scheme, and claims of direct or indirect discrimination where relating to sex, disability or race, discrimination arising from disability, and reasonable adjustment provisions. The Government is consulting on where the new Unit should sit, with options including housing it within the Equality and Human Rights Commission (‘EHRC‘) (which the Government considers well-suited given its existing expertise and oversight of the Equality Act 2010), the Fair Work Agency, or a new independent body.

Three new powers are proposed for the Unit:

1. The ability to require disclosure of evidence before triggering a formal investigation – addressing the current position in which EHRC cannot compel evidence without initiating a costly investigation process;
2. Strengthened investigation powers enabling the Unit to require (as part of the investigation process) that a job evaluation scheme and/or equal pay audit be undertaken where this would help to establish whether pay discrimination has occurred. Safeguards would be included, for example giving employers the opportunity to make representations about the scope of an investigation; and
3. The ability to require those subject to inquiry recommendations to respond and provide updates on implementation – addressing the current gap whereby EHRC recommendations are non-binding

The consultation also promises a formal review into the rules of procedure for equal pay claims and the operations of independent panels of experts, noting that the current system (particularly for claims involving work of equal value assessments and “material factor” defences) has resulted in extremely costly and lengthy litigation which acts as an obstacle to the effective enforcement of equal pay rights.

Currently, the equal pay framework only applies to pay inequity on the grounds of sex. For pay inequity on the grounds of ethnicity or disability, complainants are limited to the discrimination claims regime, for which separate legal provisions apply. This means that individuals who experience pay discrimination on the basis of race or disability do not have the same rights and protections as those who experience it on the basis of sex.

The consultation commits to broadly “levelling up” the protections against pay discrimination on the basis of race and disability to align, as far as possible, with those available under the equal pay scheme for sex. However, rather than extending the current equal pay framework to capture such claims, the two regimes would remain formally distinct with equal pay claims continuing to relate only to sex and pay discrimination relating to race or disability continuing to be brought as discrimination claims, albeit with the advantages currently available to different claimant groups equalised as far as possible.

Key proposals to “level-up” the protections under this phase include:

• Modification of contractual terms: Tribunals would be empowered to require the modification of a claimant’s contract where it has been found to be discriminatory as a remedy in successful race or disability pay discrimination claims, providing a direct mechanism for fixing underlying discriminatory terms that does not currently exist.

• Equal pay audits extended to race and disability: Employers found to have discriminated in terms of pay on the basis of race or disability could be ordered to undertake an equal pay audit and job evaluation scheme, mirroring the strengthened requirements proposed for sex under Phase 1.

• Equivalence of work: At present, it is highly unlikely that a claimant could bring a successful race or disability discrimination claim comparable to a claim under the equal pay scheme for work rated as ‘equivalent’ or of ‘equal value’, as the legal framework currently requires that there is no material difference in the circumstances of the claimant and their chosen comparator. The Government proposes to enable such claims for pay discrimination on the basis of race or disability where the work is rated as equivalent or of equal value.

• Hypothetical comparators: The Government proposes to permit the use of hypothetical comparators under the equal pay scheme in two prescribed, limited scenarios: where a comparator can be constructed by comparison with the terms of a successor (for example, where a male employee is paid more than his female predecessor in the same role); and where there has been an improvement to terms precipitated by the employment of someone who does not share the claimant’s protected characteristic and who receives higher pay for equal work (for example, hiring a man on a higher salary to perform the same role as a woman, whose salary is then increased to match). This would however be based on a real, actual person in both proposed scenarios.

• Flexible time limits: Currently, the six-month time limit for bringing equal pay claims cannot be extended at the Tribunal’s discretion. The Government proposes to give the Tribunal discretion to extend this limit on a ‘just and equitable’ basis, harmonising equal pay claims with other discrimination claims.

The consultation notes that the current equal pay framework cannot prevent outsourcing being used to avoid equal pay obligations that would otherwise apply to in-house employees.  The Government proposes to address this by creating a duty on contracting parties to take all reasonable steps to uphold pay equality in their contractual arrangements where outsourced workers perform work for a ‘principal’ employer. This duty would apply to principals, intermediaries, and service providers alike with the aim of ensuring that workers performing work for a principal do not receive less favourable terms than another doing equal work because of their sex, race or disability. The consultation notes that for a contractual arrangement to qualify, the work would need to meet a minimum threshold and be connected to a task that is of more than short-term duration.

The reasonable steps required of each party would be proportionate to their size, resources, and their ability to dictate terms, and the consultation promises to set out in regulations the steps that would, and would not, be considered reasonable in specific contexts.

As proposed, breach of the duty would not require payment of compensation to affected workers – instead, the Tribunal would direct the remedial steps each party must take going forward to ensure pay equality in their contractual arrangements in the future. Enforcement would vest in the Unit, with individual employees having no right to bring a claim directly.

The Government is also considering strengthening guidance to improve compliance with TUPE to ensure employers understand their obligations relating to equal pay when transfers occur, as well as guidance to improve compliance with the Public Sector Equality Duty in relation to outsourced workers.