England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 97/1348/F

Royal Courts of Justice

Strand

London WC2

Thursday, 18 December 1997

B e f o r e:

LORD JUSTICE PETER GIBSON

LORD JUSTICE WARD

SIR JOHN VINELOTT

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BARRY

APPELLANT

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MIDLAND BANK PLC

RESPONDENT

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(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MISS C BOOTH QC with MR C LEWIS (Instructed by Messrs Lawford & Co, Surrey TW9 1VF) appeared on behalf of the Appellant

MR P ELIAS QC [MR C SHELDON 18-12-97 ] (Instructed by Messrs Cole & Cole, Oxford OX2 OSZ) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Thursday, 18 December 1997

J U D G M E N T

LORD JUSTICE PETER GIBSON: This is the judgment of the court.

This appeal gives rise to difficult questions concerning the application of the Equal Pay Act 1970 ("the 1970 Act") and Article 119 of the Treaty of Rome to the contractual entitlement of a female employee of the Respondent Midland Bank plc ("the Bank") to a severance payment on her redundancy. It is convenient to set out at the outset the relevant statutory and Treaty provisions.

S.1 of the 1970 Act, as amended, is in the following terms:

"Requirement of equal treatment for men and women in same employment

(1) If the terms of a contract under which a woman is employed at an establishment in Great Britain do not include (directly or by reference to a collective agreement or otherwise) an equality clause they shall be deemed to include one.

(2) An equality clause is a provision which relates to terms (whether concerned with pay or not) of a contract under which a woman is employed (the "woman's contract"), and has the effect that-

(a) where the woman is employed on like work with a man in the same employment-

(i) if (apart from the equality clause) any term of the woman's contract is or becomes less favourable to the woman than a term of a similar kind in the contract under which that man is employed, that term of the woman's contract shall be treated as so modified as not to be less favourable, and

(ii) if (apart from the equality clause) at any time the woman's contract does not include a term corresponding to a term benefiting that man included in the contract under which he is employed, the woman's contract shall be treated as including such a term;

(b) where the woman is employed on work rated as equivalent with that of a man in the same employment-

(i) if (apart from the equality clause) any term of the woman's contract determined by the rating of the work is or becomes less favourable to the woman than a term of a similar kind in the contract under which that man is employed, that term of the woman's contract shall be treated as so modified as not to be less favourable, and

(ii) if (apart from the equality clause) at any time the woman's contract does not include a term corresponding to a term benefiting that man included in the contract under which he is employed and determined by the rating of the work, the woman's contract shall be treated as including such a term.

....

(3) An equality clause shall not operate in relation to a variation between the woman's contract and the man's contract if the employer proves that the variation is genuinely due to a material factor which is not the difference of sex and that factor-

(a) in the case of an equality clause falling within subsection (2)(a) or (b) above, must be a material difference between the woman's case and the man's ...."

Article 119 is in these terms:

"Each Member State shall .... maintain the application of the principle that men and woman should receive equal pay for equal work.

For the purposes of this Article, pay means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or kind, which the worker receives, directly or indirectly in respect of his employment from his employer.

Equal pay without discrimination based on sex means:

(a) that pay for the same work at piece rates shall be calculated on the basis of the same unit of measurement;

(b) that pay for work at time rates shall be the same for the same job."

For the sake of completeness we add that although there are European Council Directives in this area of the law, none is relied on in this case.

It is common ground that there is a defence to a claim based on Article 119 where the employer can establish that a difference in pay is objectively justified. It is also common ground that although the 1970 Act preceded the United Kingdom's entry into the European Community, (1) the 1970 Act must be interpreted so as to be consistent with the provisions of Article 119, if it is possible for that to be done without distortion of the language of the 1970 Act, and (2) if and in so far as a provision of the 1970 Act is, on its proper interpretation, incompatible with Article 119, then that Article, being directly applicable, has primacy and the provision of the 1970 Act must be disapplied to that extent in order to give effect to Article 119.

The Appellant, Mrs. Barry, was employed from 2 July 1979 to 30 April 1993. She worked 35 hours a week as a full-time clerk, since June 1987 in Grade S4, until 1 February 1990 when she went on maternity leave. She returned to work on 8 October 1990 but, at her request, as a part-time or key-time worker, choosing to work alternate weeks, and so worked the equivalent of 17½ hours a week. In 1992 the Bank invited volunteers for redundancy in the Midlands Operations Clearing Department in which she worked. She received details of the severance payment she would receive under the scheme contained in the Security of Employment Agreement ("the S.E.A."), a collective agreement between the Bank and Mrs. Barry's union, the Banking, Insurance and Finance Union ("B.I.F.U."). The provisions of that scheme, giving employees an entitlement to severance payments in the circumstances and in the amounts therein specified, were included in Mrs. Barry's terms and conditions of employment. Under the S.E.A. the amount payable depended mainly on the number of completed years' service, whether in full-time or part-time employment with the Bank, and on the pay the employee was earning at the date of the termination of employment. Further, additional amounts were payable to those between 40 and 50 years old. Having completed 13 years' service, Mrs. Barry was entitled to 42 weeks' pay. She applied and was accepted for voluntary redundancy and received payment of £5,806.08 in accordance with the S.E.A.

The Bank employs more women than men. Of its total staff in December 1992 of 45,420, 28,590 were women and 16,830 men. Of its full-time staff of 37,418, 20,912 were women and 16,506 were men. Of its part-time staff of 8,002, 7,678 were women and 324 were men. Of the S4 clerks in the Bank totalling 12,766, 10,241 were women and 2,525 men. Of these 10,967 were full-time staff made up of 8,527 women and 2,440 men. Of the part-time S4 clerks totalling 1,799, 1,714 were women and 85 men. Of the 1,201 S4 clerks in the Midlands Clearing Operations Department, 751 were women and 450 men. Of the 1,143 full-time staff 696 were women and 447 were men. Of the 58 part-time staff, 55 were women and 3 were men. Employees in the Bank in 1992 changed from part-time work to full-time work and even more from full-time to part-time, with women being in the preponderance in both movements.

On 27 July 1993 Mrs. Barry applied to an Industrial Tribunal, complaining that in calculating that severance payment the Bank had contravened the 1970 Act, the Sex Discrimination Act 1975 ("the 1975 Act") and Article 119. Her particular grievance was and is that the method of calculation took insufficient account of the fact that 11 of her 13 years' service was full-time service. She said:

"By calculating my redundancy payment as set out above, the Bank indirectly discriminated against me in that they applied to me the condition that I had to be working full-time at the date of the termination of my employment in order to avoid my redundancy payment being calculated as if all my years of service were years of part-time service which results in my redundancy payment being less then that of a man who is able to comply with this condition."

She said that as a greater proportion of women than men work part-time, a greater proportion of women than men had their severance payments calculated in a way that failed to reflect their period of full-time service. She named as comparators two male full-time S4 clerks whose job had been rated as equivalent to that of Mrs. Barry and who had been employed in the same department as Mrs. Barry and under the same terms and conditions of employment as Mrs. Barry. She claimed that this calculation of her severance payment constituted a breach of her right to equal pay for equal work under Article 119 and was not objectively justified, that it also constituted a breach of her contract of employment, deemed as it was to include the equality clause specified in s.1 of the 1970 Act, and that it also contravened s.6(2) of the 1975 Act. By way of relief she claimed £2,274.72, being the difference between what she claimed she should have received if the severance payment had fully reflected her period of full-time service (viz. £8,080.80) and what she actually received. She calculated the sum of £8,080.80 on the basis that she should be treated as having a full-time weekly pay at termination, but that her part-time service should be converted into full-time years (one year of her part-time service being the equivalent of six months' full-time service) and added to her full-time service to arrive at the sum payable.

The Bank disputed all of Mrs. Barry's contentions. The Industrial Tribunal after a lengthy hearing over 6 days dismissed her complaint. We gratefully adopt the E.A.T.'s summary ([1997] I.C.R. 192 at pp. 198-9) of the essential reasoning and conclusions of the Industrial Tribunal in its full and painstakingly careful decision:

"(1) The difference in severance pay received by a full-time worker and by a part-time worker with previous full-time service in the form of the severance payment was not directly discriminatory on the ground of sex because (a) the relevant group for the purposes of the comparison was the full-time and the part-time (or key-time) workers employed as grade S4 clerks in the bank's operations clearing department; (b) the question was whether the percentage of women who worked full-time within that relevant group was considerably smaller than the percentage of men who worked full-time in that group; (c) the percentages of the selected group, i.e. the operations clearing department, were that 92.68 per cent. of women worked full time and 99.33 per cent. of men worked full-time; (d) that difference - 6.65 per cent. - was not considerable.

(2) Article 119 of the E.E.C. Treaty was directly effective. (It was conceded that a severance payment is "pay" within the meaning of article 119). There was, however, no breach of article 119 in the severance scheme, because it was not proved that there was any adverse impact on women. Although the overwhelming numbers of part-time workers were women, the overwhelming percentage of women in the operations clearing department worked full-time. There was, therefore, no indirect discrimination based on sex and no breach of either article 119 or the Equal Pay Act 1970.

(3) If, contrary to the tribunal's conclusions under (2), there was indirect discrimination, the bank had not demonstrated that it was objectively justified on the test laid down in Bilka-Kaufhaus G.m.b.H. v Weber von Hartz (Case 170/84) [1987] ICR 110. The tribunal found that the primary purpose of the severance scheme was to deal with the reorganisation and redundancies in as fair and acceptable way as was possible and to cushion employees against unemployment and job loss. The tribunal also found that the scheme reflected an element of compensation for loss of job and loyalty to the bank. The length of service and loyalty to the employer which was denoted was an element of the security of employment agreement and increased in importance as the length of the service increased. In rejecting the defence of objective justification, the tribunal stated that it was not the sole purpose of the scheme to compensate employees for disruption caused by the untimely loss of their jobs. The payment was also to compensate employees for their contribution. That element increased with time. The scheme failed to take into account, to a significant extent, the full service of an employee and did not, therefore, meet the objectives of the scheme. It was not necessary for the scheme to be in the form that it was. It did not become justifiable simply because some full-time employees, with previous key-time service, benefited from the operation of the scheme. The tribunal concluded: "the scheme as drafted is convenient, rather than necessary."

(4) As for the claims under the Sex Discrimination Act 1975 and the Equal Pay Act 1970 the tribunal decided that the applicant could only argue her case under the Act of 1970, not under the Act of 1975. Her claim under the Act of 1970 failed because section 1(1) of that Act is solely concerned with the terms on which the employee is employed. Unlike article 119 of the E.E.C. Treaty it is simply concerned with a difference in pay. The applicant's terms of employment were not less favourable than those of the male comparators, as the same terms were used to calculate severance pay for full-time employees and part-time employees alike. There was no breach of the Act of 1970 or the equality clause implied by it.

(5) In any event, any difference in treatment of the applicant was due to a genuine material factor other than the difference of sex within section 1(3) of the Equal Pay Act 1970. The bank relied on "administrative convenience" and the intention to cushion employees against the loss of their work, particularly older, long-serving employees. The tribunal accepted that those were the objective reasons unconnected with the difference in sex between the applicant and her male comparators. Her claim under the Equal Pay Act 1970 failed for that further reason."

Mrs. Barry appealed to the E.A.T. She abandoned the complaint under the 1975 Act but challenged the Industrial Tribunal's conclusions that there was no indirect discrimination on the ground of sex contrary to Article 119 and that the practice complained of did not fall within the scope of s.1(2) of the 1970 Act. The Bank for its part challenged the conclusion that if there was such indirect discrimination, it was not objectively justifiable, contending that the Industrial Tribunal's finding that any difference in the treatment of persons in the position of the applicant was due to a genuine material factor other than the difference of sex meant that any such discrimination was objectively justified.

The E.A.T. dismissed the appeal. It held that Mrs. Barry's claim could in fact only be a claim under the 1970 Act; the Industrial Tribunal had no statutory or inherent jurisdiction to determine a free-standing claim for breach of Article 119, though the provisions of Article 119 were relevant to the claim under the 1970 Act in the two respects to which we have already referred. The E.A.T. said that the severance payment was made to Mrs. Barry as a contractual payment under or by reference to her contract of employment, and the terms of her contract were no less favourable than the terms of a similar kind in the contract of a male comparator for the following reasons:

(1) the scheme as a whole does not treat a woman less favourably than a man in her position; if she had worked full-time or part-time throughout her employment, she would have been in the same position as a male comparator so working;

(2) if she had been a part-time worker who became a full-time worker before opting for redundancy, she would again be in the same position as a male comparator who did the same and would be treated more beneficially than either men and women remaining part-time workers and men and women who had been full-time workers throughout;

(3) as with the statutory redundancy scheme, the S.E.A. is not formulated to treat women less favourably than men or part-time workers less favourably than full-time workers; in all cases the calculation of the severance payment is on the basis of pay at the date of the redundancy;

(4) there are no conditions of access to the scheme which women or part-time workers cannot comply with or which are more difficult for them to comply with than men or full-time workers;

(5) in her group of employees who were full-time before becoming part-time prior to opting for redundancy, there are men and women; the men in that group are the comparators in like circumstances and women are treated no differently;

(6) the essence of her complaint is that the Bank should have constituted the scheme to include rules which would ensure that severance payments reflected more precisely the full-time employment served so that those in her position received a more generous payment;

(7) it is not unlawful discrimination on the ground of sex to fail to have different rules which might have operated more or less favourably to men and women.

Mrs. Barry now appeals to this court with the leave of the E.A.T. We have had the benefit of excellent argument on both sides.

The case put by Miss Cherie Booth Q.C. for Mrs. Barry is essentially very simple. In submitting that Mrs. Barry's employment was on less favourable terms and conditions than those of the comparators and that there was indirect discrimination on the ground of sex, she argues that the Bank's practice of calculating the severance payment by reference to final pay, so that a person who had previously worked full-time did not have that period of full-time employment reflected in the redundancy payment, had a disproportionate impact on women as compared with men, and she relies on the finding that that practice is not objectively justified. She says that s.1(2)(b)(i) of the 1970 Act applies to Mrs. Barry's case, the terms of her contract by which she was entitled to a severance payment calculated by reference to final pay being less favourable to her than the same term under which a man in the same employment was employed; accordingly that term of her contract should be treated as so modified as not to be less favourable.

Mr. Patrick Elias Q.C. for the Bank submits that Mrs. Barry has not been subject to less favourable terms and conditions, the terms of the S.E.A. being precisely the same for all employees; accordingly her claim is not even in principle capable of constituting prima facie indirect discrimination, even if another scheme could have been adopted which would have been more favourable to some women. In any event, he contends, Mrs. Barry failed to demonstrate that the scheme did have any adverse effect on women, no relevant statistics having been provided and in so far as inferences can be drawn from the statistics provided, the evidence did not support a finding of indirect discrimination. Finally he argued that even if there was indirect discrimination it was justified in the circumstances of the case.

Before we consider the specific issues, we should set them in a broader context. Redundancy has become a fact of life in the employment field, and the need for financial provision to be made for employees made redundant has been recognised both by Parliament and by employers. Since 1965 there has been a statutory redundancy payments scheme, entitling the employee to a lump sum, the amount of which depends on (a) his age, (b) his pay at the termination of employment and (c) the completed years of service, whether part-time or full-time. But the amounts payable are modest and frequently employers provide more generous severance schemes. Thus the £5,806.08 paid to Mrs. Barry included the sum of £1,529.64 payable under the statutory scheme.

As is stated in Harvey on Industrial Relations para. E23:

"In unionised undertakings it is likely that the employer and his unions will have negotiated a redundancy agreement, setting down procedures for implementing redundancy payments, including methods of selection, providing for resolution of disputes and probably stipulating that relevant employees shall receive severance payments at an enhanced rate. Even in non-unionised undertakings it is common to find employers offering redundancy packages which allow for payments in excess of the statutory figure. The statutory scheme has tended therefore to become something of a minimum fall-back position."

We were told by Mr. Elias that the scheme in the S.E.A. was typical of many redundancy agreements entered into by employers in this country. The following features of the scheme may be noted:

1. The period of service to qualify for entitlement is one year, thereby entitling the employee to 12 weeks' pay. With this may be contrasted the qualification period of 2 years' service under the statutory scheme.

2. Every year's service after the first year until completion of the 15th year qualifies the employee for a higher payment based on a further 2 or 3 weeks' pay.

3. For between 15 and 34 years' service, the number of weeks' pay on the basis of which the payment is made increases for every further 5 years' service. For 35 years' service and over, 90 weeks' pay is payable.

4. Every payee qualifying for a payment receives a sum considerably in excess of the sum payable under the statutory scheme.

5. Relevant service is actual continuous service calculated at the date of termination. As with the statutory scheme, no distinction is made between part-time and full-time service.

6. Again like the statutory scheme, the relevant pay is the weekly pay at the date of termination, so that the weekly pay of an employee like Mrs. Barry who worked 17½ hours a week was half that of a full-time employee in the same grade, working 35 hours a week.

7. For an employee aged between 40 and 50 an additional benefit, increasing every year, is payable. Similarly under the statutory scheme a larger payment is payable to those who are 40 and over.

8. For full-time employees with a child in full-time education not covered by a Staff Education loan, £1,000 is added to the sum payable; that is increased to £2,000 if there are two or more children. For part-time employees, the sum is a rateable proportion of that for full-time employees.

In these circumstances it is not surprising that the Industrial Tribunal found that the primary purpose of the scheme was "to deal with reorganisations and redundancies in as fair and acceptable a way as possible and to cushion employees against unemployment and job loss " and "to compensate employees for any disruption caused by the untimely loss of their jobs." It was the Bank's evidence that the purpose was to cushion the employees against unemployment. That is borne out by the emphasis in the scheme on a payment geared to the level of earnings at the time of redundancy, by the additional benefit paid to those over 40, who might be expected to have greater difficulty in obtaining employment, and by the additional payment to those with children being educated. An employee who has been living on the earnings for working part-time might be thought by an employer to have lesser needs than an employee who has been working full-time and whose financial commitments might be greater. The cushioning objective found by the Industrial Tribunal is also consistent with the way that the European Court views redundancy payments. In Kowalska v Freie und Hansestadt Hamburg [1992] I.C.R. 29 at p.34 it reaffirmed what it said in Barber v Guardian Royal Exchange Assurance Group [1991] 1 QB 344 at p.399 that a redundancy payment "makes it possible to facilitate his adjustment to the new circumstances resulting from the loss of his employment and which provides him with a source of income during the period in which he is seeking new employment".

However it is also plain that the purpose of the scheme is not limited to its cushioning effect as otherwise two employees on the same grade but with different lengths of service would receive the same severance payment, as the Industrial Tribunal points out. It found that the scheme did "reflect an element of compensation for loss of job and loyalty to the company", and that "the length of service and loyalty to the employer which that denotes is an element of the S.E.A. and increases in importance as the length of service increases." Similarly, the Industrial Tribunal said that "the payment is also to compensate employees for their contribution and that this latter element increases with time". Thus the Industrial Tribunal was identifying, as a secondary element or objective, compensation for loss of job and for loyalty to the employer.

Thus far in its findings on the purposes of the S.E.A. scheme the Industrial Tribunal has, in our opinion, stated the position unexceptionably. Indeed it is consistent with what was said by Lord Woolf in Mairs v Haughey [1994] 1 AC 303 at p.320:

"A redundancy payment has therefore a real element of compensating or relieving an employee for the consequences of his not being able to continue to earn a living in his former employment. The redundancy legislation reflects an appreciation that an employee who has remained in employment for the minimum time has a stake in his employment which justifies his receiving compensation if he loses that stake."

But the Industrial Tribunal then went on to conclude from these findings "that a scheme which fails to take into account, to a significant extent, the full service of an employee, does not meet the objectives of the scheme, nor does the scheme need to be in the form it is." We have considerable difficulty with that conclusion. It proceeds on the footing (1) that the scheme in the S.E.A. did not take into account to a significant extent the full service of an employee, and (2) that the objectives of the scheme would not be met unless that full service was taken into account to a greater extent. It is not apparent to us on what evidential basis either footing was established. The scheme was one agreed between the Bank and B.I.F.U. and there is nothing in the evidence referred to by the Industrial Tribunal to suggest that either party considered that the scheme failed to meet any of its objectives.

So far as it was an objective of the scheme to compensate for loyalty, what the Industrial Tribunal appears to be saying is that an employee who serves full-time is more loyal to the employer and deserving of greater compensation than an employee who serves part-time. But it is hard to see how in logic that can stand scrutiny and it would appear to be an argument in favour of indirect discrimination, given the greater number of women in part-time employment than men. To our minds it is plain that length of continuous service is taken into account to a significant extent in the scheme which recognises that a part-time employee no less than a full-time employee shows loyalty to the employer by that service.

So far as the Industrial Tribunal had in mind the secondary element or objective of compensation for loss of a job, its reasoning on this point in truth proceeds on the premise that the severance payment is or should be a form of deferred pay having a direct correlation with the hours of service the employee has served over the years. It has not been suggested that there was any evidence that this was an objective of the scheme, and the scheme was not framed in that way. In our judgment the evidence did not permit the Industrial Tribunal to conclude that an objective of the scheme in its present form would only be met if the severance payment took fuller account of the full-time service of the employee. The scheme takes account to a significant extent of all the service of the employee. We would add that if the severance payment became a form of deferred pay it would be taxable, to the detriment of the employee; but, as was held in Mairs v Haughey , a payment made under a redundancy scheme is not deferred pay, nor is it damages.

No doubt the scheme could have been framed in a different way so that the amount of the payment was correlated with the hours served by the employee. The method adopted by Mrs. Barry for estimating the amount of what she claimed she had lost as a result of indirect discrimination is one method, but not necessarily the only feasible method, of achieving that result. If the objective had been to reward the contribution to the employer through the employee's past service, then to take account of the value, rather than the hours, of that service might be thought a better method and the pay received by the employee over the years might be a relevant indicator. A variant of that was considered in R v Secretary of State for Employment, Ex p. Equal Opportunities Commission [1993] 1 W.L.R. 872 ("the E.O.C. case"). In what was known as the second application the Equal Opportunities Commission advanced an argument similar to that presented by Miss Booth, that the statutory redundancy scheme was discriminatory in that it failed to include as a factor in calculating statutory redundancy payments for part-time employees any period during which they had worked full-time for their employers. In the Court of Appeal Counsel for the Commission argued that in place of the weekly pay at the termination of employment forming the basis of the payment, the employee should be credited with the highest pay earned when working full-time. But as Dillon L.J. pointed out (at p.889), that in turn gave rise to a number of questions (e.g. whether there should be an adjustment for inflation) which would need to be resolved, and he doubted if the court had a function in this.

To return to Mrs. Barry's suggested modification of the terms of her contract of employment to accord with her favoured method of calculation, in the light of the scheme's primary objective why should the part-time employee be treated, contrary to reality, as having the weekly pay of a full-time employee at the termination of employment? Why should the part-time employee be treated, contrary to reality, as in full-time employment for a shorter period than the entire period of continuous employment which the scheme provided for? Take, for example, a female employee, who, after years of part-time service while her children are young, then switches to full-time service, enters into financial commitments on the strength of her full-time pay but is made redundant. Why should the scheme have in effect to be rewritten so that her years of part-time service are reduced to the equivalent in full-time service, when the effect of so doing is to reduce the cushion notwithstanding that the provision of the cushion is the primary objective of the scheme?

Considerations such as these prompt the question whether there is any scope for the application of the 1970 Act and Article 119 to a severance payment under the S.E.A. where there is no direct discrimination in any of its terms and where introduction of the suggested modification of its terms would not merely alter the terms of the scheme in a way which could adversely affect women employees but also alter the objectives of the scheme, so that it ceases to be primarily a scheme to cushion the effect of redundancy and becomes more a reward to the employees for the completed hours of service.

In the E.O.C. case at first instance ([1992] 1 All E.R. 545) the Divisional Court accepted that Article 119 did apply to the statutory redundancy scheme, notwithstanding that there was no direct discrimination in any of its terms, and it held that there was indirect discrimination; but it also held that such discrimination was objectively justified. In the Court of Appeal the Secretary of State took 3 points. The first was that there was no discrimination in the statutory scheme. The second was that if there was discrimination, it was objectively justified. The third was that if there was unlawful discrimination the court could not give relief, as it would involve new legislation. Dillon L.J. did not express any view on the first and second points, but found for the Secretary of State on the third. He pointed out the difficulties, to which we have adverted, in comparing the statutory scheme with one containing other terms and said that there was no valid reference point for making changes. He therefore held that the court should not entertain the application. Kennedy L.J. dismissed the Commission's appeal for procedural reasons. Hirst L.J. however expressed views on all 3 points. The Secretary of State had argued that there was no discrimination against any definable group of workers, since the system operated in exactly the same way in respect of part-time workers and full-time workers, and the application of the same rules as are applied to other recipients of redundancy payments would produce exactly the same result, since no distinction was drawn between either class. He had further argued that a practice could only be assumed to have adverse disproportionate impact on part-time workers if it was a precondition for acquiring a particular benefit that a worker was in full-time employment; there was no such precondition in the statutory scheme. Hirst L.J. accepted those submissions. He referred to an example given by the Commission's counsel whereby a female employee who had worked full-time for 6 years before working part-time for 2 years and who was made redundant would be entitled to more than double her statutory payment if it was calculated on the basis of her weekly pay in every year she worked part-time. Hirst L.J. commented ([1993] 1 W.L.R. 872 at p.906): "In my judgment this example vividly demonstrates that [Counsel] is not seeking to redress a discriminatory disadvantage affecting part-time workers, but rather impermissibly to substitute an entirely new set of rules for the present system." Hirst L.J. also found in favour of the Secretary of State on objective justification and on relief.

The E.A.T. in the present case in effect adopted the approach of Hirst L.J. (see in particular reasons (6) and (7) of our summary of the E.A.T.'s reasons).

Miss Booth criticised the reasoning of Hirst L.J. in the E.O.C. case and of the E.A.T. in the present case as being inconsistent with the approach of the European Court. She submitted, and Mr. Elias does not dispute, that a severance payment comes within the definition of "pay" in Article 119. But the consideration which the worker receives "in respect of his employment" will include rewards which bear no direct correlation with hours worked, for example private health insurance, loans and company cars, and if the rules governing access to such rewards are the same for men and women and the primary purpose of such rewards is a bona fide commercial purpose other than to reward hours of service, it is not obvious that the mere fact that more members of one sex obtain those rewards than members of the other sex indicates that Article 119 has been breached. However we bear in mind that this is an area of the law controlled by European law and an English court must beware of too English an approach. We must have regard to the guidance offered by the European Court.

Miss Booth referred us first to the decision of the European Court in Kuratorium für Dialyse v Lewark [1996] I.R.L.R. 637. This was a case where part-time workers attending a training course were paid for less hours than full-time workers attending the same course. The result was that it was held (at p.645) to be "indisputable that .... the overall pay received by the [part-time workers] is, for the same number of hours worked, lower than that received by the full-time workers". As there were more women part-time workers than men, prima facie there was indirect discrimination and unless it could be objectively justified it contravened European law. Thereby the European Court confirmed its earlier decision in Arbeiterwohlfahrt der Stadt Berlin v Bötel [1992] I.R.L.R. 423 to the like effect. Those were cases where the principle in Article 119 of equal pay without discrimination was clearly breached, the pay in question being directly related to hours worked. That is not the case here.

Miss Booth next referred to the Kowalska case. This was the case of a female part-time employee who retired on reaching retirement age, but, unlike employees working at least 38 hours a week, was not entitled under the terms of a collective agreement to a severance payment. Under the agreement the amount of that payment was determined by the latest wage and length of employment (see para.8 of Adv.-Gen. Darmon's judgment [1990] 4 E.C.R.2591 at p.2601). The European Court held that as more women workers worked part-time than men, Article 119 required that, in the absence of objective justification for the discrimination, part-time workers must be treated in the same way and made subject to the same scheme, proportionately to the number of hours worked, as full-time workers. This was a case where women, by forming the bulk of part-time workers, were being indirectly discriminated against by being wholly excluded from benefit. The objectionable practice in that case is unlike the practice in the present case where a part-time worker like Mrs. Barry is not being excluded from benefit but receives a benefit proportionate to her part-time pay and years of service at termination. The remedy suggested in Kowalska accords with the practice under the S.E.A. Further, it is of some significance that the European Court did not suggest that the remedy should take into account to a proportionately greater extent any years of full-time service prior to the part-time service at retirement or that it would otherwise be discriminatory for a part-time worker only to receive a payment proportionate to the hours worked at termination.

The Lewark and Kowalska cases are therefore not on all fours with the present case. We confess that we have been greatly attracted by the robust and common sense approach of Hirst L.J. in the E.O.C. case and of the E.A.T. in the present case, particularly when championed so persuasively by Mr. Elias. But the consistent approach of the European Court has been to go beyond the fact that a measure is formulated in neutral non-discriminatory terms and to see whether the measure works to the disadvantage of far more women than men, and, if so, to leave it to the national court to determine in the light of all the circumstances whether such measure is justified by objective reasons unrelated to any discrimination on grounds of sex. Many of the considerations urged by Mr. Elias seem to us to go to objective justification. Accordingly, like the Divisional Court in the E.O.C. case, we shall consider, first, whether there has been indirect discrimination and, if so, second, whether it is objectively justified.

Indirect discrimination

The question is whether the provisions of the S.E.A. whereby the severance payment is calculated on the basis of the employee's current pay at the date of termination are discriminatory and lead to less favourable treatment. Miss Booth submits that just as the Divisional Court in the E.O.C. case held that the statutory scheme did have a disproportionate impact on women and was indirectly discriminatory unless objectively justified, so we should hold that the S.E.A. scheme prima facie is indirectly discriminatory.

The first question under this head is what is the appropriate pool of men and women for comparison. The Industrial Tribunal considered that that pool was S4 clerks employed in the Midland Clearing Operations Department, they being of the same grade as Mrs. Barry and in the same department. Miss Booth submitted that as the S.E.A. applied to virtually all the employees of the Bank, the correct pool was therefore all men and women employed by the Bank. Alternatively she submitted that there was no justification for limiting the pool to those S4 clerks employed in one department, rather than all the clerks of that grade in the Bank as a whole. Mr. Elias submitted that the right pool was the S4 clerks.

It seems to us logical to look at all to whom the relevant provisions of the S.E.A. apply at the relevant time (viz. the termination of Mrs. Barry's employment), there being no distinction in the scheme between employees in the various grades. That is consistent with the approach of the European Court in, for example, the Kowalska case. One must look at the composition of the allegedly advantaged group or of the allegedly disadvantaged group in that pool. That is not straightforward. To take full-time employees as the relevant advantaged group and part-time employees as the disadvantaged group would not appear to us to be correct or consistent with Mrs. Barry's claim, as whether a full-time or part-time employee is advantaged or disadvantaged depends on the amount of full-time or part-time work previously completed by that employee. We therefore cannot accept the Industrial Tribunal's approach in relation to Article 119 that merely because the figures show that the overwhelming number and percentage of women employees who were S4 clerks in the same department as Mrs. Barry worked full-time, there was no indirect discrimination. Nor for the same reason can we accept the Industrial Tribunal's approach in relation to the 1970 Act that it is sufficient to compare the proportion of women in the S4 grade in that department who worked full-time out of the total of women in that grade in that department (viz. 696 out of 751 or 92.68%) with the proportion of men in that grade in that department who worked full-time out of the total of men in that grade in that department (viz. 447 out of 450 or 99.33%). In logic Mr. Elias must be right to say that the disadvantaged group is those part-time workers whose hours of work at termination were less than the average of their hours of work throughout their service.

It is therefore necessary to ask what proportion of women fell into that category as compared with the proportion of men that fell into that category. We do not suggest that it is only those part-time workers taking redundancy at the same time as Mrs. Barry who form the relevant pool. That would make the issue of indirect discrimination turn too much on the chance of who happened to want to become redundant at that particular time, and that seems to us too haphazard a basis for in effect requiring a modification of the S.E.A. In our opinion it would be necessary to look at all part-time workers at the time of Mrs. Barry's termination of employment and the average of their hours of work throughout their service and to compare the men and the women in the advantaged and disadvantaged groups. But there are no such statistics available, as we understand the position. It was an agreed fact that 12 out of the 33 part-time staff who were female employees (of unspecified grades throughout the Bank) made redundant in April 1993 had previous full-time service. But we have no more details and it is unsafe to base any conclusion on that bare statistic. The Bank as the employer is likely to have the relevant information, though it may well be that it would not be readily to hand. But it was for Mrs. Barry to prove her case of indirect discrimination, seeking, if necessary with the Industrial Tribunal's assistance, the relevant information from the Bank. We are afraid that she has not done so. However we would not like to decide this appeal on that point alone, and we therefore move on to the question of objective justification.

Objective justification

As will have been seen from the E.A.T.'s summary of the Industrial Tribunal's decision, that Tribunal found both that if there was indirect discrimination, it was not objectively justified and that any difference in treatment of Mrs. Barry was due to a genuine material factor other than the difference of sex within s.1(3) of the 1970 Act. Both Miss Booth and Mr. Elias agree that such inconsistency of approach to Article 119 and to the 1970 Act cannot be right. The 1970 Act must be interpreted consistently with Article 119 so far as possible. Miss Booth supports the finding of the Industrial Tribunal on objective justification as being a finding of fact and degree which it made on applying the test taken from Bilka - Kaufhaus GmbH v Weber von Hartz [1987] ICR 110 at p.126:

"It is for the national court, which has sole jurisdiction to make findings of fact, to determine whether and to what extent the ground put forward by an employer to explain the adoption of a pay practice which applies independently of a worker's sex but in fact affects more women than men may be regarded as objectively justified on commercial grounds. If the national court finds that the measures chosen by Bilka correspond to a real need on the part of the undertaking, are appropriate with a view to achieving the objectives pursued and are necessary to that end the fact that the measures affect a far greater number of women than men is not sufficient to show that they constitute an infringement of Article 119."

The Industrial Tribunal referred to the Bilka case in rejecting the Bank's submission that the form of the scheme was necessary because it was clear, direct and simple. The Industrial Tribunal noted that the Bank was a multi-national clearing bank with vast resources, including sophisticated data systems, and concluded that the scheme as drafted was convenient rather than necessary.

In the Bilka case part-time workers in a department store were excluded from an occupational pension scheme. The second question for the European Court was whether the employer's reasons for that exclusion amounted to objective justification. Those reasons were that the employer intended solely to discourage part-time workers as in general part-time workers refused to work in the late afternoons on Saturdays. But the employee pointed out that the employer was not obliged to employ part-time workers and, if it did so, it could not restrict the pension payable to part-time workers who were predominately women. It was in that context that the European Court held that the employer could exclude part-time workers from the pension scheme on the ground that it sought to employ as few part-time workers as possible only where it was found that "the means chosen for that objective correspond to a real need on the part of the undertaking, are appropriate with a view to achieving the objective in question and are necessary to that end" (p.127).

In our judgment it would be wrong to extrapolate from those words written in that context that an employer can never justify indirect discrimination in a redundancy payment scheme unless the form of the scheme is shown to be necessary as the only possible scheme. One must first consider whether the objective of the scheme is legitimate. If so, then one goes on to consider whether the means used are appropriate to achieve that objective and are reasonably necessary for that end. That this is the true position is in our judgment made clear by two decisions of the House of Lords. In Rainey v Greater Glasgow Health Board [1987] AC 224 Lord Keith, giving the only reasoned speech, referred to the Bilka case as establishing that the true meaning and effect of Article 119 was the same as that attributed to s.1(3) of the 1970 Act by the E.A.T. in Jenkins v Kingsgate (Clothing Productions) Ltd. [1981] 1 WLR 972 at p.1495, where Browne-Wilkinson J. said: "for section 1(3) to apply the employer must show that the difference in pay between full-time and part-time workers is reasonably necessary in order to obtain some result (other than cheap female labour) which the employer desires for economic or other reasons." Second, in Webb v EMO Air Cargo [1993] 1 WLR 49 at p.56 Lord Keith, again giving the only reasoned speech, referred with approval to the formulation by Balcombe L.J. in Hampson v Dept. of Education and Science [1990] 2 All E.R. 25 at p.34 of the test in s.1(1)(ii) of the 1970 Act in relation to a condition of employment. Balcombe L.J. said this:

"In my judgment "justifiable" requires an objective balance between the discriminatory effect of the condition and the reasonable needs of the party who applies the condition. This construction is supported by .... Rainey...."

In our opinion there can be no doubt but that the primary objective of the scheme, to cushion the effect of the unemployment, as well as the secondary objective found by the Industrial Tribunal, to compensate the employee for her loss of a job and to reward her loyalty, are legitimate and non-discriminatory aims. We have already criticised the Industrial Tribunal's suggestion that the scheme failed to take into account to a significant extent the full service of the employee or otherwise failed to meet its objectives. As for the means used to meet the objectives, it seems to us plain that the form of the scheme was both appropriate and reasonably necessary to that end. That is demonstrated by the fact that the scheme could not be redrafted to correlate the severance payment with the hours served by the employee in the way suggested by Mrs. Barry without detracting from the primary objective of the scheme. Contrary to the views of the Industrial Tribunal, the form which the scheme took of basing the award on the pay at termination was not a mere matter of convenience, but was designed to promote the primary objective. The scheme also had the merit of clarity and simplicity, which was beneficial to both the Bank and its employees. The Industrial Tribunal itself recognised that administrative convenience as well as the cushioning aim are objective reasons unconnected with the difference in sex between Mrs. Barry and her male comparators and that s.1(3) of the 1970 Act was satisfied. In agreement with the E.A.T., we regard that conclusion as equally applicable to Article 119. It is in accord with the decision of the Divisional Court in the E.O.C. case and with the views of Hirst L.J. in that case on objective justification. In our judgment, therefore, if there is indirect discrimination, it is objectively justified and involves no infringement of Article 119 and is due to a material factor not based on sex.

In this conclusion we are reassured by the similar conclusion reached by the German Bundesarbeitsgericht on 28 October 1992 in case No. 10 AZR 129/92, Entscheidungssammlung zum Arbeitsrecht 247 sub § 112 BetrVG. That was a case where a female part-time employee who had previously worked full-time claimed an increased severance payment under the applicable social compensation law, that increase to be based on the fact that her years of full-time employment should be taken into account. That claim was rejected by the German court which said that there were objectively justifiable reasons which had nothing to do with discrimination on the ground of sex. Those reasons were, in effect, the cushioning objective.

For these reasons we have reached the clear conclusion that this appeal fails and must be dismissed. That renders it unnecessary for us to consider a further alternative submission made by Mr. Elias. Basing himself on the remarks of the European Court in Defrenne v Sabena [1976] ICR 547 at p.566, he submitted that Article 119 only had direct effect where the discrimination was "direct and overt" and capable of being identified "solely with the aid of criteria based on equal work and equal pay". He contended that in this case the court could not remedy any inequality by the simple application of those criteria because it was not clear in the present case how the concept of equality could be realised. Those arguments were not advanced before the Industrial Tribunal or the E.A.T. and must await another case for determination.

We would also add that although Miss Booth submitted that this court, if in any doubt, should refer to the European Court under Article 177 the question whether a method of calculation which uses the salary at the date of termination of employment is capable in principle of leading to unequal pay within the meaning of Article 119, we are left in no doubt on that question. There is therefore no need for a reference in this case.

ORDER: Appeal dismissed with costs; leave to appeal to the House of Lords refused.