England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
His Honour Judge J Burke QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		15 October 2004

Lord Justice Maurice Kay :

1. This is the judgment of the Court.
2. Mrs. Bernadette Cadman is employed by the Health and Safety Executive (HSE) as a "band 2 inspector". In June 2001 she applied to an Employment Tribunal complaining that her remuneration should be equal to that of her male colleagues. She identified four male comparators – H,I,J and K. Although they are in the same grade as Mrs. Cadman, they are paid substantially more. In the financial year 2000 – 2001, her annual salary was £35,129. The corresponding figure for H was £39,125, for I £43,354, for J £43,119 and for K £44,183. The explanation for these differentials lies in the structure of the pay system. In common with most areas of employment in the public sector, the HSE operates an incremental pay system which, one way or another, reflects and rewards length of service. Mrs. Cadman joined the HSE in June 1990, having previously worked in the Department of Social Security. She reached her present grade in November 1996. H joined in April 1985 and was promoted to the same grade in October 1995. I joined in August 1975 and was promoted to the same grade in April 1988. The comparable dates for J were June 1975 and April 1980 and for K June 1975 and 24 October 1983. I, J and K had been employed in the Factory Inspectorate prior to the establishment of the HSE. The proportion of men in the relevant part of the HSE'S workforce with longer service is greater than the proportion of women. On this basis, Mrs. Cadman claimed that the use of length of service as a determinant of pay is indirectly discriminatory and requires objective justification under the equal pay legislation.
3. On 14 October 2002, the Employment Tribunal upheld Mrs. Cadman's complaint. It held that she was entitled to a declaration under section 1 of the Equal Pay Act 1970 that the term in her contract dealing with pay should be modified so as to be no less favourable than the comparable term in the contracts of employment of her four identified comparators.
4. The HSE appealed to the Employment Appeal Tribunal which, in a judgment given by His Honour Judge J. Burke QC on 22 October 2003, allowed the appeal on two grounds. First, it held that, in the light of the decision of the European Court of Justice in Handels-og Kontorfunktionaerenes Forbund I Danmark v. Dansk Arbejdsgiverforening ("Danfoss") [1989] ECR 3199, the use of length of service as a criterion in a pay system does not require specific justification. Secondly, even if such justification is required, the Employment Tribunal had fallen into legal error when considering justification.
5. In the present appeal to this Court, Ms. Tess Gill, on behalf of Mrs. Cadman, submits that the Employment Appeal Tribunal was wrong on both issues. So far as the Danfoss issue is concerned, she invites a reference to the European Court of Justice on the ground that the status and correct interpretation of Danfoss have been put into question by subsequent decisions of the Court of Justice.
6. That, in a nutshell, describes the factual and legal background to this appeal. As with any equal pay case, the evidence went into great detail but it is unnecessary to rehearse all that detail at this stage. For present purposes, it is sufficient to relate that the pay system of Mrs. Cadman and the male comparators has undergone structural changes during the period of her employment. Until 1992 it was in the form of a standard incremental scale with annual increments until the employee in question reached the top of the scale. The scale itself was the subject of negotiated increases broadly reflecting the rate of inflation. In 1992 a performance related element was introduced. Thereafter, almost all inspectors still received an annual increment but the actual amount of an individual's increment was adjusted to reflect his or her performance. Thus, high performers were enabled to reach the top of the scale more quickly. In 1995 a Long Term Pay Agreement was reached. It rationalised the previous system and provided for seven, later reduced to six, bands which enable an employee to progress upwards over a period of time by reference to performance - related increases. Notwithstanding these changes, it is common ground that the differentials between Mrs. Cadman and the male comparators derive substantially from differences in their respective lengths of service.
7. Before leaving this brief summary of the facts it is appropriate to record that we also received evidence and submissions on behalf of the Equal Opportunities Commission, represented by Mr. Robin Allen QC. The material discloses that in this country and throughout the European Union the length of service of female workers, taken as a whole, is less than that of male workers. The Commission suggests that length of service as a determinant of pay plays an important part in the continuing, albeit slowly narrowing, gap between female and male workers. No one disputes this suggestion. It indicates the potential significance of this case.

The statutory framework

8. The Equal Pay Act 1970 was passed before the accession of the United Kingdom to the European Economic Community and before the Sex Discrimination Act 1975. The material parts of section 1 of the 1970 Act read as follows:

"(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 –

……….

(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)…(b) above, must be a material difference between the woman's case and the man's….

(5) A woman is to be regarded as employed on work rated as equivalent with that of any men if, but only if, her job and their job have been given an equal value, in terms of the demand made on a worker under various headings (for instance, effort, skill, decision), on a study undertaken with a view to evaluating in those terms the jobs to be done by all or any of the employees in an undertaking….or would have been given an equal value but for the evaluation being made on a system setting different values for men and women on the same demand under any heading."

9. Article 119 of the Treaty of Rome, now replaced by Article 141 of the EU Treaty, obliges Member States to ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied.
10. Under the Sex Discrimination Act 1975, section 1(1)(b)(ii), indirect sex discrimination is unlawful unless it is "justified". It is justified "if it is shown that the measures adopted by the employers which cause adverse impact on women 'correspond to a real need on the part of the [employers], are appropriate with a view to achieving the objectives pursued and are necessary to that end': Rainey v. Greater Glasgow Health Board [1987] ICR 129." That passage from the speech of Lord Browne-Wilkinson in Wallace v. Strathclyde Regional Council [1998] ICR 205, 212C, illustrates the synthesis between the domestic legislation and the EU Treaty.

It continues:

"The cases establish that the Equal Pay Act 1970 has to be construed so far as possible to work harmoniously both with the Sex Discrimination Act 1975 and Article [141]. All these sources of law are part of a code dealing with unlawful sex discrimination…..It follows that the words 'not the difference of sex' where they appear in section 1(3) of the Equal Pay Act 1970 must be construed so as to accord with the Sex Discrimination Act 1975 and Article [141] of the EC Treaty, i.e. an employer will not be able to demonstrate that a factor is 'not the difference of sex' if the factor relied upon is sexually discriminatory whether directly or indirectly. Further a sexually discriminatory practice will not be fatal to a subsection (3) defence if the employer can 'justify' it applying the test in the Bilka – Kaufhaus case."

To square the circle of general principle, the Bilka - Kaufhaus test is expressed in these terms ([1987] ICR 110, paragraphs 36):

"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 [141]."

11. It is common ground that these remain accurate statements of general principle. The central issue in the present appeal is whether Danfoss created an enduring qualification in cases where discrimination results at least in part from the use of length of service as a remuneration criterion. We now turn to consider the grounds of appeal.

1. The Danfoss point

12. In Danfoss the Court of Justice gave preliminary rulings in answer to certain questions asking:

"in essence whether the Directive must be interpreted as meaning that where it appears the application of the criteria relating to supplements, such as mobility, training or length of service, systematically works to the disadvantage of female employees, the employer may, none the less, and if so on what conditions, justify its use

The Court concluded that where criteria such as mobility and training work to the disadvantage of female employees, it is for the employer to establish objective justification. However, the conclusion in relation to length of service was different. The Court said (at paragraph 24):

"….as regards the criterion of length of service, it is also not to be excluded, as with training, that it may involve less advantageous treatment of women than of men in so far as women have entered the labour market more recently than men or more frequently suffer an interruption of their career. Nevertheless, since length of service goes hand in hand with experience and since experience generally enables the employee to perform his duties better, the employer is free to reward it without having to establish the importance it has in the performance of specific tasks entrusted to the employee."

In answering the specific question, the Court then said (at para. 25(3)):

"The employer does not have to provide special justification for recourse to the criterion of length of service."

The case for the HSE is that Danfoss is authoritative on the question of length of service, save to the extent that it has been modified in subsequent cases concerning part-time workers. The case for Mrs. Cadman is that those subsequent cases have not merely modified Danfoss in relation to part-time workers. They amount to a more significant departure from Danfoss, the authority of which now has to be seen in that light.

13. The first of the cases concerning part-time workers was Nimz v. Freie und Hansestadt Hamburg [1991] ECR 1-297. The terms and conditions of employment of the part-time employees were governed by a collective agreement which included this provision:

"Account shall be taken of the full duration of a qualifying period during which the employee was regularly employed for at least three quarters of the normal working hours of an equivalent full-time employee and account shall be taken of half of such a period during which he was so employed for at least half of such normal working hours."

The Opinion of Advocate General Darmon included these passages:

"14…In the present case, the length of service required is merely intended to enable access to be gained to a higher wage grade without any alteration in the nature of the duties performed. Accordingly, the taking into account of experience in terms of actual hours of work does not appear to be an objective justification.

15. Doubtless the situation would be different if it was a question of granting promotion and thus ensuring access to a higher post entailing different duties or new responsibility. Even in such a case, it seems to me that it would be necessary to take into consideration the nature of the post in question – experience is not as decisive a criterion for the post of maintenance worker as it is for that of the head of an administrative department – and in such matters it is not possible to accept a general and abstract rule. It would therefore be for the national court to examine, in accordance with the principle of proportionality, whether it is actually necessary to take into account the experience gained by length of service, regard being had to the nature of the duties performed…

18. I therefore propose that the Court should not merely recall the principles of its existing case law but should also point out that general considerations based on the fact that full-time workers are said to have more experience than part-time workers do not constitute sufficiently specific and objective criteria unrelated to any discrimination on grounds of sex."

The reference to "its existing case law" is clearly a reference to Danfoss, an extract from the judgment in which had been set out in an earlier paragraph of the Advocate General's Opinion.

14. In its judgment the Court of Justice said (at paragraphs 13 to 14):

"……The City of Hamburg claimed during the procedure that full-time employees or those who work for three quarters of normal working time acquire more quickly than others the abilities and skills relating to their particular job. The German Government also relied on their more extensive experience.

It should, however, be stated that such considerations, in so far as they are no more than generalisations about certain categories of workers, do not make it possible to identify criteria which are both objective and unrelated to any discrimination on grounds of sex….although experience goes hand in hand with length of service, and experience enables a worker in principle to improve the performance of the tasks allotted to him, the objectivity of such a criterion depends on all the circumstances in a particular case, and in particular on the relationship between the nature of the work performed and the experience gained from the performance of that work upon completion of a certain number of working hours."

15. The next relevant decision of the Court of Justice is Hill v. Revenue Commissioners [1999] ICR 48. It was concerned with job-sharing in the Irish Civil Service. 98% of the job sharers were women. Advocate General La Pergola referred to the question posed for preliminary ruling in these terms (at paragraph 31):

"The national court asks the Court to specify whether the employer is required to provide special justification for recourse to the criterion of service, defined as actual time worked ".

The Advocate General then stated that the Court was called on to clarify what it had held in Danfoss, the relevant paragraph of which he quoted. He added (at paragraphs 33 to 34):

"To my way of thinking, such a statement can only be considered in the light of the facts of the case then before the Court. Let me briefly recall them. Under a clause in a collective employment agreement, Danfoss paid individual supplements to employees to reward flexibility, training and length of service….The system used by the employer to calculate those supplements was absolutely lacking in transparency, with the result that it was impossible for employees to find out the actual breakdown of the supplements paid to them. Recognising the need for workers to know the detailed breakdown of their pay, the Court went on to assess the individual criteria for the supplements, and in respect of the criterion of length of service it made the statement quoted above.

That judicial opinion, the meaning of which the national court now wishes the Court of Justice to define, cannot be understood in isolation from the facts set out above. Some analysis is called for here. When the employer takes an individual decision it is certainly lawful to take length of service into account as one factor in granting the employee a differential pay settlement. It may be that greater experience in the post enables the employee to work more efficiently. What does, however, give rise to doubts is the use of the criterion which generalises recourse to length of service so as to extend it indiscriminately even to cases in which may be unjustified."

He concluded (at paragraph 35):

"I must now consider whether the solution adopted by the Court in Danfoss may profitably be transposed to the case in point. I do not think it can. Indeed, it seems clear to me that the principle laid down in that case not only must be construed having regard to the above mention caveats but also must apply only to length of service reckoned in terms of years and not of hours actually worked….To my mind, this explanation leads us to draw a distinction between length of service reckoned in years – which the employer can take into consideration in deciding on promotions 'without having to establish the importance it has in the performance of specific tasks entrusted to the employee'- and length of service reckoned in hours worked, whose relevance for the purposes of progression to a higher rate of pay must, in contrast, be proved by objective evidence."

16. The judgment of the Court of Justice does not engage with the relationship between Danfoss and Nimz. However, it plainly required objective justification for the differential treatment of the job-sharers. It stated (at paragraph 43):

"The onus is therefore on the Revenue Commissioners and the Department of Finance to establish before the Labour Court that the reference to the criterion of service, defined as the length of time actually worked, in the assessment of the incremental credit to be granted to workers who convert from job-sharing to full-time work is justified by objective factors unrelated to any discrimination on grounds of sex."

17. It is also relevant to refer to Gerster Freistaat v. Bayern [1998] ICR 327 in which the Court of Justice considered Nimz in these terms (at paragraph 39):

"In Nimz ….the Court took the view that it is impossible to identify objective criteria unrelated to any discrimination on the basis on an alleged special link between length of service and acquisition of a certain level of knowledge or experience, since such a claim amounts to no more than a generalisation concerning certain categories of worker. Although experience goes hand in hand with length of service, and experience enables the worker in principle to improve performance of the tasks allotted to him, the objectivity of such a criterion depends on all the circumstances in each individual case, and in particular, on the relationship between the nature of the work performed and the experience gained from the performance of that work on completion of a certain number of working hours."

18. What, then, is the present relationship between Danfoss on the one hand and Nimz, Hill, Gerster and other cases concerning part-time workers on the other hand? Ms Gill and Mr. Allen explored the archaeology of Danfoss in an attempt to persuade us that it was a narrow case on unusual facts without the benefit of adversarial submissions on the fundamental principle in relation to length of service. It was suggested that the case was so structured that neither party, nor any of the several governments who made representations, was contending that, in the circumstances of the case before the Court, differential treatment in respect of length of service required objective justification. We have been taken to the summaries of what was submitted by, amongst others, the United Kingdom Government, the Portuguese Government, the Italian Government and the Commission. We were also shown and given different interpretations of the report of the Danish Industrial Arbitration Board in the Danfoss dispute. While it is apparent that the approach in relation to length of service was less in issue than was the case in relation to mobility and training, our impression (and it can be no more than that) is that the absence of a need for justification in respect of length of service was not wholly uncontradicted. Be that as it may, there is no doubt that the Court deliberately treated length of service in a different manner. That it was a deliberate and considered difference is apparent from the fact that Advocate General Lenz had invited the Court to require objective justification in relation to all three criteria (see para 43). The Court would not lightly reject that invitation. In our judgment, it determined to propound principles of general application and, in so doing, it dealt with length of service in a manner different from mobility and training.
19. The question then becomes: Has the Court had second thoughts in cases such as Nimz and Hill? Or are they merely part of a sub-plot referable only to part time workers? It is no surprise that, in the later cases, the Court has not expressly departed from Danfoss. That is not how the Court of Justice tends to express itself even when it is plainly articulating second thoughts. In Anderson and Demetriou, References to the European Court, second edition, paragraph 14-010, the authors observe, that only once has the Court of Justice actually stated its intention to depart from a previous decision. On the other hand, it has employed a variety of techniques with that effect including the citation with apparent approval of a decision which is then departed from and the ignoring of previous contrary authority.
20. It is next appropriate to see what can be deduced from the Opinions of the Advocates General and the judgments of the Court of Justice in the later cases. In our judgment, the passages from the Opinion of Advocate General Darmon in Nimz can properly be construed as an invitation to the Court at least to reconsider Danfoss. Moreover, although the Judgment of the Court does not refer to Danfoss, the passage in paragraph 14 which we have set out above, beginning "Although experience goes hand in hand with length of service…..", is a quotation from Danfoss. It is true that the decision was ultimately a decision about part-time work but the outcome does not live easily with Danfoss, nor does the language in which it was expressed. If that is true of Nimz, it is yet more obvious in the opinion of Advocate General La Pergola in Hill. We interpret his opinion as being an attempt to confine Danfoss to its facts (see paragraph 33 of the Opinion). It is also significant that paragraph 34 of the Opinion is not expressed in terms which are confined to part-time work. On the other hand, later passages in the Opinion, in particular paragraph 35, do concentrate on part-time work and the distinction between length of service recorded in terms of years and length of service recorded in terms of hours actually worked.
21. English lawyers do not always find textual exegesis easy when considering Luxembourg jurisprudence. However, we cannot escape the conclusion that cases such as Nimz, Hill and Gerster are probably not just exceptional and confined to the context of part-time work. They are more illustrative of a difference in approach. In his Opinion in Hill, Advocate General La Pergola quoted without dissent an article by Gillian More, Seniority Payments for Part Time Workers, (1991) 16 European Law Review 320, 325-326, which refers to the apparent contradiction between Danfoss and Nimz suggesting that

"the Court's view of justifying seniority payments as expressed in Danfoss can no longer be regarded as valid. This is a welcome development "

The researches of counsel have also referred us to Barnard, EC Employment Law, second edition, page 215, which refers to the Court in Nimz "modifying its approach". All this tends to support the proposition that Danfoss has at least to some extent been the subject of second thoughts on the part of the Court. On the other hand, Mr. Underhill points to one indication to the contrary, namely the Opinion of Advocate General Cosmas in Angestelltenbetriebsrat Der Wiener Gebietskrankenkasse [2000] ICR 1134, 1153, which refers to Danfoss in terms of general applicability in relation to length of service. However, the context was somewhat different and the Advocate General was referring to Danfoss merely by way of analogy.

22. Finally, it is appropriate to consider the reasoning in Danfoss itself. It raises the question as to why length of service is singled out for dispensation in relation to objective justification. Mr. Nicholas Underhill QC, on behalf of the HSE, suggests that the rationale of Danfoss is that length of service is a proxy for experience and experience axiomatically produces added value for the employer. However, if that is so, it is difficult to justify the different approach to part-time workers, some of whom may be highly experienced. We are bound to say that, if we were considering the matter unconstrained by the Luxembourg jurisprudence, we would not be impressed by the proposition that length of service, always and in all circumstances except in relation to part-time work, does not need objective justification because that justification is self-evident.
23. Where does all this lead? As we have suggested, we tend to the view that Nimz and Gerster do at least to some extent represent second thoughts on the part of the Court of Justice and that those second thoughts are not logically limited to the context of part-time work. In our judgment, at the very least they have cast doubt on the authority of Danfoss – as well they might. The matter is not free from uncertainty. This leads us to the conclusion that we should accede to Ms. Gill's submission and refer the Danfoss point as it arises in the present appeal to the Court of Justice for a preliminary ruling pursuant to Article 234. We consider that such a course is necessary to enable this Court to give judgment. We invite counsel to reach agreement upon the terms of the reference, subject to the approval of the Court. The parties should inform the Court within 14 days of the handing down of this judgment as to their joint or respective views. Thereafter the appeal will be listed for further consideration of the terms of the reference.
24. If that is what we are to do, the question arises as to what course should now be taken in relation to the second issue raised in the appeal before us, namely the justification issue. The Appellant's Notice seeks to overturn the judgment of the Employment Appeal Tribunal on justification and restore the decision of the Employment Tribunal. In one sense it may be otiose to deal with the justification issue pending a ruling from the Court of Justice. If it accepts the HSE's case on Danfoss, Mrs. Cadman's case has no future. On the other hand, as counsel point out, we have heard full submissions on the justification issue and, if it should remain a live issue following the ruling of the Court of Justice, it would be wasteful of time and costs if the issue had to be relitigated in this Court at that stage. We see force in that suggestion and consider that we should deal with the justification issue.

2. The justification issue

25. It is common ground that, where objective justification is required, the test is that propounded by the Court of Justice in Bilka-Kaufhaus from which this is a larger extract [1987] ICR 110 ( at para. 36):

"It is for the national court, which has sole jurisdiction to make findings of fact, to determine whether and to what extent the grounds 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 economic grounds. If the national court finds that the measures chosen… 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 test has been considered and developed on a number of occasions in this country. The authorities were summarized in this way by Peter Gibson LJ giving the judgment of the Court of Appeal in Barry v. Midland Bank plc [1999] ICR 319 (at page 336B):

"…..it would be wrong to extrapolate from those words written in that context [i.e. in Bilka] 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 formulation was supported by two decisions of the House of Lords, namely Rainey v. Greater Glasgow Health Board [1987] ICR 129 and Webb v. Emo Air Cargo (UK) Limited [1993] ICR 175.

26. In the present case the HSE failed to satisfy the Employment Tribunal on the issue of objective justification. The Employment Appeal Tribunal concluded that the reasoning of the Employment Tribunal was legally erroneous and, but for its conclusion on the Danfoss point, would have remitted the case for rehearing by a differently constituted tribunal. In the appeal to this Court, Ms. Gill seeks to restore the decision of the Employment Tribunal on objective justification on the ground that it was free from legal error. Our task is to focus on the decision of the Employment Tribunal. If it was indeed free from legal error, then the Employment Appeal Tribunal had no power to overturn it. Accordingly, the appropriate course is to consider the submissions of Mr. Underhill which seek to identify legal errors. His submissions are to the effect that the Employment Appeal Tribunal was correct when identifying certain legal errors and, by reference to a Respondent's Notice, he seeks to identify further errors upon which the Employment Appeal Tribunal chose not to rule. We shall adopt the headings used by Mr. Underhill.

(1) "After the event" justification

27. This criticism is to the effect that the Employment Tribunal misdirected itself when it rejected justifications on the basis that they were "after the event" arguments rather than matters that had been considered by the HSE at the time.
28. The following passages from the decision of the Employment Tribunal are material:

"25 The test referred to in Bilka….uses the word 'chosen' rather than 'adopted' or 'taken'. In the opinion of the Tribunal this necessitates that the employer must have applied his mind to the existence of the pay differential and adopted measures, which at the time were adopted for the reasons subsequently advanced by the employer to explain the differential. Therefore, the Tribunal unanimously concluded that as on the evidence at no stage had the employers consciously addressed in their documentation the justification issue and explained it or justified it then it could not be said that the pay differentials that existed in this case had been 'chosen' by the employer to recognise pre-existing service of predominantly male employees. It was instead a justification after the event…..

28… At no stage either generally or specifically in relation to the Applicant and Mr. H had it been advanced at any stage until these proceedings were commenced as a justification for the difference.….The service and experience correlation had only ever been put forward once the differentials had been identified so specifically as they had in these proceedings….

29…It was clear that the continued existence of the incremental pay scale reflecting service which continued into the new pay system after the job evaluation exercise had not been adopted as a conscious decision on the part of the Respondents as a means of rewarding service within either the grade or within the organisation. At no stage in the documentation….had the respondents identified the need to find some element in the continuing pay scales to reflect that historical aspect of service within the band and the organisation….

30 The real need referred to by the Respondents had never been identified nor the business case advanced nor had the Respondents, when confronted with the pay differentials, attempted to justify it throughout the discussions and negotiations since 1995. Instead, what had happened is that an explanation that it fitted with recognition of historical service was advanced as a justification….

31….the Tribunal was not satisfied that in respect of the comparison of the Applicant with Mr. H that the Respondents had shown that there had been a conscious decision to reward the three to four years additional service of Mr. H nor had it been demonstrated that this corresponded to a real need on the part of the Respondents to reward service either to retain staff or to prevent staff turnover."

Before the Employment Appeal Tribunal Ms Gill conceded that there is no rule of law that the justification must have consciously and contemporaneously featured in the decision-making processes of the employer. Clearly the legal position is that expressed by the Employment Appeal Tribunal in these terms (at para 86):

" the existence of objective justification could not be determined against an employer, however strong the evidence in favour of the justification, because he did not have the justification contemporaneously in mind when the measure was chosen or adopted, whereas another employer on the same facts who did have the justification contemporaneously in mind would succeed."

29. On analysis the conclusion of the Employment Appeal Tribunal was that, whilst paragraph 25 of the decision of the Employment Tribunal amounted to a misdirection, it was not fatal to the decision as a whole because the later passages in the decision treated the absence of conscious and contemporaneous justification as having merely evidential significance. Mr. Underhill submits that that was over-charitable to the Employment Tribunal. He refers to the later passages which we have set out and contends that the legal error in paragraph 25 permeates the later passages which cannot properly be interpreted as using the "after the event" point on a merely evidential basis. In our judgment, this criticism is valid. Paragraph 25 was a clear misdirection and we cannot escape the conclusion that it infected the later passages. Once the Employment Tribunal had taken the view that "after the event" justification was impermissible as a matter of law, it is difficult to interpret the later passages on any basis other than the one which was conditioned by that misdirection.

(2) Applying the Bilka test

30. Mr. Underhill submits that the Employment Tribunal erred in its approach to the application of the Bilka test for objective justification. In one sense the errors he seeks to identify begin in paragraph 30 with the finding that no real need had been identified largely because the HSE's case was constructed on an "after the event" basis. To that extent, what we have said on that issue is also relevant when considering this ground of appeal. However the essence of this ground of appeal is to be found in criticism of paragraph 31 of the decision of the Employment Tribunal. The relevant part reads as follows:

"Were the measures appropriate? The Respondents admitted that they could measure and reward experience in a method that was measured, quantified and therefore transparent. Was it necessary? Upon the evidence the Respondents had not identified problems in relation to retention of experienced staff or problems with regard to staff turnover. It had therefore not been demonstrated that it was necessary to perpetuate these discriminatory pay differentials based on the historic system to avoid senior staff leaving or being demotivated. "

The criticism is of the use of the word "necessary" without the limitation "reasonably". The foundation of this criticism is the reformulation of the Bilka test in Barry (above).

31. Although one should not approach the decision of an Employment Tribunal as if one were construing a statute, and although it is always incumbent upon an appeal court to resist a pedantic approach, we consider that there is force in this criticism. The test does not require the employer to establish that the measure complained of was "necessary" in the sense of being the only course open to him. That is plain from Barry. The language used by the Employment Tribunal in paragraph 31 does suggest that it was looking for "necessity" in the sense of there being no alternative course. The difference between "necessary" and "reasonably necessary" is a significant one and, in our judgment, paragraph 31 contains a misdirection.
32. This leads to Mr. Underhill's second criticism of paragraph 31. Taking up the text of the decision from where we ended the earlier quotation, it continues:

"In any event performance related pay is intended to address and reward motivation. In relation to the comparison between the Applicant and Mr. H what we had in the Respondent's evidence were assertions that the experience of Mr H, not at the level to which he was appointed, but at his previous level, brought more experience. It was not, however, indicated what particular experience he did bring to the job nor how relevant experience in a non-managerial role could be to the work that he did in the managerial role. In particular, there is nothing to indicate why it should still justify a pay differential of approximately £4000 when both he and Mrs. Cadman had effectively, subject to the thirteen month difference, been in the job for the same period of time performing jobs valued as equivalent. In respect of Mr. H there was no evidence produced by the Respondents other than a general assertion by the witnesses that experience gained in the previous position as a Factory Inspector inevitably brought with it experience of value to the Respondents in the promoted job of Chief Factory Inspector. It was not however demonstrated on the evidence what it was specifically that that additional experience Mr. H brought to his job as a manager. Furthermore, as an issue of causation the only factor to explain the pay differential of £4000 which had barely narrowed in five years was Mr. H's historical position. On the evidence, therefore, the Tribunal was not satisfied that in respect of the comparison of the Applicant with Mr. H that the Respondents had shown that there had been a conscious decision to reward the three to four year additional service of Mr. H nor had it been demonstrated that this corresponded to a real need on the part of the Respondents to reward service either to retain staff or to prevent staff turnover."

33. The Employment Tribunal went on to state in the next paragraph that as it would have been perfectly permissible for the Respondents in the case of H to reward that additional service by a measured form of appraisal or payment system it could not be shown that the need to continue to reflect his historical position was either necessary or appropriate to reward his longer service even if could be demonstrated (as it could not) that this added value.
34. The submission on behalf of the HSE is that the approach of the Employment Tribunal came nowhere near satisfying the need for a balancing exercise of the kind required by Barry. This is an important and complex case and, it is suggested, it requires a careful and painstaking analysis of the relevant factors. The Employment Appeal Tribunal accepted these submissions. It said (at para 108):

"It appears to us that there is in their decision, read as a whole, little or nothing which shows that they carried out a balancing exercise by weighing the discriminatory effect of the pay structure, which included the factor of length of service, against the justification put forward. Seeking to identify real need without carrying out the necessary balancing exercise may lead to a failure to appreciate that the real question is whether in all the circumstances, balancing the discriminatory effect against the justification put forward, the Tribunal regards the pay practice under scrutiny as reasonably necessary and objectively justifiable"

We agree with and adopt that criticism. The Employment Tribunal did not refer to Barry or Allonby. Whilst it referred to Bilka, it approached the task there prescribed in a manner that was less than thorough. What was lacking was what Sedley LJ has referred to as "the minimum…critical evaluation" (see Allonby at para 29). Although in some cases it is possible to make deductions or even assumptions by reading between the lines of a decision that an appropriately rigorous approach has been carried out, in our judgment it is not possible in this case.

(3) Misstatement of the evidence

35. In paragraph 28 of the Decision the Employment Tribunal states:

"The Respondents also accepted in their evidence at the Tribunal that there were other models that could have been used to measure and reward experience."

This was repeated in a different form in paragraph 29:

"If relevant experience had to be compensated the Respondents themselves admitted that it was possible to devise a system which could measure and evaluate added value gained by service within a grade or within the organisation."

And in paragraph 31:

"The Respondents admitted that they could measure and reward experience in a method that was measured, quantified and therefore transparent."

Mr. Underhill submits that these passages misrepresent the evidence and that there was no such admission. We have the benefit of the Chairman's notes of evidence from the Employment Tribunal. The only relevant witness on this issue was Mr. Scott who was called on behalf of the HSE. In the relevant passage the only concession that he made was that such alternatives were possible "in theory". He added:

"In my opinion judgments about value are not easily resolvable in the system you outline."

Read as a whole, the passage does not justify the representation of it at the three places in the decision of the Employment Appeal Tribunal to which we have referred. We agree with Mr. Underhill when he says that the only fair interpretation of the passage is that Mr. Scott was not accepting what was being put to him by counsel for Mrs. Cadman. Significantly, Ms Gill did not reply to Mr. Underhill's submission on this point.

(4) The legacy of the previous system

36. In its decision the Employment Tribunal made repeated references to the HSE having sought to justify the differential on a purely "historical" basis. In paragraph 28 it stated:

"The reasons given for this differential were historical in that they reflected the previous incremental, and probably discriminatory, pay system."

In paragraph 29 it added:

"At no stage in the documentation …had the Respondents identified the need to find some element in the continuing pay scales to reflect that historical aspect of service within the band and the organisation ….What the Respondents had done was, when confronted with pay inequalities, looked for something to justify it and identified the only historical factor that existed in the new pay structure and that was the historical aspect of the incremental pay system linked to service."

This now attracts the complaint that the Employment Tribunal did not do justice to the HSE's real case, which was that the presence of length of service as a factor in the structure was justified throughout the relevant history, before and after 1992 and 1995, and that, albeit in a different form, length of service continues to be used up to the present time as a factor in the pay structure, not only in the sense that those who had benefited from it prior to 1995 retain the increases in pay which they had received under the old system, but also in the sense that the award of annual increments over and above inflation each year, although now calculated in differing amounts dependent on performance, is of itself a continuing recognition of length of service. It rewards the continuing accumulation of experience which length of service brings.

37. The Employment Appeal Tribunal concluded that the Employment Tribunal had fallen into legal error in this way. It said (at para 121):

"…..in approaching [HSE's] defence of justification on the basis that the reasons given for the differential were historical only…the Tribunal failed to appreciate and consider the continuing effect of length of service as a factor in levels of pay on a year by year basis in the case of every band 2 inspector (whatever his or her pre-1992 or pre-1995 experience) and failed to consider the difficulties of eliminating the pre-1995 differentials at a stroke or more quickly. In so doing the Tribunal omitted to consider particularly important matters; and in our judgment these omissions further vitiate the Tribunal's conclusions as to [HSE's] defence of objective justification. "

In our judgment, the Employment Appeal Tribunal was correct in identifying this error of approach. There is no doubt that the HSE had sought to justify its pay systems throughout the changing phases. One factor – and, in our view, inevitably an important factor - was the treatment of existing differentials at points of change and subsequently. The difficulties of elimination referred to by the Employment Appeal Tribunal can be profound. The Employment Tribunal simply did not do justice to the HSE's case in this regard.

(5) Individual justification

38. We have already set out paragraph 31 of the decision of the Employment Tribunal. The context is that it forms part of the decision in which the Employment Tribunal was comparing the positions of Mrs. Cadman and H. Mr. Underhill submits that such an individualised comparison is misconceived. It ignores the group or collective nature of the justification, which related to the entire pay policy or system. What the employer is seeking to justify is the appropriateness of the pay system as a whole. The Employment Appeal Tribunal chose not to deal with this ground of appeal. We do not find it persuasive. Section 1(2) of the Equal Pay Act focuses on "a contract under which a woman is employed", "where the woman is employed on work rated as equivalent with that of a man in the same employment". The investigation required under the Act is necessarily related to the pay of the woman and that of relevant male comparators. Here there were four named comparators of whom one, H, was particularly relevant. What is in issue is not simply a pay policy but how that policy impacts on individual employees. We do not consider that the Employment Tribunal fell into legal error in the manner that is here suggested.

Conclusion on justification

39. Throughout this appraisal of the decision of the Employment Tribunal on the issue of justification it has been important to keep two things in mind. The first is that one must not succumb to the temptation to substitute one's own view for that of the Tribunal. The second is encapsulated in the well known words of Sedley LJ in Anya v. University of Oxford [2001] ICR 847 (at paragraph 26):

"The Courts have repeatedly told Appellants that it is not acceptable to comb through a set of reasons for hints of error or fragments of mistake, and to try to assemble these into a case for oversetting the decision. No more is it acceptable to comb through a patently deficient decision for signs of the missing elements, and to try to amplify these by argument into an adequate set of reasons. Just as the Courts will not interfere with a decision, whatever its incidental flaws, which has covered the correct ground and answered the right questions, so they should not uphold a decision which has failed in this basic task, whatever its other virtues."

In our judgment the points covered under the first four sub-headings above are sufficient to vitiate the decision of the Employment Tribunal on the issue of justification. We are not persuaded that the Employment Tribunal "covered the correct ground and answered the right questions". It misdirected itself as to the law, misunderstood an important passage of evidence and failed to do justice to the way in which the HSE's case had been put. This is not to say that it necessarily reached the wrong conclusion. We agree with the Employment Appeal Tribunal that, should the Danfoss issue ultimately be resolved in favour of Mrs. Cadman, the appropriate course will be for the case to be remitted to a differently constituted Employment Tribunal so that the issue of justification can be reheard.

Conclusion

40. It follows from what we have said that, in our judgment, Mrs. Cadman's appeal succeeds to the extent that a reference of the Danfoss issue to the Court of Justice under Article 234 is appropriate. If, in due course, that issue is resolved in favour of Mrs. Cadman, we would dismiss her appeal on the second issue and remit the matter to the Employment Tribunal in the manner described by the Employment Appeal Tribunal.
41. It will not be necessary for there to be any attendance by counsel on the occasion of the handing down of this judgment. Any ancillary orders, if not agreed, will be considered when the Court reconvenes to consider and approve the terms of reference.