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 (MR JUSTICE MITTING)
UKEAT/0321/04/SM

		Royal Courts of Justice Strand, London, WC2A 2LL
		17 June 2005

Lord Justice Maurice Kay :

1. This appeal is the tip of a litigation iceberg in which large numbers of the female employees of Redcar and Cleveland Borough Council (the Council) are pursuing equal pay claims against their employer. The appellants are a representative sample of one group of about 140 women and the appeal is concerned with just one aspect of their claims. There are other interlocking sets of equal pay proceedings brought by other female employees. The appeal is against an order of the Employment Appeal Tribunal (Mr Justice Mitting, Mr P Smith and Mr P A L Parker CBE) which on 27 July 2004 allowed the appeal of the Council against the decision of an employment tribunal. In this court, the appellants are seeking to reinstate the decision of the employment tribunal.
2. The factual matrix is as follows. The appellants are women employed respectively as a cleaner, a supervisory cleaner and a supervisory assistant in schools together with a home help in social services. They brought equal pay claims seeking to compare their position with those of gardeners, refuse workers and drivers and road workers. It is accepted by the Council that all the male comparators were employed on work rated as equivalent and in respect of which the same basic hourly rate applied. However, the male comparators received other sums on differential bases. The gardeners received a fixed bonus of 40%. The refuse workers and drivers received a 36% bonus and an attendance allowance of between £33.81 and £34.88 per week. The road workers received a fixed bonus of 33% and an attendance allowance of between £13.91 and £14.61 per week. Typically, these differences had developed piecemeal and in response to different circumstances. The groups receiving attendance allowances were ones historically afflicted by higher rates of absenteeism. Each of the appellants worked part-time and was paid solely on the basis of the hourly rate.
3. The employment tribunal held that each of the appellants was entitled to compare herself with the relevant male comparator most advantageous to her for the purpose of the bonus element of his pay and with the most advantageous comparator for the purpose of the attendance allowance element. In this way, Mrs Johnson, for example, was entitled to the gardeners' term as to bonus which resulted in a 40% increase and she was also entitled to the refuse workers' attendance allowance at the rate of £33.81 per week. As a result of that decision her entitlements resulted in her receiving total remuneration greater than that of any of the male comparators. The employment tribunal referred to the "same subject matter" test derived from the decision of the House of Lords in Hayward v. Cammell Laird Shipbuilders (No.2) [1988] ICR 464. It decided (at para 16):

"Applying the 'same subject matter' test we decided that the terms relating to the basic pay and to the bonus payments in the relevant comparators' contracts related to the same subject matter, but not the terms of the attendance allowance. Our reasons for that conclusion were as follows:

……

(b) the basis of calculation of the attendance allowance was different. The basic pay and the bonus are based on the proposition that the comparator works throughout the shift and until the end of the shift. Both are calculated on the number of hours of work attended. The attendance allowance is different. It only requires the worker to turn up for work, but not to attend throughout the shift. It was thus not calculated on an hourly rate. If a comparator failed to turn up, but gave an explanation in accordance with the respondent's rules, e.g. in time and in accordance with the sickness rules, he would lose his attendance allowance but only for that day or for as long as he remained on the sick. If his absence was, however, unauthorised, he would lose his attendance allowance for the whole of the week. The fact that the comparator's holiday pay, for four or more weeks of the year, incorporated an attendance allowance element on the fiction that the comparator attended work during his holidays was not sufficient to displace the contention that the attendance allowance was not based upon the comparator's hourly rate of pay. It was based entirely upon the proposition that the comparator attended work daily but not throughout his shift."

4. The decision of the employment tribunal in relation to the bonus payments was not challenged in the Employment Appeal Tribunal. In the light of that decision the Council accepts that the bonus payments are fixed and are to be treated as part of the standard rate of pay for basic hours, with no distinction between the hourly rate and the fixed bonus added to it.
5. The Employment Appeal Tribunal took a different view of the attendance allowance. To understand the two approaches, it is necessary to set out section 1 of the Equal Pay Act 1970 and what was decided in Hayward v. Cammell Laird.
6. Section 1 provides:

"(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."

7. The circumstances in Hayward v Cammell Laird were that the women and the male comparators received different rates of basic and overtime pay but, whilst these were disadvantageous to the women, there were other respects in which their terms were more favourable. They enjoyed a paid meal break of 30 minutes each day valued by the employer at £18 per week. They received an additional two days' holiday a year, valued at 71p. per week. They also enjoyed better sickness benefits, valued by the employer at £16.95 per week. The employer sought to maintain a "swings and roundabout" approach, suggesting that the disadvantages in respect of basic and overtime pay were compensated by the preferential benefits. The House of Lords rejected that approach. The speeches of Lord Mackay and Lord Goff of Cheveley are instructive.
8. Lord Mackay said (at pages 470F – 471E):

"The issue is whether in terms of the Equal Pay Act 1970…..the woman who can point to a term of her contract which is less favourable than a term of a similar kind in the man's contract is entitled to have that term made not less favourable irrespective of whether she is as favourably treated as the man when the whole of her contract and the whole of the his contract are considered, as the appellant submits, or whether, although she shows that a particular term of her contract is less favourable to her than a term of a similar kind in the man's contract, her claim cannot nevertheless be defeated if it is shown that the terms of her contract considered as a whole are not less favourable to her than the terms of the man's contract considered as a whole, as the respondents submit.

No authority dealing with this question was referred to in the argument before your Lordships. There is no definition of the word 'term" in the legislation. In that situation I am of the opinion that the natural meaning of the word 'term' in this context is a distinct provision or part of the contract which has sufficient content to make it possible to compare it from the point of view of the benefits it confers with similar provisions or part in another contract. For example, Miss Hayward was employed on her accepting terms set out in a letter to her from the respondents which includes the following:

'We can offer you a position on our staff as a cook at a salary of £5165 per annum. The base rate on which overtime is based is £4741….'

There is a provision in the letter setting out the normal hours of work, providing that the overtime payment shall be plain time plus a third (two thirds on Saturday and Sunday).

The corresponding provision with regard to basic pay in the men's contract is less specific and refers to a national agreement from which the rate of wages to be paid weekly in arrears is to be determined. Overtime payments are to be determined also in accordance with the national agreement.

It appears to me that it would be natural to compare the appellant's basic salary as set out in her contract with the basic salary determined under the men's contracts. I think it would be natural to treat the provision relating to basic pay as a term in each of the contract.

However, one has to take account of the hours to be worked in order to earn this money and I think this consideration points to the importance to the provision in question being one which is capable of being compared from the point of view of the benefit it confers with a corresponding provision in another contract to see whether or not it is more beneficial than that provision. Accordingly I am of opinion that the natural application of the word 'term' to this contract is that it applies, for example, to the basic pay, and that the appropriate comparison is with the hourly rate of basic pay."

9. Lord Goff said (at pages 477 E-F and 478 B-E):

"If a contract contains provisions relating to (1) basic pay, (2) benefits in kind such as the use of a car, (3) cash bonuses, and (4) sickness benefits, it would never occur to me to lump all these together as one 'term' of the contract, simply because they can all together be considered as providing for the total 'remuneration' for the services to be performed under the contract. In truth, these would include a number of different terms; and in my opinion it does unacceptable violence to the words of the statute to construe the word 'term' in sub paragraph (ii) as embracing collectively all these different terms…..I do not consider that the words 'a term of a similar kind' are capable of constituting a basis for building the construction of the word 'term' favoured by the Court of Appeal. Again, in my opinion, the words mean precisely what they say. You look at the two contracts, you ask yourself the common sense question – is there in each contract a term of a similar kind, i.e. a term making a comparable provision for the same subject matter; if there is, then you compare the two, and if, on that comparison, the terms of the woman's contract proves to be less favourable than the term of the man's contract, then the term in the woman's contract is to be treated as modified so as to make it not less favourable. I am, of course, much fortified in this approach in that appears to me to be consistent with the only construction of sub-paragraph (ii), concerned with the case of the absent term, which I find to be acceptable. But, in addition, I feel that the Court of Appeal's attempt to introduce the element of overall comparison placed them firmly or rather infirmly, upon a slippery slope; because, once they departed from the natural and ordinary meaning of the word 'term', they in reality found it impossible to control the ambit of the comparison which they considered to be required. For almost any, indeed perhaps any, benefit will fall within 'pay' in the very wide sense favoured by them, in which event it is difficult to segregate any sensible meaning of the word 'term'."

It can be seen that the source of the "same subject-matter" test purportedly applied by the employment tribunal in the present case is that passage from the speech from Lord Goff. In this way, basic pay and bonus payments were of "the same subject-matter", but the attendance allowance was considered to be a different matter and, being part of the men's entitlement but not the women's, required additional equalisation.

10. The Employment Appeal Tribunal extrapolated a number of propositions from Hayward v Cammell Laird. On the crucial question of the meaning of "term" in section 1(2) of the Equal Pay Act, it repeated the words of Lord Mackay –

"… a distinct provision or part of the contract which has sufficient content to make it possible to compare it from the point of view of the benefits it confers with a similar provision or part in another contract,"

and Lord Goff –

"… a term making a comparable provision for the same subject-matter."

It rejected a submission that any provision dealing with any element of remuneration is to be treated as a separate term for purposes of comparison. It said (at para 25-26):

"We have reached the view that the relevant term can be precisely defined as:

'Provision for monetary payment for the performance of the contract by employees during normal working hours.'

Thus defined, the term satisfies the test propounded by Lord Mackay and Lord Goff. It is a distinct part of the contract, with sufficient content to make it possible to compare it with a similar part of another contract."

11. The Employment Appeal Tribunal then addressed the attendance allowance. It considered that the employment tribunal had been in error in concluding that it related to a different subject-matter: the difference merely related to the basis of calculation, not the underlying subject-matter. It added (at para 28):

"Our view is that it does relate to the same subject-matter as basic hourly pay and the bonus and is an element of a distinct part of the contract and not itself a distinct part. It is part of the monetary payment for performance of the contract, by attending at work and working during normal working hours. The fact that it can on occasion be paid to a man who leaves soon after he attends work does not make it any less so, nor does the fact that it is not paid for a day on which the employee is absent from work with authority, because attendance at work and performance of such work is the obligation in respect of which it, like the basic hourly pay and the bonus, is paid; nor does the fact that the employee loses the attendance allowance for the whole of the week, if his absence on one day is unauthorised. It simply affects the amount of monetary pay receivable in the affected week, and in theory, though not surely in practice, means that the value of the attendance allowance to male employees may be fractionally less for the purpose of comparison than the full weekly rate."

12. I have set out this passage at length because I cannot improve on its lucidity and because I am wholly persuaded that it is correct. What are the arguments to the contrary? First, Miss Gill submits that, far from being consonant with Hayward v Cammell Laird, the approach of the Employment Appeal Tribunal is inconsistent with it. I do not accept this submission. The Employment Appeal Tribunal did not (to use Lord Goff's words) "lump together" or engage in "overall comparison" of different terms. Rather it applied its collective mind to the reality of the contractual provisions in the circumstances of the particular case and analysed them. I do not understand Lord Goff to have considered that, for example, basic pay and cash bonuses are always and forever dissimilar provisions. Indeed, it is common ground in the present case that the bonus payments are to be treated as part of basic pay. What the Employment Appeal Tribunal decided was that the employment tribunal had fallen into error when finding functional and conceptual differences between basic pay and the attendance allowance. As I have indicated, I am at one with the Employment Appeal Tribunal on this issue. Secondly, Miss Gill submits that the reasoning of the Employment Appeal Tribunal is flawed because it is founded upon a "manufactured" classification, namely "provision for monetary payment for the performance of the contract by employers during normal working hours". However, section 1 of the Act and Hayward v Cammell Laird necessitate classification. If the submission is that the classification deployed by the Employment Appeal Tribunal is "manufactured" in the sense of "artificial", I disagree. In my judgment it is a realistic classification based on careful analysis. Thirdly, it is suggested that the Council has chosen to fight the wrong battle. Instead of engaging in a dispute of this kind, it ought to have conceded the differences and sought to justify them under section 1(3). However, whether or not differences would be so justifiable, the structure of section 1 requires the prior process of analysis and classification of the respective contractual provisions.
13. Fourthly, Miss Gill seeks to rely on decisions of the European Court of Justice to support a submission that the approach of the Employment Appeal Tribunal in the present case ignores the transparency which is necessary in the formulation and subsequent analysis of contractual terms. She cites Danfoss [1991] ICR 74 and Barber v Guardian Royal Exchange Assurance [1990] ICR 616 in which the Court said (at para 28):

"It follows that genuine transparency, permitting an effective review, is assured only if the principle of equal pay applies to each of the elements of remuneration granted to man or woman."

All this informed the decision of the House of Lords in Hayward v Cammell Laird. In particular it explains the rejection of the totality or "swings and roundabouts" approach. It requires the analysis to which I have referred but, as the Employment Appeal Tribunal pointed out (at para 26), its approach to the present case

"… satisfies the principle of transparency; it is no more difficult to analyse and compare than the more limited terms for which [the appellants] contend."

I agree, just as I have already indicated my agreement with the analysis of the Employment Appeal Tribunal in the long extract set out in paragraph 34 of its judgment.

14. Thus, whilst acknowledging the ingenuity of Miss Gill's submissions, I am satisfied that the approach of the Employment Appeal Tribunal was rigorous and correct. I consider it to be entirely consistent with the principles propounded in Hayward v Cammell Laird and the European authorities. Moreover, it has the desirable result that it will facilitate what was intended by the Equal Pay Act, namely equalisation, rather than the upward movement of the women's rate of monetary pay to a level higher than that of any single male comparator. The result is, as the Employment Appeal Tribunal put it (at para 30):

"All monetary payments received by male comparators for normal working hours should be aggregated and divided by the number of hours in the working week, to give an hourly rate; if it is greater, the woman's hourly rate should be increased to eliminate the difference."

That is equal pay writ large. The Employment Appeal Tribunal commented that the approval for which the appellants contend would impose an inequitable burden on council tax payers and general tax payers. Miss Gill makes some gentle criticism of that passage on the basis that it is an irrelevant matter in the context of the interpretation and application of the words of the statute. However, it seems to me that, read in its context, it was a comment expressing relief about the consequences of the decision rather than the reason or one of the reasons for the decision, which had been fully and clearly explained in the preceding part of the judgment.

15. In the skeleton argument which accompanied the appellant's notice, the author (not Miss Gill, who did not appear before the Employment Appeal Tribunal) raised a number of other issues. As I understand it, they are no longer relied upon. I shall say no more about them except to say that I can well understand why they are no longer relied upon.
16. I would dismiss these appeals.

Lord Justice Dyson

17. I agree.

: Lord Justice Buxton:

18. I also agree.