England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
(MRS JUSTICE COX)
REF: UKEAT007410CEA, BAILII: [2010] UKEAT 0074_10_0608

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/07/2011

Lord Justice Maurice Kay :

1. In this case, female employees, with higher earnings than their proffered male comparators, are pursing claims under the Equal Pay Act 1970 on the basis that terms in their contracts of employment relating to the working of unsocial hours within their normal working week are less favourable to them than terms of a similar kind in the contracts of their male comparators. Their claims have not been finally determined. As with many equal pay cases, there are issues as to the appropriateness of the proffered comparators and as to whether the employer may have a "genuine material factor" defence. However, no doubt mindful of the duration and complexity of equal pay cases, directions were given in the Employment Tribunal for the determination of the preliminary issue as to whether there was a term in the women's contracts relating to unsocial hours which was less favourable than a similar term in the comparators' contracts. The Employment Tribunal resolved that issue in favour of the employer but in the Employment Appeal Tribunal, Cox J, sitting alone, allowed the female employees' appeal.
2. The employer is the St Helens and Knowsley Teaching Hospitals NHS Trust ("the Trust"). The female employees were at the material time healthcare assistants (Mrs Logan and Mrs Reece were Band 2 healthcare assistants and Mrs Hughes was a senior healthcare assistant on Band 3) or receptionists (Mrs Brownbill and Mrs Southern, who were both Band 2). When I refer to them collectively, I shall call them "the Claimants", although they are respondents in this Court. In the cases of those on Band 2, the proffered male comparators are drivers, driver/porters or car park attendants. In the case of Mrs Hughes, the proffered male comparator is a theatre porter. All the claims relate to the time before NHS pay was restructured pursuant to Agenda for Change which came into effect on 1 October 2004. Until then, the healthcare assistants, who were predominantly women, had pay and conditions which were established at a collective level by the Nursing and Midwifery Whitley Council. The receptionists, who were also predominantly women were employed pursuant to locally negotiated terms and conditions. As for the proffered comparators, parking attendants came under Whitley Council arrangements but the remainder had locally negotiated terms and conditions. Although our concern is with the five Claimants, we are told that there are hundreds of similar cases pending in the Employment Tribunals. They involve thousands of claimants and raise cognate issues.

The terms of the Claimants' and the comparators' contracts

3. The hospital in question is a 24/7 undertaking. It was normal for the Claimants to work either at the weekends (Mrs Logan, Mrs Reece and Mrs Hughes) or at nights and unsocial hours (Mrs Brownbill and Mrs Southern), although Mrs Reece and Mrs Brownbill ceased to do so in spring 2002. For Saturdays, Mrs Logan, Mrs Reece and Mrs Hughes were paid time and a third. For Sundays, they were paid time and two thirds. Mrs Brownbill and Mrs Southern received 115% of the basic hourly rate for unsocial hours and 125% of the hourly rate for Sundays.
4. As for the male comparators, the drivers, porter/drivers, theatre porters and car park attendants received time and a half for Saturdays and double time for Sundays. For unsocial hours, they received 120% of the basic hourly rate and for nights 133%.
5. The basic hourly rate applicable to the Claimants, which differed as between Claimants, was in all cases higher than that applicable to the male comparators. This is why, with one exception, the Claimants actually received more than the male comparators. The one exception was Mrs Hughes who received slightly less than her theatre porter comparator when her modestly higher basic hourly rate was supplemented by her lower enhancement for Saturday and Sunday working.
6. For purposes of presentation, counsel have helpfully illustrated the effects of the differential rates and enhancements in a series of spreadsheets and an agreed chart. It is not necessary for me to repeat more of their contents in this judgment because the issue we have to decide is one of law, there being no dispute about the calculations. On behalf of the Trust, Mr John Bowers QC acknowledges that if the Trust were to succeed on the legal issue, it may still be that Mrs Hughes could point to a material inequality, subject of course to her ultimately establishing the appropriateness of the comparators and the Trust failing to establish its "genuine material factor" defence.

The statutory provisions

7. The starting point is section 1 of the Equal Pay Act 1970, as amended. As this is a "work of equal value" claim, the relevant provisions are as follows:

"1(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 there 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 –

…

(c) where a woman is employed in work which, not being work in relation to which paragraph (a) or (b) above applies, is, in terms of the demands made on her (for instance under such headings as effort, skill and decision), of equal value to that of 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 the man is employed, the 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 the 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."

8. Thus, sub-paragraph (i) is concerned with a comparison between a term in the woman's contract with a term of a similar kind in the man's contract, whereas sub-paragraph (ii) is concerned with the situation where the woman's contract has an "absent term". This case concerns a sub-paragraph (i) situation, but the authorities on its construction have drawn on the text of sub-paragraph (ii). Paragraphs (a) and (b) referred to in paragraph (c) are concerned with "like work" and "work rated as equivalent" and do not apply to this case.

Hayward v Cammell Laird Shipbuilders Limited.

9. For present purposes Hayward [1988] AC 894 is the leading authority on the interpretation of this complex statutory provision. The issue was defined in the following terms by Lord Mackay of Clashfern LC (at page 900E):

"The issue is whether in terms of the Equal Pay Act 1970, as amended, 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 his contract are considered … "

Addressing the meaning of "term" in this context, he said:

"… 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 provision or part in another contract."

10. In Hayward, the woman and her male comparators had different terms relating to both basic pay and the calculation of overtime, hers being more specific than theirs which referred to a national agreement. Lord Mackay concluded (at page 901D) that the natural application of the word "term" in that context was that it applied "for example, to the basic pay, and that the appropriate comparison is with the hourly rate of basic pay".
11. Lord Goff of Chievely reached the same conclusion by way of a slightly different route. His conclusion was expressed in these passages (at pages 907C – 908B):

"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' … as embracing collectively all these different terms …

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, ie 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 term 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."

12. The other three members of the Appellate Committee expressed agreement with the speeches of both Lord Mackay and Lord Goff. The slightly different or more expansive route whereby Lord Goff reached his conclusion involved testing the application of the statutory provision in the "absent term" context of section 1(2)(b)(ii), in relation to which the alternative analysis would break down.

Degnan v Redcar and Cleveland Borough Council

13. In Degnan [2005] EWCA Civ 726, [2005] IRLR 615, the women received the same basic hourly rate as their male comparators. However, the men also received additional bonuses and attendance allowances which were not paid to the women. The appeal to this Court was concerned with the attendance allowance. Whereas the Employment Tribunal had concluded that it related to a different subject-matter from the basic hourly rate, the Employment Appeal Tribunal and this Court disagreed. In the EAT, Mitting J said (at paragraph 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."

14. This Court agreed. In a judgment with which Dyson and Buxton LJJ agreed, I said (at paragraph 12):

"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."

15. This passage followed detailed consideration of the speeches in Hayward. It did not, and was not intended to, give rise to an exception to the principle in Hayward. As paragraph 12 made clear, it was concerned with the application of Hayward to "the reality of the contractual provisions in the circumstances of the particular case". Those circumstances included the fact that, when the men's terms had been negotiated, there had been a history of bargaining devices and artefacts that tended to conceal the reality of the pay elements. This was not an uncommon phenomenon. It is interesting to observe that, in the Equal Pay: Statutory Code of Practice issued by the Equality and Human Rights Commission under the Equality Act 2010, the point is made (at paragraph 164):

"A number of common pay practices … pose risks in terms of potential non-compliance with an employer's legal obligations:

…

Different non-basic pay, terms and conditions for different groups of employees (for example, attendance allowances, overtime or unsocial hours payments)."

16. In other words, historical anomalies may be a trap for the unwary. In the present appeal, the case for the Trust is that this is a Degnan case.

The decision of the Employment Tribunal

17. The decision of the Employment Tribunal was expressed as follows:

"The term in the claimants' and comparators' contracts of employment for unsocial hours is a term relating to their respective basic pay allowing an increase in basic pay if each qualifies for an unsocial hours payment. The claimants are not able to rely on the comparators' formula for increase of basic pay for unsocial hours."

18. The reasoning included these passages:

"35. …There is a term in the claimants' and the comparators' contracts of employment which can be compared. Each of the terms are distinct provisions with sufficient content to make it possible to compare it with those of others so that the benefits that are conferred by the provision can be contrasted …

36. I am satisfied that the provision of the unsocial hours terms, both in the claimants' and the comparators' contracts, are provisions for monetary payment for the performance of the contract by the employee during normal working hours.

37. … I do not accept that it is permissible for the formula of the comparators' uplift to be transposed to the claimants. It would of course increase the difference between their pay and the comparators' pay even more … enhancements form part of their normal working hours and are part of their basic pay as the EAT and the Court of Appeal decided in Degnan."

Mr Bowers submits that this is a sustainable legal analysis.

The decision of the Employment Appeal Tribunal

19. In the Employment Appeal Tribunal, Cox J rejected the submission that this is a Degnan case. She observed, correctly, that Degnan turned on its own particular facts (at paragraph 75) and did not lay down, as a matter of general principle, "a broader, overall approach to comparison of remuneration terms to be applied in all cases" (at paragraph 78). She concluded that paragraph 35 of the decision of the Employment Tribunal contained a clear finding that there were discrete terms in each of the contracts which were capable of being compared and that it had been an error of law for the Employment Tribunal to have failed to compare those terms in accordance with Hayward (paragraphs 84 and 85). Having been invited by the parties to substitute her own decision rather than remit to the Employment Tribunal, she said (at paragraph 91):

"The term of the contracts of these Claimants and their comparators, providing for payment of enhanced rates if unsociable hours are worked during normal working hours, is a discrete term of the contract and is capable of being compared for the purposes of section 1 of the Act."

She was untroubled by the fact that this might result in the women increasing the extent to which their ultimate pay exceeded that of the male comparators.

Discussion

20. I am entirely satisfied that the judgment of Cox J is correct. This is not a Degnan case. As I stated in paragraph 15, above, the men's terms in Degnan had features of artificiality and historical anomaly which tended to disguise the reality. The present case does not contain such features. Once the Employment Tribunal had correctly found that there were terms in the women's contracts and in the men's contracts that were susceptible to comparison and that each of the terms was a distinct provision with sufficient content to make it possible to compare them "so that the benefits that are conferred by the provision can be contrasted" (paragraph 35), it ought to have proceeded to compare them in accordance with Hayward.
21. This analysis is required by Hayward. It is also consistent with the thrust of the European jurisprudence on the effect of Article 157 of the Treaty on the Functioning of the European Union (formerly Article 141 of the Treaty Establishing the European Community and, before that, Article 119 of the Treaty of Rome) which requires each Member State to ensure that the principle of equal pay is applied and defines "pay" for this purpose as "the ordinary basic or minimum wage or salary and any other consideration, whether in each or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer". The Treaty has been supplemented by Directives, currently Directive 2006/54/EC on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation. Article 4 of the Directive provides:

"For the same work or for work to which equal value is attributed, direct and indirect discrimination on grounds of sex with regard to all aspects and conditions of remuneration shall be eliminated."

22. In Barber v Guardian Royal Exchange Assurance Group [1990] ICR 616, Advocate General Van Gerven said (at paragraph 46):

"… the question [posed by the reference] raises an additional problem, in so far as it suggests that, in the event of Article 119 being applicable, the principle of equal pay contained therein is not infringed provided that the total value of the benefits is the same, even though it is made up of components which differ according to sex but are mutually compensating. In my view the principle of equal pay implies equality at the level of each component of remuneration. If it were otherwise, the enforceability of that principle by the courts would be seriously jeopardized. The courts would then have to evaluate and compare the most diverse advantages which employers confer on their employees. That may call for a complex factual analysis which would not guarantee the equality of total pay as effectively as the equality of each component separately, which is easier to verify. I therefore suggest supplementing the answer given to the previous question as follows: the principle of equal pay implies equality at the level of each component of remuneration."

23. In its judgment, the Court of Justice emphasised (at paragraph 33) "the fundamental importance of transparency and, in particular, the possibility of a review by the national courts, in order to prevent and, if necessary, eliminate any discrimination based on sex", and concluded (at paragraph 34):

"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 men or women."

24. This approach was repeated in Jämställdhetombudsmannen v Orebro Läns Landsting [2001] ICR 249 (Judgment, paragraphs 43-45), Brunhofer v Bank der Öestreichischen Postsparkasse AG [2001] IRLR 571 (Judgment, paragraphs 33-40) and Elsner-Lakeberg v Land Nordrhein Westfalen [2005] IRLR 209 (Judgment, paragraphs 15-17). To the extent that the Court in Stadt Lengerich v Helwig and others [1995] IRLR 216 expressed itself differently – "there is unequal treatment wherever the overall pay of full-time employees is higher than that of part-time employees for the same number of hours worked on the basis of an employment relationship" (paragraph 26) – that has to be seen in its context and against the background of four later cases to which I have referred.
25. Both Hayward and the more recent European cases demonstrate that the focus of the law is upon equality of terms, not of total pay actually received. As Lord Goff went on to observe in Hayward (at page 908E), this may in some cases lead to "mutual enhancement or leap-frogging". However, the approach is now well-established and, as Ms Karon Monaghan QC points out, there has been no move to amend the statute in this respect in more than 2 decades since Hayward, notwithstanding numerous other amendments to the Equal Pay Act and the virtual re-enactment of it in the Equality Act 2010, Chapter 3 (which does not apply to the present case). The approach is a principled one. The Court of Justice has explained its policy rationale.

Conclusion

26. For all these reasons, I would dismiss the Trust's appeal. If there is no dissent from this conclusion, the case will be remitted to the Employment Tribunal in accordance with the order of the Employment Appeal Tribunal. Matters such as the appropriateness of the comparators and the genuine material factor defence under section 1(3) remain to be determined. I express no view upon them.

Lady Justice Hallett:

27. I agree.

Lord Justice Toulson:

28. I also agree.