United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR PAUL FALLON (Solicitor) City Law Financial LLP Solicitors 1 King's Arms Yard London EC2R 7AF
For the Respondent	MR PAUL EPSTEIN (One of Her Majesty's Counsel) & MR OLIVER ISAACS (of Counsel) Instructed by: Messrs Berry Smith LLP 1 Northumberland Avenue Trafalgar Square London WC2N 5BW


 


SUMMARY

EQUAL PAY ACT

SEX DISCRIMINATION – Jurisdiction

Whether allocation of share options, which differed between Claimant and her male comparator, gave rise to a claim under the Equal Pay Act 1970 or Sex Discrimination Act 1975 (see SDA s6(6)). On the facts found, the scheme being truly discretionary, the claim fell under the SDA. Since that claim was time-barred the employer's appeal against the Employment Tribunal award under the Equal Pay Act succeeded.


 


HIS HONOUR JUDGE PETER CLARK

1. The parties in this matter, which has been proceeding before the London Central Employment Tribunal, are Ms Hosso, Claimant, and European Credit Management Ltd, Respondent. By a Judgment with Reasons promulgated on 3 August 2009 the Employment Tribunal held, so far as is material, that the Claimant's complaint brought under the Equal Pay Act 1970 succeeded. She was awarded compensation totalling £34,542.36. Against the amount of compensation awarded the Claimant appeals (the remedy appeal); against the finding that the Equal Pay claim succeeded the Respondent cross-appeals (the liability appeal). With the consent of the parties we dealt first with the liability appeal, in which the critical issue is whether the claim brought in relation to the Respondent's share option scheme properly lay under the Equal Pay Act or the Sex Discrimination Act 1975 (SDA). That issue in turn depends upon the proper construction of s.6(6) SDA. If the claim is to be brought under the SDA it fails on a limitation point (Employment Tribunal Reasons para 8), not challenged by the Claimant on appeal.

The facts

2. The Employment Tribunal found the following material facts. The Respondent is a specialised fund management company founded in 1999. The Claimant commenced employment as a research analyst on 23 September 2002 under the terms of a contract of employment signed on 12 July 2002. She later became a Senior Research Analyst and assumed the title of Head of Financial Institutions and Emerging Market Research.
3. She received a fixed salary, starting at £95,000 p.a. and rising to £125,000 by the time of her resignation in 2007. She also received annual bonuses in December of each year of her employment in varying amounts. We are not concerned with bonus payments in these appeals.
4. In 2003 the Respondent company set up a share option scheme (the scheme). That scheme is not mentioned in her written contract of employment, which pre-dated the inception of the scheme. The Employment Tribunal found that share options were not dealt with in the same way as the bonuses. The principle that a bonus would be awarded was not discretionary, but the amount of the annual bonus was fixed by the Directors on the recommendation of heads of department. This was a private company in which the shareholding was originally owned by the 3 directors, Messrs Blakey, Zinger and Rumsey.
5. The allocation of share options was made by the directors out of their own shareholdings, without recommendation by the managers. The scheme was designed to retain staff, whereas the bonus system rewarded past performance.
6. We have been taken to the terms of the scheme. Under para 3 Grant of Options, para 3(1)(a) provides:

"Subject to …. and subject to these Rules, the Board, acting for and on behalf of [the company], may grant any eligible employee an option over such number of shares at such option price and with such conditions of exercise as they may determine."

7. The Claimant was an eligible employee under the scheme rules. She was granted share options for each year in which the scheme operated between 2003 and 2006, but not as many shares as her relevant male comparator, Mr Apsbury. It is that difference in share options allocated which forms the basis of her claim. The liability question is whether that claim arises under the Equal Pay Act or the SDA. The further question as to the basis on which loss is to be assessed falls to be determined in the remedy appeal, subject to the liability appeal.

The law

8. Section 6(6) SDA provides:

"Subsection (2) does not apply to any provision for the payment of money when the provision of those benefits is regulated by the woman's contract of employment."

Sub-section (2) renders it unlawful for an employer to discriminate against a woman employee in the way he affords her access to opportunities for promotion, etc or any other benefits, or by refusing or deliberately omitting to afford her access to them.

9. As Mr Paul Epstein QC, appearing for the Respondent correctly put it, there are no cracks between the SDA and Equal Pay Act protection. If the present claim cannot be brought under the Equal Pay Act, then it may be brought under the SDA, subject to the limitation bar.
10. Section 6(6) SDA was considered by the Employment Appeal Tribunal (Bean J presiding) in Hoyland v Asda Stores [2005] IRLR 438; upheld on appeal by the Court of Session [2006] IRLR 468.
11. Hoyland was concerned with a complaint by the female claimant that she had not received her full bonus entitlement during a period of maternity leave. An Employment Tribunal found that her claim was excluded from the SDA jurisdiction by virtue of s6(6). She had not brought her claim in the alternative under the Equal Pay Act.
12. It was argued by the claimant on appeal before the EAT that the bonus was discretionary and non-contractual. However, the EAT (para 12) referred to the Employment Tribunal finding of fact that the decision as to whether the claimant should receive her bonus in full (she received a reduced bonus) was regulated by the bonus scheme. If she complied with the rules of the scheme she was entitled to be paid the bonus. This was not a matter left to the discretion of the respondent employer.
13. Relying on that finding of fact, the EAT held that the claim fell four square within s6(6); para 23. It was not an SDA claim.
14. In upholding the judgments below Lord Johnston, at para 14 of the Court of Session judgment, opined that the important word in s6(6) is 'regulated'. We respectfully agree. He continued:

"While we recognise that the word 'discretionary' is used by the employer in referring to the bonus scheme, that can be construed as relating only to the amount being paid in any one year and we recognise that the tribunal found, as a matter of fact, that every employee received a bonus. We have no doubt that that entitlement, if it be such in law, arose out of the contract of employment and is regulated by it in the sense that but for the existence of the contract of employment the bonus would not be paid and it is therefore being paid as a consequence of its very existence."

The Employment Tribunal decision

15. At para 6.2 of their Reasons the Employment Tribunal directed themselves as to the effect of Hoyland in this way:

"In that case although the employer referred to its bonus scheme as discretionary it was held on the facts that the entitlement to a bonus was regulated by the contract in the sense that but for the existence of the contract of employment the bonus would not be paid. It was paid as a result of the contract's very existence."

16. Later, at para 6.3 they add this:

"In relation to the question of regulation under the contract, genuinely discretionary elements of pay will not be covered by the terms of the Equal Pay Act as they cannot be said to be regulated by the contract. However, we have already referred to the decision in Hoyland v Asda Stores on the question of whether a system which is said to be discretionary will be considered to be so on the facts of the case."

17. In finding that the allocation of share options under the scheme gave rise to a claim under the Equal Pay Act, having been excluded from SDA jurisdiction by virtue of s6(6), the Employment Tribunal said this at paras 10-11:

"10. We accept moreover that share options which have a monetary value and are intended to recognise the staff adding value to the company can be considered as deferred pay in relation to the amount earned when the shares covered by the options are sold. In our view the position is not dissimilar from considering pensions as deferred pay. It is not wrong in our view to allow a claim to be brought under the Equal Pay Act in those circumstances.

11. We also accept that this is not an entirely discretionary arrangement which removes the case from the ambit of the Equal Pay Act on the basis that it is an entirely non contractual provision. We have noted Mr Blakey's explanation of the 'discretionary' nature of the bonus scheme and the way the share options operated are to be considered contractual in our view in the circumstances of this particular case. We have had regard to the decision in Hoyland-v-Asda."

The liability appeal

18. This appeal revolves around the proper construction of s6(6) SDA and its application to the facts of this case.
19. Mr Epstein advances the following submissions in support of the Respondent's appeal. First, he submits that the Employment Tribunal correctly directed themselves, at para 6.3, that genuinely discretionary payments will not be covered by the terms of the Equal Pay Act. Yet on their findings of fact this was a wholly discretionary scheme. The scheme rules do not provide for any circumstances in which the allocation of share options is pre-determined by the rules, unlike the factual finding in Hoyland. On the facts, the scheme was genuinely discretionary and therefore the s6(6) exclusion was not engaged.
20. Secondly, there is no factual finding that the grant of options was contractual. The scheme post-dates the Claimant's written contract of employment; there is no express variation of the contract; nor is there a finding that such a term is to be implied.
21. Thirdly, the Employment Tribunal has misunderstood the rationale in Hoyland. It was not that the Asda bonus scheme was regulated by the contract simply because its existence depended on the claimant's contract of employment, but because in fact that scheme was non-discretionary; entitlement was determined by the scheme, as was eligibility to benefit under it.
22. In response, Mr Fallon contends that share options amount to deferred pay for the purposes of the Equal Pay Act, just as pension entitlement is deferred pay; see Barber v GRE [1990] ICR 616. He argues that the question as to whether or not the allocation of share options is discretionary is not the issue here. He relies particularly on the precise words used by Lord Johnston in Hoyland at para 14:

"We have no doubt that that entitlement [of every employee to a set bonus] …arose out of the contract of employment and is regulated by it in the sense that but for the existence of the contract of employment the bonus would not be paid and it is therefore being paid as a consequence of its very existence."

23. In Mr Fallon's memorable observation, drawing on an old adage, "if Lord Diplock said it Lord Diplock meant it"; the same must be applied to the words of Lord Johnston and the passage cited is authority (not strictly binding, but worthy of the highest respect in this EAT) for the proposition which is here advanced on behalf of the Claimant; namely that she was only entitled to take advantage of the share option scheme by virtue of her eligibility as a selected employee of the Respondent and thus the contract of employment regulated that benefit.
24. We prefer the submissions of Mr Epstein. Our reasoning is as follows. Assuming in the Claimant's favour that the allocation of share options is a benefit, with a monetary value, amounting to deferred pay provided to the Claimant by virtue of her eligibility for the scheme as a result of her employment with the Respondent, the question still remains whether the provision of that benefit is regulated by her contract of employment. In that respect her case fails on two grounds, each of which is fatal to her contention that this claim is properly brought under the Equal Pay Act. First, the share option scheme was not, on the Employment Tribunal's findings of fact, incorporated into the Claimant's contract of employment. However, even if it was so incorporated, the scheme was genuinely discretionary as to the number of shares; if any, which the relevant director decided to allocate to her in any one year. The position here is wholly different from the bonus scheme in Hoyland. There, the facts found by the Employment Tribunal, recited at para 12 of the judgment of Bean J, indicate a clear entitlement to a fixed amount by way of bonus for all eligible employees, including the claimant. That is not the case here. On this Employment Tribunal's findings this was a wholly discretionary scheme. We agree with the Employment Tribunal's statement of the law at para 6.3 of their Reasons. This was a genuinely discretionary element of 'pay' which was not covered by the Equal Pay Act, since it was not, on any view, regulated by the contract of employment.

Disposal

25. It follows that we allow the Respondent's cross-appeal and set aside the Employment Tribunal's finding that the Equal Pay Act claim succeeds. That claim is dismissed.
26. It also follows that the Claimant's remedy appeal against the Employment Tribunal's award made in respect of that finding necessarily fails, since the liability finding has been set aside. We therefore formally dismiss the Claimant's appeal without consideration of its merits and without hearing argument on that aspect of the case.