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Cite as: [1998] 1 WLR 259, [1998] WLR 259, [1998] ICR 205, 1998 SLT 421, [1998] 1 All ER 394, 1998 GWD 4-181, 1998 SCLR 340, (1998) 95(7) LSG 31, 1998 SC (HL) 72, [1998] IRLR 146, [1998] UKHL 4

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Strathclyde Regional Council and Others v. Wallace and Others (Scotland) [1998] UKHL 4; [1998] 1 All ER 394; [1998] 1 WLR 259 (22nd January, 1998)

HOUSE OF LORDS

Lord Browne-Wilkinson Lord Steyn Lord Hoffmann
Lord Hope of Craighead Lord Clyde

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

STRATHCLYDE REGIONAL COUNCIL AND OTHERS
(RESPONDENTS)

v.

WALLACE AND OTHERS
(APPELLANTS) (SCOTLAND)

ON 22 JANUARY 1998

LORD BROWNE-WILKINSON

My Lords,

In this case the appellants, all of whom are unpromoted women teachers employed by the respondents, advance a claim to equal pay under the Equal Pay Act 1970. Their claim is based on the fact that, although they do the same work as a "principal teacher," they are paid at a lower rate. Each of the female applicants has selected a male comparator who is a principal teacher employed by the respondent and claims equality of pay with such comparator.

Section 1 of the Act of 1970 (as amended) provides, so far as relevant:

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

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

The appellants claim that they were doing "like work" to that done by the male comparators and are therefore entitled to the benefit of an equality clause giving them equal pay with their comparators. The respondents now concede that the appellants' work is like work. It follows that the appellants will be entitled to equal pay with principal teachers unless the respondents can establish a defence under subsection (3) of section 1, i.e. prove that the differences in pay are "genuinely due to a material factor which is not the difference of sex." The industrial tribunal and the Employment Appeal Tribunal held that the respondent employers had failed to establish a defence under subsection (3). The Second Division of the Court of Session (Lord Justice Clerk, Lord Weir and Lord Cowie) held, 1997 S.L.T. 315 that the respondents had established a subsection (3) defence. The whole appeal therefore depends on the circumstances relied on by the respondents as giving rise to a subsection (3) defence. I gratefully take the following account of the circumstances from the judgment of the Employment Appeal Tribunal.

The employers were originally the Strathclyde Regional Council as the education authority for the Strathclyde Region. Since the decision of the case in the industrial tribunal the functions of the Regional Council have been distributed amongst other authorities. However, for convenience, I will refer to the relevant authorities for the time being as "the respondents." As education authority the respondents are under a statutory duty to secure the adequate and sufficient provision of school education in Strathclyde Region and to have regard, in doing so, not only to the statutory provisions governing education in Scotland but to directions which they receive from the Scottish Office Education Department, and to national agreements with unions such as those contained in circulars issued by the Scottish Joint Negotiating Committee ("S.J.N.C.").

The structure of what are known as promoted posts in schools was laid down originally in the Schools (Scotland) Code 1956, and revised by a Scottish Office Education Department circular in 1972 and S.E.D. Staffing Standard in 1987. That structure permits the appointment of one head teacher in each school, with a number of lower grades of promoted posts, the number in each school depending upon a number of factors. The possible grades are deputy head teacher, assistant head teacher, principal teacher, assistant principal teacher, and senior teacher.

Equal pay for male and female teachers was established long before 1970 and teachers' conditions of service prohibit sex discrimination in employment. The method of appointment of teachers to promoted posts is subject to certain controls. The pay and conditions of service of teachers and promoted teachers are dealt with by the S.J.N.C., who issue circulars which, generally speaking and subject to a few exceptions, are binding on local authorities. The pay and conditions are subject to annual review. There is a common scale of remuneration for unpromoted teachers, the only reason for variation in the pay between unpromoted teachers being the point which they have reached on their scale, which depends upon length of service. There is no doubt that a principal teacher receives higher remuneration than an unpromoted teacher. The duties of teachers and principal teachers respectively are laid down in S.J.N.C. circulars.

Over the years there have been changes in the demand for certain subjects such as computing, for which demand has increased, or Latin, for which the demand has decreased. However, in terms of the relevant conditions of employment, the respondents were obliged to preserve the existing structure of promoted posts, with the result that if a principal teacher of Latin had been appointed then, even if the number of pupils taking Latin fell to a fraction of what it had been, the principal teacher was entitled to continue to hold that appointment and to receive the appropriate salary. On the other hand, the respondents were not free simply to create new promoted posts to meet the demand for new subjects because they were restrained by the S.E.D. circulars relating to staffing standards. Attempts have been made to provide flexibility within these standards but, as the industrial tribunal found, the degree of flexibility was in practice restricted by financial considerations. The respondents' expenditure is met from resources raised by normal local and central government taxation. Any S.N.J.C. salary award has to be financed in such a way irrespective of any budget difficulties. At the time when the appellants launched these applications the educational budget amounted to about £1 billion per annum representing about half the total regional budget. There was a further difficulty in that there has been a significant drop in school rolls over the period 1980-1990 of approximately one-third.

The particular circumstances which obtain within each school determine the number of promoted posts to which appointment can be made in that school: i.e. the number of vacancies for promoted appointment. In a significant number of schools in the region (in particular, those in which the nine appellants were employed) conditions were such that there was a requirement for the work of a principal teacher to be done, but the application of the relevant rules to the school did not permit the appointment of a principal teacher to do such work. In other words, there was no available vacancy. In that situation the appellants and doubtless other teachers found themselves in the position of doing the work of a principal teacher without having been promoted to that grade and without receiving the salary. The fact that the appellants did such work even though not paid at the appropriate rate is largely attributable to their sense of professional obligation to their students and their schools.

The industrial tribunal summarised the respondents' case as follows. They said that the difference in pay between the appellants and their comparators was due to a combination of five material factors, namely:

Finally, I must state an agreed fact of the greatest importance. The disparity in pay between the appellants and principal teachers has nothing to do with gender. Of the 134 unpromoted teachers who claimed to be carrying out the duties of principal teachers, 81 were men and 53 women. The selection by the appellants in this case of male principal teachers as comparators was purely the result of a tactical selection by these appellants: there are male and female principal teachers employed by the respondents without discrimination. Therefore the objective sought by the appellants is to achieve equal pay for like work regardless of sex, not to eliminate any inequalities due to sex discrimination. There is no such discrimination in the present case. To my mind it would be very surprising if a differential pay structure which had no disparate effect or impact as between the sexes should prove to be unlawful under the Equal Pay Act 1970. The preamble to that Act describes its purpose as being "An Act to prevent discrimination, as regards terms and conditions of employment, between men and women."

The industrial tribunal apparently accepted a submission that, in order for the respondents to succeed in a subsection (3) defence, it was necessary to analyse the five reasons for the disparity in pay between the appellants and principal teachers in order to establish whether such reasons "justified" the disparity. Only if the industrial tribunal had been satisfied that the respondents had no reasonable alternative but to require the appellants to do the work of a principal teacher for less pay would it have been prepared to hold that the respondents had "justified" such disparity and therefore have a subsection (3) defence. The industrial tribunal reviewed all the evidence and reached the conclusion that the respondents had not discharged that burden and therefore had not "justified" the inequality in pay.

Like the Second Division, I consider that the industrial tribunal misdirected itself in adopting that approach. If the words of subsection (3) are read without reference to authority they do not present any great difficulty in this case. The subsection provides a defence if the employer shows that the variation between the woman's contract and the man's contract is "genuinely" due to a factor which is (a) material and (b) not the difference of sex. The requirement of genuineness would be satisfied if the industrial tribunal came to the conclusion that the reason put forward was not a sham or a pretence. For the matters relied upon by the employer to constitute "material factors" it would have to be shown that the matters relied upon were in fact causally relevant to the difference in pay, i.e. that they were significant factors. Finally, the employer had to show that the difference of sex was not a factor relied upon. This final point is capable of presenting problems in other cases. But in the present case it presents none: there is no suggestion that the matters relied on were in any way linked to differences in sex.

If that approach had been adopted by the industrial tribunal, this case would have been straight forward. The five factors summarised by the industrial tribunal were undoubtedly genuine reasons for there being a difference between the pay of the appellants and that of principal teachers. They were also significant and causally relevant factors leading to that disparity. They did not relate to sex in any way. Therefore, on the straight forward application of the section the respondents have established a subsection (3) defence. There is nothing in the words of the subsection which requires the employer to "justify" the factors giving rise to this disparity by showing that there was no way in which the employer could have avoided such disparity if he had adopted other measures.

How then did the industrial tribunal come to mislead itself by introducing into the case the concept of "justification"?

The answer is that they wrongly thought that the authorities demanded such justification in every case where an employer seeks to establish a subsection (3) defence whereas, on a proper reading, the question of justification only arises where a factor relied upon is gender discriminatory. Although in the present case there is no question of gender discrimination, the authorities are in such a state of confusion that it is desirable for your Lordships to seek to establish the law on a clear and sound basis.

To establish a subsection (3) defence, the employer has to prove that the disparity in pay is due to a factor "which is not the difference of sex," i.e. is not sexually discriminatory. The question then arises "what is sexually discriminatory?" Both the Sex Discrimination Act 1975 and article 119 of the European Treaty recognise two types of sex discrimination. First, there is direct discrimination, i.e. a detriment suffered by women which they would not have suffered but for being women. Second, there is indirect discrimination, i.e. a detriment suffered by a class of individuals, men and women alike, but the class is such that a substantially larger number of women than men suffer the detriment. The classic example of indirect discrimination is a policy under which part-time workers, whether male or female, are paid less than full-time workers. There are many more women than men who are part-time workers. Accordingly such a policy applied to part-time workers is indirectly discriminatory against women.

Under the Sex Discrimination Act 1975, direct sexual discrimination is always unlawful. But, both under the Sex Discrimination Act 1975 and under article 119, indirect discrimination is not unlawful if it is "justified:" Sex Discrimination Act 1975 section 1(1)(b)(ii); Bilka-Kaufhaus G.m.b.h. v. Weber von Hartz (Case 170/84) [1987] ICR 110. Indirect discrimination can be "justified" if it is shown that the measures adopted by the employers which cause the 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] AC 224.

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 119. All three sources of law are part of a code dealing with unlawful sex discrimination: see Shields v. E. Coomes (Holdings) Ltd. [1978] 1 W.L.R. 1408 and Garland v. British Rail Engineering Ltd. [1983] 2 AC 751. 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 119, 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 [1987] ICR 110.

In North Yorkshire County Council v. Ratcliffe [1995] I.C.R. 833, 839, this House expressed the view, obiter, that the Equal Pay Act 1970 has to be interpreted without introducing the distinction between direct and indirect discrimination drawn by section 1 of the Sex Discrimination Act 1975. That dictum must not be carried too far. Whilst there is no need to apply to the Equal Pay Act 1970 the hard and fast statutory distinction between the two types of discrimination drawn in the Sex Discrimination Act 1975, this House did not intend, and had no power, to sweep away all the law on equal pay under article 119 laid down by the European Court of Justice, including the concept of justifying, on Bilka grounds, practices which have a discriminatory effect on pay and conditions of service. The law on article 119, whilst recognising that in many cases there is a de facto distinction between direct and indirect discrimination, does not draw the same firm legal demarcation between the two as does the Sex Discrimination Act 1975 which permits justification of indirect discrimination but not of direct discrimination. The correct position under section 1(3) of the Equal Pay Act 1970 is that even where the variation is genuinely due to a factor which involves the difference of sex, the employer can still establish a valid defence under subsection (3) if he can justify such differentiation on the grounds of sex, whether the differentiation is direct or indirect. I am not aware as yet of any case in which the European Court of Justice has held that a directly discriminatory practice can be justified in the Bilka sense. However, such a position cannot be ruled out since, in the United States, experience has shown that the hard and fast demarcation between direct and indirect discrimination is difficult to maintain.

From what I have said, it is apparent that in considering section 1(3) of the Equal Pay Act 1970, the only circumstances in which questions of "justification" can arise are those in which the employer is relying on a factor which is sexually discriminatory. There is no question of the employer having to "justify" (in the Bilka sense) all disparities of pay. Provided that there is no element of sexual discrimination, the employer establishes a subsection (3) defence by identifying the factors which he alleges have caused the disparity, proving that those factors are genuine and proving further that they were causally relevant to the disparity in pay complained of.

Mr. Pannick, for the appellants, submitted that the industrial tribunal were right to consider whether the factors relied upon (even though not gender related) "justified" the disparity in pay. He submitted that for a factor to be a "material" factor within subsection (3) it had to be demonstrated that the matters relied upon unavoidably led to the disparity in pay: the Industrial Tribunal was throughout engaged upon was a consideration of whether the factors were "material" in that sense. I cannot accept that submission. The words of the subsection indicate no requirement of such a justification inherent in the use of the words "material factor." It has long been established by the decision of this House in Rainey v. Greater Glasgow Health Board [1987] A,C. 224, 235D that a factor is material if it is "significant and relevant," a test which looks to the reason why there is a disparity in pay not whether there is an excuse for such disparity. To my mind decisively, if one were to accept Mr. Pannick's submission that would be to turn the Equal Pay Act into a "fair wages" Act requiring the elimination of disparity in wages even though such disparity had nothing to do with sex discrimination. As I have said, the preamble to the Act renders such an argument impossible.

Mr. Pannick relied on a number of authorities in support of his submission that a factor could not be "material" unless it could be objectively justified. In Jenkins v. Kingsgate (Clothing Productions) Ltd. [1981] 1 WLR 1485, 1495 (a case dealing with part-time workers being paid at a lower rate), the Employment Appeal Tribunal required objective justification of the reasons for the disparity in pay. The decision was subsequently approved in the Rainey case in this House. But that was a case in which to pay part-time workers less was indirectly discriminatory. Therefore, a subsection (3) defence would have failed unless such indirect sexual discrimination had been justified. The "justification" in question was not of a disparity in wages between part-time workers and full-time workers but of discrimination between male workers and female workers. Similarly, in Barber v. N.C.R. (Manufacturing) Ltd. [1993] I.R.L.R. 95 the material factor relied upon for the purpose of the subsection (3) defence was itself gender discriminatory and therefore had to be justified. McPherson v. Rathgael Centre [1991] I.R.L.R. 206 was a case, such as the present, where there was no element of gender discrimination in the factor relied upon by the employers in mounting a subsection (3) defence. The disparity in pay in question in that case was due to a simple mistake. The Court of Appeal of Northern Ireland held that the employer had to "justify" such disparity and had failed to do so. In my judgment, that case was wrongly decided since there was no sexual discrimination which called for justification in that case.

In my judgment the law was correctly stated by Mummery J. giving the judgment of the Employment Appeal Tribunal in Tyldesley v. T.M.L. Plastics Ltd. [1996] ICR 356, in which he followed and applied the earlier E.A.T. decisions in Calder v. Roundtree Mackintosh Confectionary Ltd. [1992] I.C.R. 372 and Yorkshire Blood Transfusion Service v. Plaskitt [1994] ICR 74. The purpose of section 1 of the Equal Pay Act 1970 is to eliminate sex discrimination in pay not to achieve fair wages. Therefore, if a difference in pay is explained by genuine factors not tainted by discrimination that is sufficient to raise a valid defence under subsection (3): in such a case there is no further burden on the employer to "justify" anything. However if the factor explaining the disparity in pay is tainted by sex discrimination (whether direct or indirect) that will be fatal to a defence under subsection (3) unless such discrimination can be objectively justified in accordance with the tests laid down in the Bilka and Rainey cases.

Finally, I must mention the ground on which the Employment Appeal Tribunal upheld the decision of the industrial tribunal, a ground which was further urged before us by Mr. Grant Hutchison, as junior counsel for the appellants. The argument is that the industrial tribunal, when engaged on their analysis of the reasons put forward by the respondents, were not impermissibly requiring the respondents to justify the disparity in pay. It is said that the industrial tribunal were merely engaged in testing, and finding wanting, the evidence that the factors relied upon had caused the disparity in pay. I am quite unable to read the reasons of the industrial tribunal in that sense. There was clear and largely uncontradicted evidence as to why the appellants were not paid the same rate as the principal teachers. The industrial tribunal was clearly accepting this evidence as far as it went but, wrongly, requiring the employers to go further and to "justify" the differential.

For these reasons, which are largely the same as those relied upon by the Second Division, I would dismiss this appeal.

LORD STEYN

My Lords,

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Browne-Wilkinson. For the reasons contained in his speech I, too, would dismiss the appeal.

LORD HOFFMANN

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Browne-Wilkinson. I agree with it, and for the reasons which he gives, I, too, would dismiss this appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Browne-Wilkinson. I agree with it and, for the reasons which he gives, I also would dismiss this appeal.

LORD CLYDE

My Lords,

I have also had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Browne-Wilkinson. I agree with it and, for the reasons which he gives, I also would dismiss this appeal.

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