The impact of Gender Pay Disparity and the Practical Justice principle: Has it bankrupted Birmingham?

A bill for £1.1 billion is more than a slap on the wrist and would cripple the cash flow of any organisation. However, for Birmingham City Council, it doesn’t stop there. Having paid out £1.1 billion already to settle equal pay claims brought by former employees, the council are now facing having to pay another £750 million, which is equivalent to an entire year of spending. This may bankrupt what is currently the largest local authority in Europe, raising the question what employer can afford not to pay equally?

What are an employer’s equal pay obligations?

The principle is a simple one; men and women should receive equal pay for the same employment. This principle is enshrined in the Equality Act 2010 which implies a “sex equality clause” into a  person’s contract of employment, which operates so as to replace their less favourable term(s) with the equivalent more favourable term(s), if they can point to a comparator colleague of the opposite gender doing ‘like work’, ‘work rated as equivalent’ or ‘work of equal value’ with more favourable terms. In effect, any  equal pay claim  is a claim for breach of contract.

For a claim to be brought, an employee must compare themselves to those doing:

• “Like work” – work that is “the same or broadly similar“;
• “Work rated as equivalent” – if, following a job evaluation scheme (“JES”), where roles are given a rating in terms of the demands made on the worker, the roles are rated as equivalent by reference to factors such as effort, skill and decision-making; and
• “Work of equal value” – if by reference to factors such as effort, skill and decision-making the roles are of equal value. An equal value claim may also be brought under this provision where the claimant’s work is of greater value than that of her comparator.

ACAS has published “Job evaluation: considerations and risks” which provides guidance on carrying out JESs. This process should be handled with care and advice sought at the earliest opportunity. Employers need to keep a careful eye on payment policies that are in operation to ensure fairness.

What when wrong for Birmingham?

In 2009, 14 female home carers and home helpers brought a breach of contract claim in the county court against Birmingham City Council, their former employer. Their roles were rated as being equivalent to roles that were traditionally carried out by men (e.g. gravediggers and gardeners) in the National Joint Council for Local Authorities’ Services (West Midlands Provincial Council) Manual Workers Handbook 1987, known as the Blue Book, and to a Job Evaluation Scheme referred to in it. Unlike their male counterparts, they were not able to benefit from bonuses and other additional payments. Gravediggers, for example, would receive bonuses of up to 40% of their basic pay for taking on different roles that were not on their job descriptions, but this bonus payment was not available to home carers or home helpers.

All claimants had left their roles by 2006 and were unaware of the disparity until 2008. The County Court at first instance found that the claims would more conveniently be disposed of by an Employment Tribunal and, as the time limit for a claimant to bring proceedings in the Employment Tribunal is only 6 months from the date that the employment ended, the claims were, on the face of it, time barred.

This decision, however, was overturned on appeal, with the High Court, and later the Supreme Court, finding that civil courts should not strike out an equal pay claim if, because of the strict six-month employment tribunal time limit, the tribunal would necessarily decline jurisdiction to hear it. Slade J cited an earlier case of Spiliada Maritime Corporation v Cansulex Ltd and the need in these circumstances for “practical justice.”

This practical justice principle opened the floodgates, leading to more and more claimants coming forward. To date the BBC reports that £1.1 billion has been paid out and the council has an ongoing liability of £750 million. Birmingham’s Interim Director of Finance has issued a report under section 114(3) of the Local Government Act, confirming that the Birmingham has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability. In July, Rishi Sunak said it was “not the government’s job to bail out the council for its financial mismanagement.” The GMB union is supporting more than 3,000 claims against Birmingham and has other ongoing disputes against councils in Coventry, Westmorland, Cumberland, Glasgow, Dundee and Fife.

This should come as a warning to all employers to evaluate how they choose to remunerate staff. The process of comparing roles is not as easy as simply looking at job descriptions, but the law aims to tackle deep rooted unfairness.  If employers don’t, they may face a little “practical justice” of their own. A wise man learns from his mistakes, but a wise employer should learn from the mistakes made in Birmingham.

Can an employer afford not to pay equally?

We are experienced in advising employers on their obligations for equal pay. Please contact Linky Trott or any member of the Employment team if you would like advice on an ongoing issue or training on the legal obligations on employers.

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