We look at the correct test for the material factor defence in equal pay claims following the recent Court of Appeal decision in Walker v Co-operative Group Ltd and another [2020] EWCA Civ 1075.
Ms Walker was employed by the Co-operative Group Limited (“Co-op”). In 2014, Ms Walker was promoted to Chief Human Resources Officer and she was invited to join the Executive Committee. Around this time, the Co-op was experiencing significant financial difficulties and the members of the Executive Committee (including Ms Walker) were offered salary increases to incentivise them to stay and stabilise the business. However, Ms Walker’s salary was not on par with the other Executive Committee members’ pay after the increases were applied.
In 2015, a Job Evaluation Study (“JES”) was carried out and Ms Walker’s role was rated as equivalent to or higher than her comparators in the Executive Committee and the JES concluded that she performed work of equal value.
In 2017, Ms Walker was dismissed and issued an equal pay claim in the Employment Tribunal (“ET”).
The Co-op argued that there were material factors (substantial reasons) for the pay difference which were completely unrelated to Ms Walker’s sex. In particular, the Co-op explained (1) Ms Walker’s companions were part of the core executive team and key to the Co-op’s survival at the time it was experiencing financial crisis; (2) Ms Walker had only just been promoted to executive level and was not as experienced as her comparators; (3) the other comparators were more likely to leave the business during the turbulent time (i.e. they were a greater “flight risk”); and (4) one of the comparators was a qualified solicitor and the market rate for the role was higher than the market rate for Ms Walker’s role.
The ET accepted the Co-op’s material factor arguments and that the pay difference was initially justified. However, the ET decided that the position changed at some point between 2014 and the time of the JES and that this provided a basis for the ET to extend its equal pay findings to the period before the JES. However, the ET did not determine the exact point Ms Walker became entitled to equal pay, which was left to be determined at a later remedy hearing.
The Co-op appealed the decision on the basis that the ET was not entitled to extend its equal pay findings to the period prior to the JES. The Employment Appeal Tribunal (“EAT”) concluded that the material factor defence applied until a further decision about pay differences could be identified. However, there was no evidence that the Co-op deliberately decided to allow the pay difference to continue or that they were even aware of the issue prior to the JES.
Ms Walker appealed the EAT decision. The Court of Appeal upheld the EAT decision and found that the ET had overlooked the fact that there was at least one material factor in respect of the pay differential between Ms Walker and each of her comparators and which was causative or explained the pay disparity. Further, the ET had failed to find how the Co-op’s material factor explanations had ceased or diminished.
The Court of Appeal also clarified that the Tribunal should not have asked whether the material factors continued to justify the difference in pay. The correct approach was to ask whether the material factors explained the difference.
The Court of Appeal further went on to explain that the material factor defence is only relevant if the claimant is employed to carry out work that is equal to that of a comparator of the opposite sex. Therefore the ET had erred in its approach by not determining the specific date that Ms Walker’s work had become equal to her comparators. Additionally, the ET should not have analysed the material factor defence when she was first promoted, since it had already accepted that her work was not equal to her comparators at that time.
This case clarifies that when relying on the material factor defence, employers need to prove there is an explanation for the pay difference which is not related to sex but relates to some other significant reason. However, employers do not need to justify any pay disparity if there is a genuine non-discriminatory explanation for the disparity. This case is also a helpful reminder that the specific date the claimant’s work became equal to any comparator(s) needs to be identified at the outset of an equal pay claim.