In our sixth blog on equal pay I am looking at the downsides of the usually very useful tool for employers, the ‘material factor’ defence.
In our last equal pay blog (How far can you defend unequal pay?) we looked at how helpful it can be for an employer to be able to show that a pay gap between workers of different genders is actually down to a good, sensible reason which has nothing to do with their difference in sex.
However, although the ‘material factor’ defence is very attractive for an employer to deploy and rely on, it is often actually far more flimsy and short-lived than most people believe. Employers beware!
Perhaps the most regularly used ‘material factor’ defence is the good old ‘market rate’: “we only pay him more than her because that’s the market rate for his work”. This defence may be true and seem very attractive to an employer, but when it comes to actually deploying it in an equal pay claim, employers can find that it’s not always as easy as they had assumed.
First of all, the employer has to gather (and then potentially produce for the Employment Tribunal up to 6 years later) the evidence that supports its case about the ‘market rate’. Do you keep documentary evidence of every ‘market rate’ salary decision you make? Do you store that evidence for 6 years?
Secondly, the ‘market rate’ defence evaporates after a time. You will need to regularly review your knowledge of what the current market rate is, and gather fresh evidence to support your view. There is no firm rule about how often you need to do this, but probably every time you consider pay awards, so probably once a year. Do you manage to do this every year?
Another situation to consider is where someone’s pay is protected, perhaps as a result of a TUPE transfer, red circling, a redeployment following redundancy or a demotion.
It may feel obvious and reasonable at the point when the pay protection starts that it is justified and cannot expose your organisation to an equal pay claim. But consider: how long can the pay protection argument last? 2 years? 5 years? After a certain amount of time, the quite fair and understandable reason why you put the pay protection in place is likely to evaporate, purely due to the march of time. As each year passes, the strength of a ‘pay protection’ defence gets weaker and weaker.
A good example is the aftermath of a TUPE transfer. You inherit someone under TUPE who is paid more than your existing staff in the same or similar roles. Initially, of course, you must honour the new-comer’s higher pay entitlement, in accordance with TUPE. That’s not unequal pay – that’s your compliance with TUPE law. However, after a year or two that excuse for the higher pay may well be wearing dangerously thin if you have a gender pay gap situation to deal with. TUPE pay protection doesn’t mean pay protection for life. At some point it evaporates as a ‘material factor’ defence. Sooner or later, if there’s a gender pay gap as a result of a TUPE transfer, the equal pay legislation will trump a historical TUPE transfer and a claim may emerge.
So the moral of the story when looking at ‘material factor’ defences to equal pay claims is to stay alert and be prepared for your defences to evaporate over time.
Review and refresh your justifications and your evidence regularly, and store this information carefully so that you can go back 6 years if necessary.
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Email Luke Menzies