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Employment Law Cases
Equal pay: duration of the material factor defence
Co-operative Group Ltd v Walker
A ‘material factor’ defence continues to operate until a new pay decision.
Around March 2014, Ms Walker was promoted to Chief HR Officer. Other members of the Co-op’s Executive Committee were considered critical to the survival of the business and were therefore offered enhanced salaries with the aim of retaining their talent. This resulted in Ms Walker being paid less than other members of the Executive Committee. In February 2015, a job evaluation study (JES) was completed which showed that Ms Walker’s work was at least equivalent to that of male members of the group, and/or of equal value. She was dismissed in April 2017 and brought a claim for equal pay in relation to this period.
The Co-op relied on the ‘material factor’ defence (s. 69 of the Equality Act 2010), arguing that there were various justifications, unrelated to gender, for setting Ms Walker’s pay at a lower rate than her comparators in 2014. The tribunal accepted the material factor defence was established as at February 2014 so the difference in pay was initially justified. The factors were that:
- Ms Walker’s comparators were part of the core team and therefore crucial to the short-term survival of the business
- Ms Walker had only just reached executive level and was as yet unproven in the role
- the ‘flight risk’ with the comparators was more significant than with Ms Walker, and
- the ‘market rate’ for one of the comparators was higher than the ‘market rate’ for Ms Walker’s role
However, the tribunal also held that ‘at some stage between February 2014 and February 2015’, when the JES became effective, the importance to the Co-op of the comparators’ roles had declined relative to Ms Walker’s work. This meant that by the time of the JES the ‘historical explanations for the pay differential were no longer material’. Ms Walker was therefore entitled to equal pay for an unspecified part of the period, with the relevant date to be determined at a remedies hearing.
The Co-op successfully appealed to the EAT. Having accepted that there were non-discriminatory reasons for the pay disparity in 2014, the tribunal should not have then found that they no longer justified the differential in the intervening period unless it had a basis for doing so (which it did not). There was no evidence that the Co-op had made any decision to permit the unfair arrangements to continue, or that it had even realised that a problem had transpired. The material factor defence continues to operate until a further decision is taken (or omitted) in relation to the rate of pay. It would only be at such a point that the Co-op would be required to justify the difference in pay again. It was not open to the tribunal to find that the material factor defence was no longer operative simply because of the subsequent results of the JES – this simply brought the pay disparity to the Co-op’s attention and didn’t justify a conclusion that the original material factors had ceased to apply. Ms Walker appealed.
Court of Appeal decision
The appeal was dismissed.
The material factor defence applied at the point when Ms Walker was appointed to the Executive Committee, but this explanation was rejected by the tribunal as being ‘historical’ a year later. The Court of Appeal held that to dismiss this explanation as ‘historical’ missed the point. What mattered is that it was, indeed, the explanation for the pay difference. Moreover, the tribunal’s analysis had overlooked the fact that, even a year later, in respect of the comparators, there was at least one material factor, which remained causative of (or which explained) the differential in pay. A material factor need only explain the cause of a difference in pay; it does not need to justify it to be relied upon.
Agreeing with the EAT, the Court of Appeal held that where a claimant’s job is rated as equivalent with a comparator following a JES, the legislation looks to the present and to the future, not to the past.
Ms Walker was also ordered to pay the Co-op’s costs including an immediate payment of £20,000 on account and permission to appeal to the Supreme Court was denied.
Link to judgment: https://www.bailii.org/ew/cases/EWCA/Civ/2020/1075.html
This is a sensible decision which means that employers are not constantly having to worry that the explanation for the pay difference may have changed and should be constantly reassessed outside of normal pay review periods.