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Material Factor Defence in Equal Pay Appeal

The recent Court of Appeal (CoA) case of Walker v Co-Operative Group (Co-op) considered the ‘material factor’ defence in an equal pay claim. Co-op was able to rely on at least two material factors in relation to its 2014 rescue plan.

Under the Equality Act 2010, men and women have the right to receive equal pay for equal work. This is done by the claimant showing that they are engaged in equal work to a comparator of the opposite sex, namely that they are engaged in:

  • Like work;
  • Work rated as equivalent to the comparator under a job evaluation scheme/study (JES); or
  • Work is considered to be equal to the comparator’s in terms of the demands made on them.

Where the work of a woman and a male comparator is equal, but their respective terms of remuneration are not, the employer will need to show that the difference in terms is due to a ‘material factor’ which does not directly or indirectly discriminate on the basis of sex. Whilst each case will be fact specific, past cases have labelled employee performance, length of service and differences in duties as material factors.  

At the start of 2014, Co-op re-organised its executive team as part of the company’s rescue plan, which was “on the verge of financial collapse”. Ms Walker (the Chief Human Resources Officer) was placed in a salary tier with her male comparators, the Chief External Affairs Officer and Group General Counsel). However, Ms Walker was paid a lower salary than both her comparators.

In February 2015, a job evaluation study (JES) was carried out. Ms Walker’s role was assessed independently as being of equal value to those of her male colleagues. Ms Walker’s claim is based on this, as opposed to her performing “like work” or “work of equal value”.

It was accepted by the tribunal (ET) that there were material factors, unrelated to gender, which justified a lower salary in 2014 when she began her role. These included the fact that her colleagues were crucial to the short-term survival of the Co-op (which her role was not), she had only just reached executive level, there was greater “flight risk” with her comparators and the “market rate” for one of her comparators was higher than that of Ms Walker’s role. The ET ruled that at some point between February 2014 and February 2015, the relative importance of her colleagues’ roles had declined in comparison to Ms Walker’s role.

Given that the ET accepted that there was an issue of unequal pay at the time of the JES, it effectively extended its findings of unlawful pay back to a time before the JES, the EAT agreed that the ET had erred in law, finding that there had been no new decision about pay since Ms Walker’s salary had been set in March 2014, and therefore there was no basis for finding that the material factors had ceased to apply.

Mrs Walker appealed to the CoA.

The CoA took the view that the tribunal had been wrong to make a decision based on the material factors as being ‘historical’. Instead, it should have focused on the explanation for the pay difference. The Court of Appeal also ruled that there was still at least one relevant material factor a year later to explain the difference in pay. The extent to which such were justifiable was for the ET to decide.  The CoA concluded that the true situation was that her work had been found not to be equal to her comparators when her pay was set in February 2014, meaning her claim should have failed at that point.

This ruling from the Court of Appeal is a reminder to employers that, in situations where there is potential for an equal pay discrepancy, the crucial point is not whether it can be justified; it is whether it can be explained. In this case, the Co-op was able to do this by identifying material factors when pay rates were set, and Mrs Walker was unable to prove that the organisation had considered these no longer applied when the JES was conducted, and that it had failed to act on this.

This decision also highlights that claimants will need to clearly identify a date when they believe they became entitled to equal pay. Simply pointing to a ‘period of time’ will not be sufficient. 

Read the full judgement here.