An analysis of the landmark victory for female retail consultants against British retailer Next plc

Introduction

More than 3,500 current and former female retail consultants have won a six-year legal battle for equal pay against British retailer Next plc (Next). In a significant judgment, Leeds Employment Tribunal ruled that Next had failed to justify paying its retail consultants in its stores, who are predominately women, at different rates to warehouse operatives, who are predominantly men.   As such, the claimants were successful in the majority of their claims for equal pay.  This is the first equal pay group action in the private sector to reach a decision at Tribunal level and secure a win. The total amount payable by Next as a result of the win is currently reported to be in excess of £30 million.

In this article we provide an overview of the law relating to equal pay in the United Kingdom (UK) before summarising the Next equal pay case and examining its key takeaways.

Overview of UK equal pay law

The right to equal pay for equal work for men and women is derived from European legislation and the Equality Act 2010. The right to equal pay is engaged when a worker performs work that is equal to the work done by a comparator of the opposite sex. Work is equal to that of their comparator if it is like work, work rated as equivalent or work of equal value.

For an employer to defend an equal pay claim, it must demonstrate that any differential in pay is due to a “material factor” that of itself is not direct sex discrimination or indirect sex discrimination. Examples of “material factor” defences include length of service, skills and qualifications, performance and levels of responsibility.

Summary of the Next equal pay case

In the Next case, which covered the period from 2012 to 2023, women made up nearly 78% of retail consultants, while men made up about 53% of warehouse operatives. During that time, some warehouse operatives were able to earn between 40p and £3 more per hour than the retail consultants.

At a preliminary hearing, the tribunal determined that the work of the retail consultants working in the stores was work of equal value to that of their comparator colleagues in the warehouse.  This hearing was to consider whether there was a “material factor” which allowed Next to distinguish the pay rates.

Next argued that the higher pay rates for warehouse operatives compared to retail consultants were due to a number of “material factors”, in particular:  the wider labour market; the ability to recruit and retain sufficient warehouse labour; and to ensure the viability, resilience and performance of the business.

The Tribunal accepted that the difference in pay rates was caused by efforts to “reduce cost and enhance profit” and that the “material factors” did not involve less favourable treatment because of the sex of the claimants, saying that “there was no conscious or sub-conscious influence of gender which affected the basic rates of pay”.  However, it held that the factors placed women and the lead claimants at a particular disadvantage (as indicated by the statistics) and so there was indirect discrimination.  It was then necessary to consider whether those factors could be justified as being a proportionate means of achieving a legitimate aim.  The Tribunal on this point ruled that Next sought to rely on a legitimate aim of saving costs alone which is not by itself a sufficient legitimate aim.  The Tribunal went on to hold that, even if it was considered a permissible aim, the payment of different sums was not reasonably necessary to meet it.   It set out that “for market forces to be a trump card would defeat the objective of the legislation; lower pay in particular sectors due to indirectly discriminatory practices could then be lawfully sustained in perpetuity”. Instead, “there must usually be a more compelling business reason for such arrangements to be justified”.  In addition to the difference in basic pay, the Tribunal also held that the “material factor” defence was not made out with regard to the difference in other terms.  However, the defence was made out in relation to payment of peak premium bonuses and some of the other bonuses where the aims were based on other business needs rather than cost alone and were therefore proportionate.

Following the Tribunal’s decision, the claimants will be entitled to compensation by way of back pay going back up to six years from when they put in their claims and including the time that has elapsed since they put in their claims. The total amount of compensation reported to be payable by Next is in excess of £30 million. Additionally, the claimants’ contracts must now be changed to reflect equal rates of pay. Moreover, where there are other discrepancies between the terms for retail consultants and warehouse operatives, including night payments, paid rest breaks and Sunday pay, better terms will also be extended to retail consultants.

Next has indicated that it plans to appeal the ruling. In a statement, the company said: “This is the first equal pay group action in the private sector to reach a decision at tribunal level and raises a number of important points of legal principle.”.

Key takeaways

Whilst Tribunal decisions are not binding, and each equal pay case will be decided on its own particular facts, there are a number of key takeaways from the Next decision:

  • Employers must remain mindful that equal pay is not just about men and women doing the same jobs, but also about whether men and women are doing work of “equal value”. Employers should review their pay rates carefully and consider whether they need to undertake a formal work evaluation process, either internally or with the input of external professional providers.
  • Employers must have a more compelling business reason to justify pay differentials than simply paying the “market rate”. Whilst this argument has been accepted in the past, the Tribunal in Next has indicated that this can no longer be used as a “trump card”. Employers should adopt work evaluation schemes which give little or no weight to market forces and instead rank each job in terms of the skills and qualifications involved, the complexity of the work, the degree of responsibility etc.
  • The Tribunal’s decision, the first of its kind against a national retailer in the UK, could prompt further claims by workers in the private sector, as well as the likely claims by other Next retail consultants who were not part of the 3,540 claimants in the recent case.
  • The Tribunal’s decision is also an indication of the risks facing the UK’s five major supermarkets, J Sainsburys Plc, Tesco Plc and W Morrison Supermarkets Ltd, Asda Group Ltd and Co-operative Group Ltd, each of which are facing similar equal pay claims from some 112,000 workers.
  • The Tribunal’s decision should also be considered in the context of the King’s Speech on 17 July 2024 in which the new government introduced the draft Equality (Race and Disability) Bill. Whilst the right to bring a claim under the equal pay provisions is currently limited to differences based on sex, the draft bill proposes to extend the right to equal pay to ethnic minorities and disabled people. This could result in a further increase in equal pay litigation.