The Next Equal Pay Decision: market forces not enough to justify differences

After a 6 year legal battle, the retailer Next may be required to pay out in excess of £30 million to approximately 3,500 store employees, following their failure to demonstrate that the pay disparity between their store workers (who are mainly women) and their warehouse workers (who are mainly men) was not sex discrimination. This is the first equal pay claim against a major retailer to be heard by the tribunal and therefore is expected to have wide-reaching consequences in how employers determine their pay practices.

Next’s Case

In 2018, store consultants at Next brought an equal pay claim. Under the Equality Law Act 2010, if 2 employees perform work of equal value, then they must be paid the same, unless a material factor can justify the difference. The store consultants argued that they were paid less than warehouse workers yet their work had the same value. The Tribunal agreed that the work was of equal value in an earlier hearing in 2023.

Given that store consultants were mainly women whilst warehouse workers were mainly men, the difference in pay could result in this practice being classed as sex discrimination. It was for Next to demonstrate in the most recent hearing that they had a “material factor” that was not related to sex to explain the difference in pay. This hearing was held in May 2024 and the judgment was released in August 2024. The Tribunal held Next had failed to establish the defence.

Next argued that the reason for the difference in pay between store consultants and warehouse workers was due to the difference in the labour market. They argued their wages were in line with the market rates which justified the difference, and it was a financial business decision to keep in line with market rates to ensure business viability. The tribunal held that as Next had the potential to pay the store consultants the same as the warehouse workers, they could not rely upon market rates alone as this was not a good enough reason to justify the pay disparity. Next have now been ordered to back date pay for up to 6 years before the claim was made and will have to amend the contracts going forward to align benefits between the different types of employees.

It has been announced that Next will appeal against the decision so this matter may be brought  before the courts once more. However, the current position makes it clear that an employer cannot rely on market rates alone which in themselves were sex-tained to defend against allegations of discriminatory pay practices.

How does this impact employers?

Next were held not to have directly discriminated against the female workers and the tribunal recognised that there was no “conscious or subconscious influence of gender”.  Despite not intending to treat men and women differently, it was held that Next’s pay practices which were only intended to “reduce costs and enhance profit” were indirect sex discrimination. The pay disparity impacted women who were more likely to be in the lower paying job, and the material factor defence of relying on market rates was not a proportionate means of achieving the legitimate aim of achieving those higher profits.

This obviously has an impact on other retailers who may wish to review their pay structures to ensure they are paying their employees correctly. The case in particular demonstrates the potential sex discrimination problems between shopfloor workers and warehouse workers but it isn’t the only industry which may have gender divides.  Whilst the current focus is on the impact that the case will have on retailers, industries such as construction, hospitality and the care sector are key examples where we may see similar cases in the future.

Ultimately, these cases will be decided on a case by case basis and there are already claims in the pipeline for major supermarkets which may reach a different result.  The important factor for employers to take from this case is that there doesn’t need to be an intention to discriminate in the pay structures. Employers need to review their employees’ work and determine whether there are gender divides in the type of roles they offer and whether these roles are paid differently. If so, they should be prepared to justify this decision based on material factors and simply arguing that this is the expected standard in the industry will not be sufficient. The tribunal has made clear that employers need to do better in ensuring they pay men and women equally for work of equal value.

If you would like advice on your payment practices to ensure compliance with Equal Pay legislation, please feel free to contact our employment law team who can review and assist you in meeting your legal obligations, especially in light of ongoing developments.