The risk of insolvency with equal pay claims: how can you avoid them?

Even though the law states that everyone should be paid equally for work of comparable value or for doing the same job, this does not always happen in practice.

What is equal pay?

The concept of equal pay refers to a person’s legal entitlement to receive the same compensation for performing the same work as a person of the opposite sex. For the equal pay laws to apply, the jobs must involve:

• Like work (work that is similar)
• Work rated as equivalent (this is where employers classify an employee’s work into a certain category using job evaluation schemes)
• Work of equal value (requiring the same amount of effort and skill)

Who can bring an equal pay claim?

ACAS confirms that equal pay applies to: employees, workers, apprentices, agency workers, full-time, part-time or temporary contracts, self-employed people who are hired to personally do the work.

Women who are underpaid relative to their male colleagues typically file claims for equal pay.

Equal pay claims and GLO’s

To ensure the success of an equal pay claim, claimants must first identify a comparator employee i.e. someone who is paid more than them while performing the same, similar, or equivalent job. They must be of the opposite sex, working for the same company either now or in the past and in “the same employment”. In “the same employment” could refer to both companies being controlled by a third party or to an associated employer when one is a company that the other controls.

A group claim lawsuit against the company may be filed if it is determined that the employer has routinely paid one gender more than the other. These cases, sometimes referred to as “class actions,” entail a number of parties joining forces to assert a single legal claim. The claim will thereafter be made against the company by the impacted parties, who will be represented in court as one group.

Background and insolvency

For almost ten years, the largest supermarkets in UK have been defending against class actions brought by their workers alleging equal pay breaches. The premise behind many of these allegations is that shop floor workers, who in these cases have been primarily female, ought to receive pay comparable to that of distribution centre workers, who are primarily male. It has been alleged that Tesco, Asda, Sainsbury’s, and Morrisons, among other employers, have discriminated against women by not paying their employees equally for these tasks.

Moreover, local authorities have been placed into the spotlight as targets for equal pay claims.  In particular, in 2010, equal pay challenges against Birmingham City Council began and are still continuing today. Recently, Birmingham City Council essentially declared itself insolvent by issuing two section 114 letters at the start of September 2023. A section 114 notice communicates that all new expenditures will be stopped, with the exception of those necessary to protect vulnerable citizens and sustain statutory services, and that the council’s anticipated revenue is not expected to cover its anticipated expenditures for the upcoming year.  The declaration of insolvency is largely a result of the ongoing equal pay claim, that is estimated to have left the Council with outstanding liability between £650 million and £760 million, and this liability continues to grow.  Remarkably, since the lawsuit was started in 2012, the Council has already settled nearly £1 billion worth of equal pay claims.

The GMB, which was involved in the lawsuit against Birmingham City Council, has recently issued a warning that other local authorities could be subjected to equal pay claims due to their failings to stop discriminatory practices against women. The GMB has also started a campaign in support of up to 1,000 Sunderland-based female carers.

The Birmingham City Council case serves as a serious cautionary tale for those who have been complacent in relation to unlawful discrimination against women. You should not assume just because your business is not a municipal of government, that it shields you from the crippling equal pay allegations. A proactive approach and investigations into risk management should be taken by all.

Risks management and avoiding equal pay claims

Councils and employers should be proactive in preventing future equal pay claims, especially as they could lead to severe financial difficulties.

Investigations into the following will assist in mitigating the risk of an equal pay claim:

• Hold current job descriptions that precisely reflect the work performed by employees.
• Review possible high risk areas.
• Ensure that the job titles of men and women performing the same tasks are the same.
• Be fair in determining employee compensation and the terms and circumstances of contracts.
• Have an up-to-date equal pay policy.

ACAS has provided guidance on drafting an equal pay policy and states that it should confirm:

• how the business will implement and enforce the policy
• how the business will achieve equal pay
• how the company will deal with complaints about equal pay
• when the company will conduct equal pay reviews
• how the company is committed to resolving any unequal pay issues

To find out more about safeguarding against insolvency and equal pay claims, please get in touch with one of our employment team members.