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United Kingdom Employment Appeal Tribunal |
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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Barton v. Investec Henderson Crosthwaite Securities Ltd [2003] UKEAT 18_03_0304 (3 April 2003) URL: http://www.bailii.org/uk/cases/UKEAT/2003/18_03_0304.html Cite as: [2003] IRLR 332, [2003] ICR 1205, [2003] UKEAT 18_03_0304, EAT 18/03, [2003] UKEAT 18_3_304 |
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At the Tribunal | |
On 6 March 2003 | |
Before
HIS HONOUR JUDGE ANSELL
MRS D M PALMER
MR G H WRIGHT MBE
APPELLANT | |
RESPONDENT |
Transcript of Proceedings
JUDGMENT
Revised 15/4/03
For the Appellant | MR ROBIN ALLEN (of Counsel) MR DAVID READE (of Counsel) Instructed by: Messrs Bird & Bird Solicitors 90 Fetter Lane London EC4A IJP |
For the Respondent | MR ROY LEMON (of Counsel) Instructed by: Messrs Hammonds Suddards Edge Solicitors 7 Devonshire Square Cutlers Gardens London EC2M 4YJ |
HIS HONOUR JUDGE ANSELL
(1) the Respondent had proved that the variation in salary and LTIPs between the Appellant and her comparator, Mr Matthew Horsman, was genuinely due to a material factor which was not the difference of sex.
(2) Difference in treatment between the Appellant and Matthew Horsman in relation to the grant of share options was due to a material factor which was not the difference of sex for the purposes of the Equal Pay Act or, if the share options were not regulated by the contract of employment, did not amount to less favourable treatment of the Applicant on the grounds of her sex.
(3) The Respondents did not treat the Appellant less favourably on the grounds of sex in awarding bonuses.
" a rough and ready process, not a precise science. It was not a paper based exercise."
They also spoke of an:
"underlying philosophy of avoiding precision and written material to prevent giving individuals the material on which they could challenge their bonuses."
The bonuses awarded in the spring of 2001 were £1 million to Mr Horsman, £600,000 to Mr Savage and £300,000 to the Appellant. It is said that she had generated revenue of £3.2 million, Mr Savage £5.3 million and Mr Horsman £10 million. There was considerable cross-examination in the Tribunal as to respects in which the Appellant's figures had been undervalued and Mr Savage's overvalued. The Appellant's complaint was in relation to the differential between her bonus and that of Michael Savage, particularly as he had been in the organisation for only ten months of the bonus year.
"all the increases were conscientious, unscientific efforts to secure Matthew Horsman for the future of the business by putting his benefits at the top of the range sustainable within the Respondent organisation: putting his benefits in line with those of other key players established proportionality."
"The Tribunal also had questions in relation to the history of the litigation in this case, the avoidance of disclosure of information and the changing of the Respondent's case over time. More generally, the Tribunal were also concerned about the backdrop of an unwritten, non-transparent bonus policy in an organisation, without an appraisal system and without an equal opportunities policy. It took into account that this was a culture with a significant preponderance of men where the Applicant was the most senior female."
Later, in paragraph 88, they said this:
"The Tribunal took as part of their industrial knowledge that it is a vital component of the City bonus culture that bonuses are discretionary, scheme rules are unwritten and individuals' bonuses are not revealed. They were satisfied that the cultural reason for this is that invidious comparisons would become inevitable. If such comparisons were generally possible the bonus system would collapse. The Tribunal accepted the Respondent's unwillingness to disclose bonuses until compelled by law to do so as part of that culture, particularly bearing in mind that the Applicant was until January 2002 an employee still in employment, seeking bonus details about fellow employees. They found Perry Crosthwaite's unwillingness to be open on the subject of bonus figures consistent with that culture."
Yet they concluded in paragraph 90 that:
"….they did not conclude that the differentials were consciously or subconsciously motivated or permeated by discrimination."
Statutory framework
"Requirement of equal treatment for men and women in same employment
(1) If the terms of a contract under which a woman is employed at an establishment in Great Britain do not include (directly or by reference to a collective agreement or otherwise) an equality clause they shall be deemed to include one.
(2) An equality clause is a provision which relates to terms (whether concerned with pay or not) of a contract under which a woman is employed (the "woman's contract"), and has the effect that -
(a) where the woman is employed on like work with a man in the same employment -
(i) if (apart from the equality clause) any term of the woman's contract is or becomes less favourable to the woman than a term of a similar kind in the contract under which that man is employed, that term of the woman's contract shall be treated as so modified as not to be less favourable. ….
(3) An equality clause shall not operate in relation to a variation between the woman's contract and the man's contract if the employer proves that the variation is generally due to a material factor which is not the difference of sex and that factor -
(a) in the case of an equality clause falling within subsection (2)(a) or (b) above, must be a material difference between the woman's case and the man's; ……
(4) A woman is to be regarded as employed on like work with men if, but only if, her work and theirs is of the same or a broadly similar nature, and the differences (if any) between the things she does and the things they do are not of practical importance in relation to terms and conditions of employment; and accordingly in comparing her work with theirs regard shall be had to the frequency or otherwise with which any such differences occur in practice as well as to the nature and extent of the differences."
Section 1 of the Sex Discrimination Act 1975 provides that:
"(2) In any circumstances relevant for the purposes of a provision to which this subsection applies, a person discriminates against a woman if -
(a) on the ground of her sex, he treats her less favourably than he treats or would treat a man"
Section 5(3) provides that:
"A comparison of the cases of persons of different sex or marital status under [section 1(2) ….must be such that the relevant circumstances in the one case are the same, or not materially different in the other."
"It is unlawful for a person, in the case of a woman employed by him at an establishment in Great Britain, to discriminate against her -
(b) by dismissing her, or subjecting her to any detriment.
(6) Subsection (2) does not apply to benefits consisting of the payment of money when the provision of those benefits is regulated by the woman's contract of employment"
Section 63A provides:
"(1) This section applies to any complaint presented under section 63 to an employment tribunal.
(2) Where, on the hearing of the complaint, the complainant proves facts from which the tribunal could, apart from this section, conclude in the absence of an adequate explanation that the respondent -
(a) has committed an act of discrimination against the complainant which is unlawful by virtue of part 2, …
the tribunal shall uphold the complaint unless the respondent proves that he did not commit, or, as the case may be, is not to be treated as having committed, that act."
"A failure on the part of any person to observe any provision of a code of practice shall not of itself render him liable to any proceedings; but in any proceedings under this Act [or the Equal Pay Act 1970] before an [employment tribunal] any code of practice issued under this section shall be admissible in evidence, and if any provision of such a code appears to the tribunal to be relevant to any question arising in the proceedings it shall be taken into account in determining that question. "
"19, It is important that the pay system is clear and easy to understand; this has become known as transparency. A transparent pay system is one where employees understand not only their rate of pay but also the components of their individual pay packets and how each component contributes to total earnings in any pay period. Transparency is an advantage to the employer as it will avoid uncertainty and perceptions of unfairness and reduce the possibility of individual claims.
20. The ECJ has held that where the organisation concerned applies a system of pay which is wholly lacking in transparency and which appears to operate to the substantial disadvantage of one sex, then the onus is on the employer to show that the pay differential is not in fact discriminatory. An employer should therefore ensure that any elements of a pay system which could contribute to pay differences between employees are readily understood and free of sex bias."
Paragraphs 25 onwards in the Code set out a suggested review of pay systems for sex bias and in paragraph 29 bonuses were highlighted as an area of potential difficulty. Finally, paragraph 39 provided as follows:
"It is good employment practice for employees to understand how their rate of pay is determined. Information about priorities and proposed action could be communicated to employees as part of the process of informing them about how the pay systems affect them individually. This will serve to assure employees that any sex bias in the payment system is being addressed."
Section 74 of the Sex Discrimination Act 1975 set out a questionnaire procedure and allowed the Secretary of State to prescribe:
"(a) forms by which the person aggrieved may question the respondent on his reasons for doing any relevant act, or on any other matter which is or may be relevant;
(b) forms by which the respondent may if he so wishes reply to any questions."
Subsection (2) provides:
"Where the person aggrieved questions the respondent (whether in accordance with an order under subsection (1) or not) -
(a) the question, and any reply by the respondent (whether in accordance with such an order or not) shall, subject to the following provisions of this section, be admissible as evidence in the proceedings;
(b) if it appears to the court or tribunal that the respondent deliberately, and without reasonable excuse, omitted to reply within a reasonable period or that his reply is evasive or equivocal, the court or tribunal may draw any inference from that fact that it considers it just and equitable to draw, including an inference that he committed an unlawful act."
Proof of discrimination - burden of proof
"In the future, we think industrial tribunals may find it easier to forget about the rather nebulous concept of 'the shift in the evidential burden' …..
In this case, the Industrial Tribunal would, we suspect, have found the case rather more straightforward if, looking at all the evidence as a whole, they had simply decided whether the complaint had been established. No useful purpose is served by stopping to reach a conclusion on half the evidence. The right course in this case was for the Industrial Tribunal to take into account the fact that direct evidence of discrimination was seldom going to be available and that, accordingly, in these cases the affirmative evidence of discrimination would normally consist of inferences to be drawn from the primary facts. If the primary facts indicate that there has been discrimination of some kind, the employer is called upon to give an explanation and, failing clear and specific explanation being given by the employer to satisfaction of the Industrial Tribunal, an inference of unlawful discrimination from the primary facts will mean the complaint succeeds…….".
"It is for this reason the law has been established that if an applicant shows that he has been treated less favourably than others in circumstances which are consistent with that treatment being based on racial grounds, the industrial tribunal should draw an inference that such treatment was on racial grounds, unless the respondent could satisfy the industrial tribunal that there is an innocent explanation……."
In two subsequent cases in the Court of Appeal May L J expressed a degree of dissatisfaction with the passages in Khanna see Morris -v London Iron and Steel Company Ltd [1987] ICR 855 and North West Thames Regional Health Authority -v- Noone [1988] ICR 813. Eventually clarification was sought and obtained from the Court of Appeal in the case of King -v- GB China Centre [1992] ICR 516 and the frequently quoted passage of Neill LJ at 528F:
"From these several authorities it is possible, I think, to extract the following principles and guidance. (1) It is for the applicant who complains of racial discrimination to make out his or her case. Thus if the applicant does not prove the case on the balance of probabilities he or she will fail. (2) It is important to bear in mind that it is unusual to find direct evidence or racial discrimination. Few employers will be prepared to admit such discrimination even to themselves. In some cases the discrimination will not be ill-intentioned but merely based on the assumption that "he or she would not have fitted in". (3) The outcome of the case will therefore usually depend on what inferences it is proper to draw from the primary facts found by the tribunal. These inferences can include, in appropriate cases, any inferences that it is just and equitable to draw in accordance with section 65(2)(b) of the Act of 1976 from an evasive or equivocal reply to a questionnaire. (4) Though there will be some cases where, for example, the non-selection of the applicant for a post or for promotion is clearly not on racial grounds a finding of discrimination and a finding of a difference in race will often point to the possibility of racial discrimination. In such circumstances the tribunal will look to the employer for an explanation. If no explanation is then put forward or if the tribunal considers the explanation to be inadequate or unsatisfactory it will be legitimate for the tribunal to infer that the discrimination was on racial grounds. This is not a matter of law but, as May LJ put it in North West Thames Regional Health Authority -v- Noone [1988] ICR 813, 822, "almost common sense". (5) It is unnecessary and unhelpful to introduce the concept of a shifting evidential burden of proof. At the conclusion of all the evidence the tribunal should make findings as to the primary facts and draw such inferences as they consider proper from those facts. They should then reach a conclusion on the balance of probabilities, bearing in mind both the difficulties which face a person who complains of unlawful discrimination and the fact that it is for the complainant to prove his or her case."
This passage was approved by the House of Lords in Glasgow City Council -v- Zafar [1988] ICR 120.
"ubiquitous need to make the findings of primary fact without which it is impossible to consider the drawing of relevant inferences."
"Equal treatment for men and women must be assured. Equal opportunities for men and women must be developed.
To this end, action should be intensified wherever necessary to ensure the implementation of the principle of equality between men and women as regards in particular access to employment remuneration, working conditions, social protection, education, vocational training and career development."
Council Directive 97/80/EC of 15 December 1997 dealt with the burden of proof in cases of discrimination based on sex. The preamble to the Directive provided as follows:
"(17) Whereas plaintiffs could be deprived of any effective means of enforcing the principle of equal treatment before the national courts if the effect of introducing evidence of an apparent discrimination were not to impose upon the respondent the burden of proving that his practice is not in fact discriminatory."
(18) Whereas the Court of Justice of the European Communities has therefore held that the rules on the burden of proof must be adapted when there is a prima facie case of discrimination and that, for the principle of equal treatment to be applied effectively, the burden of proof must shift back to the respondent when evidence of such discrimination is brought."
Article 2(1) provided that :
"for the purposes of this Directive, the principle of equal treatment shall mean that there shall be no discrimination whatsoever based on sex …….."
Article 4 provided as follows under the heading "Burden of Proof":
"1. Member States should take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment. "
Thus section 63A of the Sex Discrimination Act 1975 was introduced as a result of this Directive and was inserted by the Sex Discrimination (Indirect Discrimination and Burden of Proof) Regulations 2001. The commencement date of 12 October 2001 was in relation to any proceedings under section 63 in an Employment Tribunal whenever instituted, except proceedings which were determined before that date.
"The most convenient and appropriate way to tackle the issues arising on any discrimination application must always depend upon the nature of the issues and all the circumstances of the case. There will be cases where it is convenient to decide the less favourable treatment issue first. But, for the reasons set out above, when formulating their decisions employment tribunals may find it helpful to consider whether they should postpone determining the less favourable treatment issue until after they have decided why the treatment was afforded to the claimant. Adopting this course would have simplified the issues, and assisted in their resolution, in the present case."
Mr Allen submits that this case is of little assistance to us because:
(a) there was an actual comparator in our case, and
(b) the Tribunal decided the case prior to the implementation of section 63A which was not considered at all by their Lordships.
We agree with his submissions.
(1) Pursuant to section 63A of the Sex Discrimination Act 1975, it is for the Applicant who complains of sex discrimination to prove on the balance of probabilities facts from which the Tribunal could conclude, in the absence of an adequate explanation, that the Respondents have committed an act of discrimination against the Applicant which is unlawful by virtue of Part 2 or which by virtue of section 41 or 42 SDA is to be treated as having been committed against the Applicant. These are referred to below as "such facts"
(2) If the Applicant does not prove such facts he or she will fail.
(3) It is important to bear in mind in deciding whether the Applicant has proved such facts that it is unusual to find direct evidence of sex discrimination. Few employers would be prepared to admit such discrimination, even to themselves. In some cases the discrimination will not be an intention but merely based on the assumption that "he or she would not have fitted in".
(4) In deciding whether the Applicant has proved such facts, it is important to remember that the outcome at this stage of the analysis by the Tribunal will therefore usually depend on what inferences it is proper to draw from the primary facts found by the Tribunal.
(5) It is important to note the word is "could". At this stage the Tribunal does not have to reach a definitive determination that such facts would lead it to the conclusion that there was an act of unlawful discrimination. At this stage a Tribunal is looking at the primary facts proved by the Applicant to see what inferences of secondary fact could be drawn from them.
(6) These inferences can include, in appropriate cases, any inferences that it is just and equitable to draw in accordance with section 74(2)(b) of the Sex Discrimination Act from an evasive or equivocal reply to a questionnaire or any other questions that fall within section 74(2) of the Sex Discrimination Act see Hinks -v- Riva Systems EAT/501/96.
(7) Likewise, the Tribunal must decide whether any provision of any relevant code of practice is relevant and if so, take it into account in determining such facts pursuant to section 56A(10) SDA. This means that inferences may also be drawn from any failure to comply with any relevant code of practice.
(8) Where the applicant has proved facts from which inferences could be drawn that the Respondents have treated the Applicant less favourably on the grounds of sex, then the burden of proof moves to the respondent.
(9) It is then for the respondent to prove that he did not commit, or as the case may be, is not to be treated as having committed that act.
(10) To discharge that burden it is necessary for the respondent to prove, on the balance of probabilities, that the treatment was in no sense whatsoever on the grounds of sex, since "no discrimination whatsoever" is compatible with the Burden of Proof Directive.
(11) That requires a Tribunal to assess not merely whether the respondent has proved an explanation for the facts from which such inferences can be drawn, but further that it is adequate to discharge the burden of proof on the balance of probabilities that sex was not any part of the reasons for the treatment in question.
(12) Since the facts necessary to prove an explanation would normally be in the possession of the respondent, a Tribunal would normally expect cogent evidence to discharge that burden of proof. In particular the Tribunal will need to examine carefully explanations for failure to deal with the questionnaire procedure and/or code of practice.
(1) that there were objective reasons for the difference;
(2) unrelated to sex;
(3) corresponding to a real need on the part of the undertaking;
(4) appropriate to achieving the objective pursued;
(5) it was necessary to that end;
(6) that the difference conformed to the principle of proportionality;
(7) that was the case throughout the period during which the differential existed.
"In the absence of evidence or a suggestion that the factor relied on to explain the differential was itself tainted by gender, because it was indirectly discriminatory or because it impacted adversely upon women as a group in the sense indicated by the European Court of Justice in Enderby v Frenchay Health Authority, no requirement of objective justification arises, and it is sufficient in law that the explanation itself cause the difference in pay or was a sufficient influence to be significant and relevant, whether or not that explanation was objectively justified"
Mr Allen now argues that that authority cannot apply in this case because, on the facts of this particular case, the discrimination was both tainted by sex and involved a lack of transparency. He relies on dicta from Lord Browne-Wilkinson in Strathclyde Regional Council -v- Wallace[1998] IRLR 147:
"Where the factor explaining the disparity in pay is tainted by sex discrimination, whether direct or indirect, the employer can still establish a valid defence under s.1(3) by objectively justifying such discrimination."
We agree with his submissions on this point as to the seven factors correctly identified by the Tribunal.
"He was not forthcoming either in the conduct of the litigation or in the course of evidence as to pay differentials and reasons for them"
The Respondents had refused to give any details of bonuses for anyone other than the Appellant and her two comparators and, indeed, the process to obtain information about both the bonuses and salary package of Messrs Horsman and Savage, was extremely protracted. The agreed history placed before this Court showed that the basic pay of Mr Savage was not disclosed until 18 September 2001; the salary for Mr Horsman and his LTIPs together with those for Mr Savage, and their bonuses, were not completely disclosed until 18 December 2001, and Mr Horsman's share options were not disclosed until 28 February 2002.
"That there was a consistent avoidance of providing these details until an order was made by the Tribunal for their disclosure in December."
They also refer to an answer in the questionnaire which denied that Michael Savage was intended to be the Head of Media Team, although the Tribunal in paragraph 33 had found that there was an intention that Mr Savage should lead the team. The Tribunal also pointed out that it took until April 2002 for final details of all payments made to Mr Horsman to be disclosed. The Tribunal also found that behavioural issues against the Appellant were not expressed to be a significant component in the bonus calculation until the amended IT3 was lodged on 29 January 2002. Again, in paragraph 81 the Tribunal referred to the:
"questions in relation to the history of the litigation in this case, the avoidance of disclosure of information and the changing of the Respondent's case over time."
Mr Allen in both his written and oral submissions referred to certain other inconsistencies, some of which Mr Lemon has sought to answer. We do not find it necessary to go into each and every allegation. The Tribunal's findings, albeit somewhat brief, coupled with the agreed history of this case make it clear that there were a number of serious matters arising out of the failure of the Respondents to deal properly with the questionnaire procedure and/or to give clear and consistent replies that should have required the Tribunal to draw adverse inferences.
(a) In the Respondents' reply to the questionnaire, they advanced three reasons for differential in salary, two of which were related to criticisms of the performance of the Appellant; at the hearing, the only reason advanced for the difference was that Mr Horsman was being head-hunted
(b) Mr Crosthwaite's evidence was only that he had been told by another person that Mr Horsman was being head-hunted and had not made any enquiries with him about this or as to the incentives that he was being offered. Mr Allen therefore submits that there was no evidence upon which the Tribunal could make findings of fact that there was a real need on the part of the Respondents to increase Mr Horsman's salary and linked benefits in the way that he did.
(c) Even if there was a need in 1999 to provide some additional benefit for Mr Horsman, there was no evidence before the Tribunal that the increases in salary/LTIPs/share options was proportionate to meet that need. The only evidence came from Mr Crosthwaite who said that Mr Horsman's salary was just increased to the highest that they could. In particular, there was no reason why there should have been a differential of share option when they were granted in December 1999.
".. conformed to the principal of proportionality in that they corresponded to a real need of the undertaking, were appropriate to achieve that objective and necessary to that end."
However, we cannot agree with that approach. Bearing in mind the background to this case to which we have already made reference, namely the lack of transparency and the serious failure to deal with the questionnaire process, these were important factors which the Tribunal failed to take into account when assessing the material factor defence. In particular, the Tribunal failed properly to deal with (1) whether the Respondents had proved that there were objective reasons for the difference (2) the issues of proportionality, and (3) whether there was a real need on the part of the business for those differences existing throughout the period of the difference, i.e. between 1999 and 2001, particularly in the light of the Respondents' willingness in April 2001, following a complaint from the Appellant, to increase her salary level to that of Mr Horsman without his salary then being further increased. Accordingly in relation to the equal pay claim we propose to allow the appeal and direct a re-hearing before a different Tribunal.