Appeal No. UKEAT/0060/04/DA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 2 July 2004
Judgment delivered on 27 July 2004

Before
HIS HONOUR JUDGE WILKIE QC
MR T HAYWOOD
MR D WELCH

THE HOME OFFICE	APPELLANT

MRS A BAILEY & OTHERS	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MISS ELIZABETH SLADE
(One of Her Majesty's Counsel)
and
MISS JENNIFER EADY
(of Counsel)
Instructed by:
The Treasury Solicitor
Queen Anne’s Chambers
28 Broadway
London SW1H 9JS

For the Respondents	MS TESS GILL
(of Counsel)
and
MR BEN COOPER
(of Counsel)
Instructed by:
Messrs Thompsons Solicitors
Congress House
Great Russell Street
London WC1B 3LW	

SUMMARY

Equal Pay Act

Equal Pay Act / Article 141: Genuine material difference defence.  Circumstances in which defendant has to objectively justify genuine material difference.

HIS HONOUR JUDGE WILKIE QC

1.	This is an appeal by the Home Office (“the Appellant”) against a decision of the London South Employment Tribunal dated 27 November 2003 in connection with proceedings brought by certain members of staff of the Prison Service claiming equal pay with certain comparators, also employed by the Prison Service.  The equal pay proceedings are brought by, or affect, some 2,000 administrative staff within the Prison Service who are comparing their pay to comparators who also work in the Prison Service as prison officers, or industrial or non-industrial support staff.  The Employment Tribunal is currently engaged in considering a small number of cases which have been brought forward as lead cases.  The particular issue, the subject of this appeal, affects only the equal pay claim brought by administrative staff who at the material time occupied the grade known as Higher Executive Officer (HEO).  The lead cases involving HEOs are brought by Ms T. Clemens and Mrs H. Pollak.  Although the generic application brought by the lead claimants identifies comparators who occupy the positions of Governors 4 and 5, Principal Officers and Senior Officers, the particular comparators identified by these two applicants occupied, at the material time, the position of Governor 4, Governor 5 and Principal Officers.

2.	It is common ground that, pursuant to the Prison Service Job Evaluation Scheme which was embarked upon in about 1996, these applicants were employed on work rated as equivalent with that of their comparators.  Accordingly, pursuant to section 1(2)(b) of the Equal Pay Act, the equality clause in their Contract of Employment applied so that any term of their contract which became less favourable than a term of a similar kind in the contract of the comparator is, prima facie, to be treated as modified so as to be not less favourable.

3.	The Appellant, however, resists this conclusion by relying on section 1(3) of the Act which provides that “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 genuinely due to a material factor which is not the difference of sex.”

4.	The “genuine material factor” relied upon by the Appellant is, for the purpose of this appeal, is the difference in pay-bargaining as between the Applicants and their comparators.  Separate pay-bargaining structures are in place that have given rise to separate collective bargains producing different remuneration packages applicable to the different groups over the years.

5.	The operation of section 1(3), as it has been informed by case law of the European Court of Justice applying article 141 of the Treaty has been best explained by Lord Nicholls in Glasgow City Council v Marshall [2000] ICR 196 at page 202F to 203B.  He said as follows:

“The scheme of the Act is that a rebuttable presumption of sex discrimination arises once the gender based comparison shows that a woman doing like work or work rated as equivalent or work of equal value to that of a man, is being paid or treated less favourably than the man.  The variation between her contract and the man’s contract is presumed to be due to the difference of sex.  The burden passes to the employer to show that the explanation for the variation is not tainted with sex.  In order to discharge this burden the employer must satisfy the tribunal on several matters.  First, that the preferred explanation, or reason, is genuine, and not a sham or pretence.  Second, that the less favourable treatment is due to this reason.  The factor relied upon must be the cause of the disparity.  In this regard, and in this sense, the factor must be a “material” factor, that is, a significant and relevant factor.  Third, that the reason is not “the difference of sex”.  This phrase is apt to embrace any form of sex discrimination, whether direct or indirect.  Fourth, that the factor relied upon is … a “material” difference, that is, a significant and relevant difference, between the woman’s case and the man’s case. When section 1 is thus analysed, it is apparent that an employer who satisfies the third of these requirements is under no obligation to prove a “good” reason for the pay disparity.  In order to fulfil the third requirement he must prove the absence of sex discrimination, direct or indirect.  If there is any evidence of sex discrimination, such as evidence that the difference in pay has a disparately adverse impact on women, the employer will be called upon to satisfy the tribunal that the difference in pay is objectively justifiable.  But if the employer proves the absence of sex discrimination he is not obliged to justify the pay disparity.”

6.	The issue which the Employment Tribunal decided and from which the Appellant appeals, was whether, in respect of this particular group of Applicants and Comparators, the appellant was obliged objectively to justify the difference in pay or whether it might establish the section 1(3) genuine material factor defence, merely by showing that the factor relied upon was the cause of the difference.  The issue, therefore, was whether there was any evidence of sex discrimination, such as evidence that the difference in pay had a disparately adverse impact on women.  The Employment Tribunal by its decision concluded that, on the evidence which they had received and on the approach which they took to that evidence, there was a prima facie case of indirect discrimination such as to impose an obligation on the Appellant objectively to justify any variation in pay and other terms and conditions of employment between the applicants and their comparators.

7.	The evidence before the Tribunal was that during the years 1995 to 1999 the HEOs comprised a small majority of males, though the proportion of females within the HEOs rose during that period from 39.3% to 45.2%.  By the year 2000, however, the number of females who were HEOs comprised 50.7%. By way of contrast, it is common ground that the composition of the comparator groups, whether or not including Senior Officers, was predominantly male.

8.	The issue before the Tribunal, and the principal issue for us, has been what was the appropriate method for investigating whether, on the facts of this case, a prima facie case of sex discrimination arose so as to give rise to the obligation in the Appellant objectively to justify the difference.  There are two decisions of the European Court of Justice which are principally relied upon as setting out the appropriate approaches to this issue in a range of different types of case.  The first is the case of Enderby v Frenchay Health Authority [1994] ICR 112.  That case concerned the outcome of collective bargaining agreements whereby speech therapists, a predominantly female profession, received lower pay than pharmacists, a predominantly male profession.  The question posed by the Court of Appeal for the ECJ to answer, which is relevant to this case, was as follows 

“7.	…whether the principal of equal pay for men or women requires the employer to prove, by providing objective justification, that a difference in pay between two jobs assumed to be of equal value, of which one is carried out almost exclusively by women and the other predominantly by men, does not constitute sex discrimination.”

The reasoning of the ECJ in deciding this question appears from the following passages in their judgment:
“14.	However, it is clear from the case law of the court that the onus may shift when that is necessary to avoid depriving workers who appear to be the victims of discrimination of any effective means of enforcing the principal of equal pay.  Accordingly, when a measure distinguishing between employees on the basis of their hours of work has in practice an adverse impact on substantially more members of one or other sex, that measure must be regarded as contrary to the objective pursued by article 119 of the Treaty unless the employer shows that it is based on objectively justified factors unrelated to any discrimination on grounds of sex …Similarly, where an undertaking applies a system of pay which is wholly lacking in transparency, it is for the employer to prove that his practice in the matter of wages is not discriminatory, if a female worker establishes, in relation to a relatively large number of employees, that the average pay for women is less than that for men … 
15.	In this case, as both the health authority and the United Kingdom observe, the circumstances are not exactly the same as in the cases just mentioned.  First, it is not a question of a de facto discrimination arising from a particular sort of arrangement such as may apply, for example, in the case of part-time workers.  Secondly, there can be no complaint that the employer has applied a system of pay wholly lacking in transparency since the rates of pay of National Health Service Speech Therapist and Pharmacists are decided by regular collective bargaining processes in which there is no evidence of discrimination as regards either of those two professions.  
16.	However, if the pay of speech therapists is significantly lower than that of pharmacists and if the former are almost exclusively women while the latter are predominantly men, there is a prima facie case of sex discrimination, at least where the two jobs in question are of equal value and the statistics describing that situation are valid… 
18.	Where there is a prima facie case of discrimination, it is for the employer to show that there are objective reasons for the difference in pay.”

9.	The Appellant’s contention is that the case of Enderby establishes 3 distinct situations in which a prima facie case of discrimination may be established by different means.  The first is where there is a “barrier” or a “requirement or condition” or even “a provision, criterion or practice” which, if it can be demonstrated that it has a disparate impact on women, evidences prima facie indirect discrimination.  The second, which the parties are agreed does not apply in this case, is where the bargaining arrangements are not transparent.  In such a case if the women establishes that in relation to a relatively large number of employees the average pay for women is less than for men then there is a case of prima facie discrimination.  The third situation, which was the case in Enderby and which the Appellant says is the type of case with which we are concerned, is where neither of situations one or two arise but where it can be demonstrated that the disadvantaged group is predominantly female whereas the advantaged group is predominantly male.  In such a case there is a prima facie case of discrimination.  The Appellant says that on the evidence in this case, whilst the advantaged group is predominantly male, the disadvantaged group is neither predominantly male nor female.  In those circumstances the Appellant says there is no prima facie case of discrimination and so the obligation to objectively justify the difference does not arise.

10.	The second leading decision of the ECJ is R v Secretary of State for Employment ex parte Seymour-Smith and another [1999] ICR 447.  In this case the Applicants, amongst other things, called into question whether the establishment of a two year qualifying period for an employee to have a right to claim Unfair Dismissal had such a degree of disparate effect as between men and women as to amount to indirect discrimination so as to give rise to an obligation upon the Secretary of State to demonstrate an objective justification for it.  The House of Lords sought of the ECJ the answer to the question “what was the legal test for establishing whether a measure adopted by a member state has disparate effect as between men and women to such a degree as to amount to indirect discrimination for the purposes of Article 119 of the EC Treaty”.  The ECJ answered this question in the following terms.

“59.	Next, as the United Kingdom Government was right to point out, the best approach to the comparison of statistics is to consider, on the one hand, the respective proportions of men in the workforce able to satisfy the requirement of two years employment under the disputed rule and of those unable to do so, and, on the other, to compare those proportions as regards women in the workforce… 
60	…it must be ascertained whether the statistics available indicate that a considerably smaller percentage of women than men is able to satisfy the condition of two years employment required by the disputed rule.  That situation would be evidence of apparent sex discrimination unless the disputed rule were justified by objective factors unrelated to any discrimination based on sex.”

11.	The Employment Tribunal in this case approached the question whether there was apparent sexual discrimination by adopting the approach indicated by the ECJ in the case of Seymour-Smith.  It did so by establishing a pool comprising the HEOs and what it took to be the relevant comparator grades of Governors 4 and 5, Principal Officers and Senior Officers.  It identified, respectively, the number of women and the number of men within that pool.  It then identified the proportion of women within the pool who were disadvantaged and it then identified the proportion of men in the pool who were disadvantaged.  The proportion of women in the pool who were disadvantaged was 26% and the proportion of men in the pool who were disadvantaged was 3.4%. They therefore concluded that the disadvantage impacted disparately on women than on men in the sense that for every one man who was disadvantaged 8 women were disadvantaged.  On the basis of that calculation, therefore, they concluded that there was a prima facie case of discrimination made out so as to place upon the Appellant the burden of objectively justifying the outcome.

12.	The approach of the Tribunal which persuaded them that this, “Seymour-Smith” statistical exercise was appropriate was to consider whether, as in Seymour-Smith, there was a “requirement or condition” which had to be satisfied in order to be within the advantaged group and which, therefore, could be the subject of a statistical analysis so as to see whether that requirement or condition had a disparate impact upon women as opposed to men.  They posed themselves a question and answered it in the following terms:

“17.	…In our view the appropriate question to ask when search for a requirement or condition is what one has to do to obtain the advantage enjoyed by the comparator group.  In the present case the answer to that question is that one has to be a member of that comparator group.  It is true that this answer does not, as is so often the case, raise a need to satisfy qualification for recruitment.  The answer we have given refers simply to the existence of a fact situation.  Those who are members of the group can satisfy the condition of obtaining the advantage; those who are not members of the group cannot satisfy that condition.”

13.	The Appellant criticises this approach.  It agrees, implicitly, with the Tribunal that in order for the Seymour-Smith approach to be adopted there has to be a “requirement or condition” which impacts disparately on women rather than men.  It says, however, that it is a circular argument to say that the requirement or condition for being a member of the advantaged group is that one has to be a member of the advantaged group.  In truth, the Appellant contends, the situation is not one where there is any requirement, or condition, or provision criterion or practice which impacts disparately on one sex.  Rather, this is a case where, if at all, it falls within the third category identified in Enderby.  There are two groups of workers the subject of separate collective bargaining arrangements where there is a disparity in pay levels.  The appropriate approach is to see whether the group which is advantaged is predominantly male and the group which is disadvantage is predominantly female.  If so, there would be a case of prima facie discrimination.  In this case, the advantaged group is predominantly male but the disadvantaged group is neither predominantly male or female. There is, therefore, no evidence of prima facie discrimination.  There may be evidence of a policy which impacts unfairly on different working groups, but that is not the mischief against which the legislation is aimed.

14.	In our judgment, this criticism of the Employment Tribunal decision is well founded.  It is wholly artificial to try to erect as a requirement or condition of being a member of an advantaged group the fact that one is a member of the advantaged group.  It is noteworthy that the Applicants have not seriously sought to advance their case by relying on this aspect of the Employment Tribunal’s decision.  What they say is that as a matter of first principal and authority the Seymour-Smith approach is apt to be applied in this case and they seek to rely on European and Domestic Authority subsequent to Seymour-Smith in support of their contention. 

15.	The way that they put it as a matter of principle is set out in their skeleton argument as follows:
“the applicants submit that although on its facts the Seymour-Smith case was a case where there was a clear condition of two years employment which had to be satisfied in order to quality for the more favourable treatment, the statistical approach is equally apt for discrimination which manifests itself as a pay disparity between two occupational groups.  In such a case the test is whether the statistics available indicate that a considerably smaller percentage of women than men is able to satisfy “the condition” of being in the advantaged occupational group.  In the applicants submission nothing turns on whether “the condition” is a condition by way of a barrier or formal requirement imposed by the prison service as against a pay practice which treats the advantaged group more favourably than the disadvantaged group”.

16.	The Applicants contend that subsequent to the decision in the Enderby case there has been no case in which the ECJ has relied on that case as setting down any particular principle in relation to the test for determining indirect discrimination.  On the contrary, they contend, the court has referred to Seymour-Smith as the leading authority on the test for determining disparate impact.  They rely in particular on the case of Jamstalldhetsombudsmannen v Orebro Lans Landsting [2001] ICR 249 (the “Swedish Midwives” case).  In that case the complaint concerned a comparison of the unequal basic pay respectively of Midwives and Clinical Technicians who did work which was of equal value.  All the midwives were women whereas 90% of Clinical Technicians were men.  The European Court of Justice in paragraph 50 of its decision set out its reasoning as follows:

“…in order to establish whether it is contrary to article 119 of the Treaty and to Directive 75/117 for midwives to be paid less, the national code must verify whether the statistics available indicate that a considerably higher percentage of women than men work as midwives.  If so, there is indirect sex discrimination unless the measuring point is justified by objective factors unrelated to any discrimination based on sex” 

17.	The ECJ then cites paragraph 65 of the judgment in Seymour-Smith.  As we have seen paragraph 65 of Seymour-Smith refers to the question being:
“…whether the statistics available indicate that a considerably smaller percentage of women than men is able to fulfil the requirement imposed by the statutory measure.” 

18.	In paragraph 54 of the Swedish Midwives case the ECJ reaches its conclusion and expresses itself in slightly different terms to those which it used in paragraph 50.  It says:

“…If a difference in pay between the two groups compared is found to exist, and if the available statistical data indicate that there is a substantially higher proportion of women than men in the disadvantaged group, article 119 of the Treaty requires the employer to justify the difference by objective factors unrelated to any discrimination on grounds of sex.”

19.	It seems to us that there is some merit in the Applicants' argument that the Swedish Midwives case does constitute an example of the Seymour-Smith approach being applied to a case where there is no “barrier” but simply the disparate treatment of two different working groups whose work has been assessed as being of equal value.  The different language used in paragraphs 50 and 54 might, on one view, be thought simply to require an examination solely of midwives in order to see whether a majority of midwives were women and if so how larger majority.  On the other hand it might  be apt to contemplate an examination of the pool of women and of men in order to see whether the proportion of women in the pool who were within the disadvantaged group, midwives, was substantially higher than the proportion of men in the pool who fell within that disadvantaged group.  The fact that reference is explicitly made to paragraph 65 of Seymour-Smith tends to suggest that this is the approach which the ECJ had in mind.

20.	The Applicants also rely on a very recent decision of the Employment Appeal Tribunal in Paterson and London Borough of Islington v Others (2004) UKEAT/0347/03/DA.  In that case three groups of workers namely: municipal cleaners, school cleaners and kitchen assistants were being compared with assistant caretakers.  In the first two cases some 67.7% of the cleaners were women and in the third case 94% of kitchen assistants were women whereas about 87% of assistant caretakers were male.

21.	This case was argued on the basis that Enderby was the relevant authority.  The argument focussed on the precise formulation of the ECJ in Enderby of which referred to the disadvantaged group being made up “almost exclusively by women”.

22.	The conclusion of the Employment Appeal Tribunal in Paterson was set out in paragraph 67 as follows:

“…we agree with Mr Ford that Enderby cannot be understood as a case whose principle only applies in circumstances in which the disadvantaged group is made up “almost exclusively” of women.  First, if that is the test what does “almost” mean?  Enderby shows that it means 98% and Mr Lynch has conceded that it also means 94%.  But would it cover 90% or 85%?  What is the cut-off point, and what is the explanation for it?  If it is, say, 85% what is the magic of the different between 84% and 86%?  If Mr Lynch is correct in his submission as to the extent of the principle established by Enderby, then we consider that the principle would be too uncertain to be capable of practical application, if indeed it could be regarded as being a principle at all.  We cannot accept that the Court of Justice was deciding the case on the narrow and unreasonable basis that Mr Lynch suggest.  Secondly, and flowing from this, we consider that the broader underlying principle of Enderby must be, and is, that there will be cases in which, having regard to the relative sizes of the proportions of women in the disadvantaged group and men in the advantaged group, a prima facie case of direct sex discrimination in relation to pay will be regarded as arising that is sufficient to cast on to the employer the burden of proving that the pay difference is objectively justifiable.  We consider that is the only rational basis upon which the decision can have been founded.”

23.	The EAT found support for its approach in a decision of the Northern Ireland Court of Appeal in British Road Services Limited v Loughran [1997] IRLR 92.  In that case the decision in Enderby was considered and in particular the use of the words “almost exclusively”.  The majority of the Northern Ireland Court of Appeal concluded that “almost exclusively” is not a precise description but concluded that the approach of the Tribunal in that case, that there had to be a significant number of women in the disadvantaged group, was a question which accorded more readily with the philosophy of the legislation.

24.	It is worthy of note that in each of the cases to which we have referred, Enderby, the Swedish Midwives case, Paterson v London Borough of Islington and British Road Services Limited v Loughran the factual position was relatively clear cut.  In each of those cases there were far more women than men in the disadvantaged group and far more men than women in the advantaged group.  The same result would follow inevitably whether one approached the question by the Seymour-Smith route or the Enderby route.  In the present case, however, the position is different.  At the relevant time, January 1999, although the comparator groups, who were advantaged, were predominately male the disadvantaged group was in fact 54.8% male and 45.2% female.  The Tribunal used for its calculation figures for March 2000 at which point the disadvantaged group was 50.7% female and 49.3% male.  Applying the Seymour-Smith approach to the pool selected by the Tribunal the outcome would have been the same whether or not the January 1999 or March 2000 figures were used.  Thus, using that approach there would be a finding of prima facie sex discrimination where the advantaged group was predominately male and the disadvantaged group was marginally more male than female.  If this were the correct approach then, we agree with the Appellant’s comment that it would turn the Equal Pay Act into a Fair Wages Act.  Applying the Enderby approach there is no dispute but that the conclusion would have been that no prima facie case of sex discrimination would be established.  This, therefore, is a case in which the decision whether to apply the Enderby approach or the Seymour-Smith approach would be decisive of the issue.

25.	In our judgment the Tribunal was wrong in identifying a “requirement or condition” but was right in acknowledging that such a “requirement or condition” was the necessary condition for applying the Seymour-Smith approach.  In our judgment the decision in Enderby identifies different situations and sets out the different approaches to be applied in each.  In many cases it matters not which approach is adopted.  It is for that reason that we do not consider that the Swedish Midwives case is to be regarded as determinative as the question whether to adopt the Enderby or the Seymour-Smith approach was not in issue as a matter of acute debate.  The questions which the ECJ was addressing were identified in paragraph 35 of its decision as being that:
“…the National Court is essentially asking whether the inconvenient hour of supplement must be taken into consideration in calculating the salary used as the basis for a pay comparison for the purposes of article 119 of the Treaty and Directive 75/117.”

The passages in paragraph 50 and 54 relied upon by the Applicants in this case follow immediately upon the ECJ reaching a conclusion on that issue which was the substance of their decision.

26.	In our view there is a clear and sensible difference between: on the one hand assessing the disparate impact of a requirement, or a condition, or a provision, criterion or practice which presents a barrier to or militates against women becoming a member of a particular work group; and, on the other, considering whether a disparity of pay which has arisen as between two work groups by reason of a history of different arrangements for collective bargaining evidences sex discrimination.  In the former case it is sensible to compare the extent to which men and women across a pool can satisfy the provision, criterion or practice in order to become a member of that working group.  By so doing the disparate impact of the provision, condition or practice may be measured.  On the other hand, where it is simply a question of whether membership of a particular working group and a history of collective bargaining operates disparately as between sexes it makes sense, as it did in Enderby, to consider that if the advantaged group is predominately male and the disadvantaged group is predominately female then there is a prima facie case of discrimination.  Where, however, the advantaged group is predominately male and the composition of the disadvantaged group is neutral in gender terms then the situation may not be fair, but it is not prima facie discriminatory on grounds of sex.
27.	Accordingly we uphold the appeal.  We are in as good a position as another Employment Tribunal would be to make the decision.  We order that the Appellant is not required objectively to justify any variation in pay and other terms and conditions of employment between the Applicants employed as HEOs in the Prison Service Administration and their comparators.  Whether that comparator group comprises Governors grades 4 and 5, Principal Officers and Senior Officers or merely Governors, grades 4 and 5 and Principal Officers is not a matter upon which we need to express any view.

28.	The Appellant raised other grounds of appeal essentially concerning the identification of the pool for the purpose of applying the Seymour-Smith calculation.  If it turns out that our primary decision on this appeal is wrong, it is our conclusion that the Tribunal did not err in adopting, as the relevant pool, the HEOs and the comparator groups.  As we have indicated there is a dispute as to whether the Senior Officers should properly have been included in that pool.  Our conclusion is that the Tribunal was wrong to include the Senior Officers in the pool but that, had they correctly identified the pool as comprising only the comparator groups Governor 4, Governor 5 and Principal Officers then, if the Seymour-Smith test were the correct one, the outcome would have been the same.  Accordingly we would not have upheld the appeal on that ground or on any of the other grounds which were really ancillary to the identification of the pool and the precise numbers involved in the calculation.

29.	As we intimated to the parties at the hearing, if the Applicant’s wish to appeal our decision to the Court of Appeal, we grant permission for them to do so.