The material factor defence in 2024

The concept of equal pay is not simply one of "fair pay". Under the Equality Act 2010, employees should receive the same pay and contractual benefits for doing the same job, jobs that are of equivalent value or which have been rated as equivalent under a valid job evaluation scheme, regardless of gender. This is achieved by incorporating a "sex equality clause" into employment contracts.

If it is established that the two jobs are "equal", an employer can still defend a difference in pay or contractual terms by saying it exists because of a material factor (historically referred to as a "genuine" material factor defence before the Equality Act) unrelated to sex (the MF defence). Despite extensive equal pay litigation in recent years, the courts have generally sought to avoid establishing broad principles for this defence, making its success heavily dependent on the specific details of each case.

Scottish Water v. Edgar

In the case of Scottish Water v. Edgar, the Employment Appeal Tribunal (EAT) found that it was not necessary for an employer to identify the individual who set the pay for the claimant's male comparator as an essential prerequisite to advance their MF defence. The comparator had been recruited after the claimant to the same position but on a higher salary. The EAT found that the Employment Tribunal (ET) should have concentrated on the actual reasons for the difference in pay rather than the subjective views of the decision-maker. It found that evidence in relation to the MF defence can be indirect or come from a knowledgeable second party and that post-appointment comparative evidence of the claimant and her comparator's respective skills and abilities was crucial to determining whether the MF defence was established.

Thandi v. Next Retail

In the more recent case of Thandi v. Next Retail, the ET considered a number of MF defences led by the employer relating to the basic pay of the claimants and their comparators, and in relation to other entitlements.

Next tried to advance a market forces MF defence in relation to paying warehouse staff more basic pay than shop staff. This defence was found to be tainted by sex because the claimants were in roles that were carried out predominantly by women and the comparators were in roles carried out predominantly by men. The ET found that, while the policy of keeping retail salaries low was a way of ensuring viability, resilience and successful performance of its business, Next could have afforded to pay more to retail staff but chose not to do so to retain profitability. It concluded that cost-cutting was not a legitimate aim justifying the MF defence.

However, Next did succeed in objectively justifying other payments and bonuses paid to warehouse staff which were not payable to store staff. For example, Next paid triple time to its warehouse staff for working on public holidays but only offered time and a half to shop staff. Next was able to demonstrate that, without paying triple pay, it would have struggled to find sufficient warehouse staff to work public holidays.

Looking to the future

Next has indicated that it will be appealing the decision so this is one to keep an eye on. It is also one of the first decisions in what is understood to be a long line of similar claims against other employers in this sector, including a number of major supermarket chains. There are likely to be further decisions and appeals on the MF defence to look out for. In the meantime, a word of caution to employers trying to rely on a cost-cutting or market forces defence in equal pay claims stemming from historic inequality between predominantly male and female roles.