Court of Appeal finds Asda's store staff and distribution centre staff "comparable"

What could this mean for UK employers?

Asda has lost its appeal against the earlier decisions of the employment tribunal and Employment Appeal Tribunal, in relation to the defence of its equal pay claims. Common terms apply to Asda's depot staff (most of whom are male) and its (largely female) retail workers.

The Court of Appeal's judgment, and those that will follow as the claim progresses, will no doubt act as an important precedent to determine the fate of similar cases in the media spotlight – as Sainsbury's, Tesco and Morrisons are also facing equal pay claims from staff. Here, we look at guidance from the Court of Appeal on the key aspects of this ruling.

Employers should take note that the consequences of this case are unlikely to stop with supermarkets. Now that we are starting to see equal pay claims ripple through the private sector, UK employers are becoming increasingly alert to other scenarios in the private sphere where unequal pay may be an issue (for example, in other areas of the retail industry). Crucially, the Court of Appeal has made clear here that staff can progress equal pay claims where they are engaged at entirely separate factions of the business from their comparators.

Equal pay claims: what are they?

Equal pay legislation operates by implying 'equality clauses' into employment contracts. The 'sex equality clause' gives an employee the benefit of more favourable terms which apply to a person of the opposite sex in the same employment doing equal work (unless the difference can be explained by reference to a non-discriminatory material factor). Equal work can mean like work, work rated as equivalent, or work of equal value.

A successful equal pay claim can result in an award of back pay and/or damages. In fact, given their lengths of employment, the claimants in the Asda case may be entitled to claim pay from the earlier period governed by the Equal Pay Act 1970 (which predated the Equality Act 2010).

What are the Asda retail workers claiming?

Asda has 630 stores with 133,000 hourly-paid employees employed on retail terms. It also has 24 distribution centres where 11,600 hourly-paid employees are employed on distribution terms. None of its depots are based on the same sites as any of its retail stores.

Asda has received over 7,000 claims from retail staff (who are largely, but not all, female) claiming that they can compare themselves to a (largely) male group of distribution depot staff, whose jobs involve similar duties of equal value to theirs, yet whose terms of employment (including hourly wage and bonuses) are more favourable. The question of comparability, which forms the first stage of their equal pay claim, was the issue before the Court of Appeal.

For equal pay purposes, an employee can only use another employee who is engaged at a different site within a business as a comparator if common terms apply to the two establishments. Did common terms apply both at Asda's retail stores and at its depots?

What did the Court of Appeal decide?

The Court concluded that even though the two groups (retail and distribution staff) worked at entirely separate establishments (meaning no distribution worker would have carried out distribution work at a retail site, and no retail worker would have undertaken retail work at a distribution depot), it was possible to compare them because Asda applied broadly common terms of employment for the relevant groups across its sites. The Court therefore dismissed Asda's appeal.

The 'North Hypothetical'

Although the Court of Appeal upheld the conclusion of the employment tribunal, it disagreed with how the Tribunal had structured its reasoning.

According to the Court of Appeal, the tribunal had "painstakingly" compared the terms of employment of the retail and distribution employees – using table charts provided by the parties (which had required the lodging of some nineteen files, containing over 10,000 documents).

In the Court of Appeal's opinion, the tribunal had been "conducting wholly the wrong exercise". Given that no retail workers were actually employed at depots, and no distribution staff at stores, the Court considered that a comparison between the claimants and their comparators' actual terms of employment was unnecessary.

The correct question (which the Tribunal had also gone on to consider) was what the Tribunal had termed "the North hypothetical": would the comparator still have been employed on terms broadly similar to his existing terms if he were, hypothetically, asked to do his job at the claimant's location (even if this was very unlikely to happen in practice)?

The trick to engaging in this hypothetical comparative exercise (urged the Court) was to recognise that "the factual hypothesis is inherently unrealistic". It also did not require any extensive factual evidence: it was simply a way of asking whether the terms for the employees applied, irrespective of where they worked. The Court found, in the claimants' favour, that if there were a depot at an Asda store, the terms of the depot employees working there (including their hourly wage) would remain unchanged.

Single source

The Court of Appeal also noted that the terms applying to Asda store staff and distribution staff had a single source (which is a relevant factor under the applicable EU legislation), as both sets of terms were decided by the same employer who had the power to make them equal.

On the facts, Asda's Executive Board and sub-committees of that Board control the financial budgets and oversees the distribution and retail functions at all times. The Court concluded therefore that the Executive Board had responsibility for the differences in pay and the power to equalise them (under the control of its parent company, Wal-Mart).

What next?

Asda has the lost this first stage of its equal pay defence, but the second and third stages of the claims are still to be determined: namely, whether the claimants perform work of equal value to that of their comparators, and whether Asda has a "material factor" defence (ie some other reason, beyond sex discrimination) for the difference in pay.

The Court of Appeal's judgment will no doubt have consequences for how the courts deal with the question of "same employment" in future equal pay claims (ie "stage one" of any equal pay claim) in both the ongoing supermarket cases, and further afield. In particular, it is likely to set the tone for cases where the claimant and their comparator are engaged at different sites within a business – requiring the courts to determine whether common terms of employment apply to both.

This appears to be a largely hypothetical exercise for the courts, which may mean that the "stage one" bar in these cases is lower than previously thought. Had Asda been successful in its appeal, this may have meant that employers could have better defended equal pay claims on the basis that their employees belong to different parts of the business – at different sites, with different regimes applying to them.

Should UK employers in other industries be worried?

It is estimated that the total value of claims against Asda, Sainsbury's, Tesco and Morrisons could exceed £8 billion if they are ordered to pay all eligible staff. Until recently, equal pay claims have tended to sit in the public sector, but the supermarket claims are signalling a change.

In theory, similar claims could spill over into any industry where a 'store' versus 'centre' distinction can be drawn amongst a business' workforce – think restaurant waiting staff versus distribution staff, or staff in an off-site dark kitchen, or retail store assistants versus warehouse staff.

What should employers do?

This case shows the importance of employers assessing their potential exposure to similar equal pay claims at an early stage. Taking proactive steps to limit liability could minimise the costs of defending potential claims in the long term, as well as any associated reputational damage (particularly in the age of #MeToo and the new gender pay gap reporting requirements). A few starting ideas include:

• Carrying out an equal pay audit to identify any areas where male and female staff perform similar roles, but have different rates of pay. This should include cases where their roles are carried out at different sites but where the terms applying to each are (broadly) comparable.
• Consider whether any differences in remuneration or bonus are objectively justifiable by some non-discriminatory reason (this will depend on the circumstances but might include, for example, seniority or geographical reasons).
• If they aren't justifiable, consider how to contain those situations and limit potential liability – this might be done through negotiation with employees, increasing salaries, and/or entering into settlement agreements.