Welcome to our 5-minute round-up of people and workplace updates, hand-picked to help HR teams.

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EAT clarifies material factor defence in equal pay dispute: market-driven warehouse pay can be justified

HR teams should take note of fresh guidance from the Employment Appeal Tribunal (EAT) on how to frame and evidence market-related pay differentials, particularly between retail and logistics roles.

What happened?

Predominantly female retail sales consultants at Next brought equal pay claims, comparing themselves with warehouse operatives who were paid more, especially on basic pay. The tribunal found work of equal value and considered the s.69 Equality Act 2010 material factor defence. It rejected direct discrimination under s.69(1)(a) on the basis that sex did not influence pay decisions, but found particular disadvantage under s.69(1)(b) given workforce demographics and benchmarking of warehouse pay against a predominantly male labour market.

Although the tribunal accepted that paying market rates for warehouse staff was necessary to sustain service, it held this was not a legitimate aim, characterising the justification as no more than a cost-saving exercise, and alternatively found the measures disproportionate, pointing to Next’s “financial headroom”.

The tribunal concluded the material factor defence failed for basic pay and certain benefits. It reasoned that allowing market forces to be a “trump card” would undermine the legislation and suggested a “more compelling business reason” was required to justify the differential. It upheld the material factor defence on some of the terms, including bonuses which were paid to warehouse workers to fend off competition from Amazon.

What did the EAT change?

The EAT upheld the finding of particular disadvantage under s.69(2) but held the tribunal had erred on legitimate aim and proportionality. Properly characterised, the employer’s aim encompassed recruiting and retaining sufficient warehouse staff to maintain the warehouse service. The tribunal had wrongly required justification for not raising retail pay, rather than focusing on why warehouse rates were higher.

It further erred by imposing a “more compelling business reason” test, despite established authority recognising that recruitment-driven pay differentials may be justified on the facts. References to “financial headroom” showed a focus on the affordability of equalising pay, not the reason for the difference. On the tribunal’s own findings, the warehouse premium was a proportionate means of achieving a legitimate aim. The EAT therefore allowed the appeal on basic pay and certain other benefits, but not on night-time premiums and paid rest breaks, where the tribunal had correctly treated the difference as a cost-saving measure.

The EAT rejected the cross appeal, rejecting the argument that direct discrimination must be found whenever an employer relies on market forces without proving that those market forces do not disadvantage one sex. The finding that sex played no part in Next’s decisions was fatal to that claim. The judgment underscores that reliance on market forces alone is not enough, but where higher rates are genuinely driven by recruitment and retention needs specific to a role, a material factor defence may succeed if accurately framed and evidenced.

Key takeaways:

  • Define the aim precisely: recruitment and retention for specific roles, not general cost control.
  • Evidence the need: contemporaneous data on vacancies, turnover, pay benchmarking and service impact.
  • Focus on the reason for the differential, not on affordability of equalising pay.
  • Apply consistent, role specific criteria; avoid gendered assumptions about markets.
  • Review ancillary benefits: avoid changes that are motivated solely by reducing costs.
  • Keep records showing sex did not influence pay decisions and that alternatives were considered.

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TUPE does not pass vicarious liability for third party claims

A Court of Appeal decision narrows the scope of liabilities that move under TUPE. It confirms that a transferor’s vicarious liability to third parties for employees’ wrongs does not pass to the transferee on a relevant transfer.

What happened?

ABC, a former patient at a psychiatric hospital run by H Ltd, sought damages for alleged mental and verbal abuse by staff and for frequent restraint incidents during 2018/19. All alleged events occurred before a TUPE transfer in March 2021 to AYP Ltd. After the transfer, H Ltd went into liquidation. Given a £250,000 deductible on H Ltd’s public liability insurance, ABC argued that H Ltd’s vicarious liability for employees’ acts transferred to AYP Ltd under Regulation 4(2)(a) TUPE, so that ABC could sue AYP Ltd for the pre-transfer conduct. The High Court rejected that argument.

What did the Court of Appeal decide?

The Court of Appeal dismissed ABC’s appeal. Construing TUPE by reference to the purpose of the EU Acquired Rights Directive, it held that TUPE safeguards employees’ existing rights on a change of employer and is not designed to facilitate third party claims against the transferor.

Why does it matter?

The decision confirms that TUPE is directed at the protection of employees’ rights and does not operate to transfer third-party tort liabilities.

Key takeaways:

  • Focus due diligence on liabilities with employee rights rather than third party tort claims.
  • Where possible ensure insurance arrangements remain with the transferor for pre-transfer events.
  • Seek warranties and indemnities to address third party tort exposures outside TUPE.
  • Maintain robust employee conduct, safeguarding and incident reporting.

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Interim relief in whistleblowing claims

A recent EAT decision underlines that tribunals must weigh the evidence quickly and give adequate reasons when deciding whether to order interim relief.

What happened?

Mr Duffy worked at a hotel operated by BXTR 3 t/a House of Gods. After police attended an incident at the premises, Mr Duffy said he told his manager that fire escape doors were being left open and that building security was compromised, putting guests and staff at risk. After his dismissal a few days later, the employer denied any protected disclosure had been made and said it had already decided to dismiss him for poor performance. Mr Duffy claimed automatic unfair dismissal for whistleblowing and sought interim relief – i.e. an order that he continue to be paid until a full hearing.

What did the tribunal decide?

The tribunal refused interim relief, pointing to fundamental disputes of fact between the parties about what had been said, when, and why the dismissal occurred.

What did the EAT change?

The EAT disagreed and held that disputed facts are not, in themselves, a reason to refuse interim relief. The correct test is whether the claimant has a “pretty good chance” of ultimately succeeding. Even where facts are contested, the tribunal must undertake a quick, summary assessment of the evidence. The tribunal had not done that.

The EAT also found the tribunal’s reasons were inadequate because it failed to address a voice recording provided by Mr Duffy. This was a significant piece of contemporaneous evidence that needed to be considered. The application was remitted to the same tribunal for reconsideration.

Why does it matter?

Interim relief applications move fast and turn on a snapshot evaluation of the likely merits. They also have profound consequences if granted because the claimant must then be paid until the full hearing and you don’t get the money back if you win. Tribunals cannot refuse them simply because of a factual dispute. Where there is potentially significant evidence presented, decision-makers must assess it and explain their conclusions.

For employers, this raises the stakes at an early stage and we are seeing more such claims – often aided by AI.

Key takeaways:

  • Preserve and review contemporaneous evidence promptly, including any recordings or transcripts.
  • Do not assume factual disputes will defeat interim relief; be ready to provide evidence of performance or conduct issues.
  • Document pre-existing dismissal decisions clearly, with dated records and clear rationale.
  • Ensure managers log and escalate safety and security concerns when raised.
  • Prepare concise witness statements and key documents that can be understood quickly in a summary assessment.

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If you have any questions on anything outlined above, get in contact with Paul Seath.

The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further advice.