Why companies must understand new rules on equal pay

Many private sector employers wrongly assume that equal pay is an issue for the public sector only. That is perhaps understandable: the highest-profile cases today involve Birmingham City Council and the NHS. But claims in the private sector do arise, such as in the financial services sector where pay structures can be shrouded in secrecy.

Any organisation which contracts with the public sector should also consider the risks of equal pay claims. The Transfer of Undertakings regulations (TUPE) result in employees doing the same work on different terms and conditions – fertile ground for claims of inequality. The fact there has been a TUPE transfer will only act as a defence to equal pay claims for a while – employers are expected to work towards eliminating pay differences between men and women doing like work.

The equal pay gap is currently 16.4% for full-time work, although the estimates are more than double this for part-time work and in certain sectors such as financial services. Tackling this gap was a key policy of the former government – and to some people’s surprise the Coalition Government has taken up the baton. Measures in the Equality Act 2010 to promote transparency around pay came in to force today.

Secrecy about pay is thought to perpetuate inequality, so these measures are designed to enable employees to talk about their pay without fear of reprisal – “secrecy clauses” in contracts forbidding such discussions are banned, and disciplinary procedures for discussing pay may result in a claim of victimisation.

David Cameron has also said that he believes organisations found liable of sex discrimination should be forced to carry out an equal pay audit – a frightening prospect for any employer who does not know whether there are pay inequalities it should address. It has been job evaluation studies that have unearthed the equal pay claims in the public sector – and this may start to apply to the private sector.

The focus on equal pay is unlikely to go away. Aside from the ethical arguments, employees are increasingly aware that there is more money at stake – employers can only equalise up, not down. There are defences available to an organisation – notably if it can show there is a “material factor” other than sex that explains the difference in pay – but these are not straightforward.

Employers in all sectors would do well to assess the risks now and bolster any defence, rather than wait in the hope that employees do not ask awkward questions.

By Selwyn Blyth. Selwyn is a partner at Pinsent Masons, the law firm behind OUT-LAW.COM. He specialises in employment law and will be one of the trainers at a forthcoming training course on equal pay, taking place in six locations across the UK in November. See: Full details and booking form (2-page / 50KB PDF)