Next store workers win first class action group equal pay claim in the private sector

At the end of August 2024, three thousand five hundred current and former Next retail store staff won a class action equal pay claim in a first instance tribunal decision which could have a significant impact on private sector employers in the retail sector and beyond.

The claimants were retail store staff and were predominantly (77.5%) female. They had, in an earlier preliminary hearing, already secured a determination from the Tribunal that they were carrying out work of equal value to warehouse staff who were predominantly male (53%).

Next paid retail store staff and warehouse staff differently. Warehouse staff received higher basic pay, with the average salary differential estimated at £6,000. Warehouse staff also benefited from better other pay terms in connection with things like shift premiums and rest breaks.

The retail store staff went on in the more recent hearing to successfully secure a judgment that Next could not establish a material factor defence (which would have defeated the equal pay claims) in relation to many of the contract terms which were at issue.

This determination meant that Next had discriminated against the retail store staff in paying lower hourly (and other) rates than to their warehouse operatives.

Next had sought to rely on various material factor defences, including market forces i.e. that it had paid both retail store staff and warehouse staff the 'going rate' available at the time in circumstances where they were looking to keep costs low and to recruit and retain warehouse staff.  Paying the market rate for a role has previously been accepted as a material factor defence in other equal pay claims.

The Tribunal agreed that there had been no direct discrimination i.e. Next had not decided to pay more to men than women. Indeed 47% of warehouse staff were female and received the same pay as their male counterparts and the female retail store staff could have realised better pay by applying for work in the warehouse. Cost was the reason for the pay gap between the two groups, not sex.

However, the Tribunal found there was indirect discrimination. Because the retail store staff were mostly female, and the warehouse mostly male, paying warehouse staff more than the store based staff had a disproportionate disadvantageous effect on women.

Indirect discrimination is capable of being defended if an employer can show that the practice concerned was objectively justified as a proportionate means of achieving a legitimate aim. Next relied on a legitimate aim of ensuring the viability, resilience and performance of its business. The Tribunal found that this aim was neither legitimate nor the approach proportionate; under current case law cost-cutting alone (without something more) cannot be a legitimate aim and Next could have accommodated pay for retail store staff that overcame the discriminatory effect of lower pay as they could afford to but chose not to in order to reduce costs. The tribunal determined that using market forces as a "trump card" would defeat the objective of equal pay legislation given that it would allow lower pay in predominantly female sector to be sustained lawfully forever.

As a result, Next was unable to establish the material factor defence in relation to the difference in basic pay, night-time and Sunday premiums, paid rest breaks and long service awards. This means that the retail store staff claimants who were part of the class action can now claim back pay compensation for up to six years based on the differential in those contract terms. This is estimated to be valued at more than £30 million. In addition, retail store staff who are employed will have the terms and conditions in their contracts relating to basic pay, night-time and Sunday premiums, paid rest breaks and long service awards equalised immediately.

Next was able to establish a material factor defence in relation to some of the contested terms connected with bonus arrangements, with the Tribunal finding that they were objectively justified as a proportionate means of achieving a legitimate aim. For example:

• Productivity bonuses for warehouse staff linked to output was justified where the work of retail store staff could not be measures in the same way.
• An uplift in basic pay and a one-off bonus at particular times were found to be a proportionate way of keeping warehouse staff during concerted competition from a local competitor for staff which saw the competing business park a van outside the Next warehouse advertising a joining bonus.
• An uplift in pay to warehouse workers who returned early from furlough was also a legitimate means of incentivising staff to return when there had been not enough volunteers.
• Triple pay for warehouse staff for public holidays was also justified given the round the clock hours (which was not the same for retail store staff) meant they were unable to get sufficient staff cover in the warehouse without the additional pay.  

Next has indicated an intention to appeal.

What does this decision mean for retailers and other private sector employers?

This judgment has attracted a great deal of attention because it is the first class action equal pay decision against a private sector employer and comes at a time when several other large retailers (including Tesco, Asda, Co-op, Morrisons and Sainsburys) are all currently defending similar large class action equal pay claims (by female store staff paid less than warehouse workers). But this decision, and the others that may follow, may well encourage employees in smaller retailers and privately run companies to pursue similar claims.

It would be a good time for retailers and all employers to review the types of jobs their workers do, consider if the job type draws one gender over another, whether it may well be work of equal value to another group (which may require independent expert analysis), whether one group has better pay than the other and what the commercial and objective reasons for this are.  If the rationale for the differential in pay between two groups carrying out work of equal value is unknown or simply attributed to generic "market forces" then you are at risk of equal pay claims.

Each equal pay case will turn on its own facts and does first rely on claimants being able to persuade a tribunal that their work was like work, work rated as equivalent or work of equal value. This (perhaps imperfect) determination in the tribunal system relies on independent experts who benchmark the skills, experience and effort (physical and emotional) required for different roles. Employers would be sensible to consider benchmarking pay with equal pay for the requirements involved (and not just pay in the market) in mind, especially where you have job types that appear to be predominantly worked by one gender.

This case has shown that perpetuating market forces which are indirectly discriminatory will not be a material factor defence where the aim is simply maximising profitability in a business that is not struggling. You might well have other reasons justifying differentials in pay between two groups of workers in different roles where their roles are like work or work of equal value (much like the Next bonuses targeted at particular issues/stressors), but this needs to be more than simply costs/profitability alone. In the Next case, the enhanced pay that was directly in response to very particular stressors (such as concerted local competition and the need for workers to return after furlough) was justified as a proportionate means of achieving a legitimate aim when simply replicating the general market forces to keep costs low and improve profit was not. Considering and documenting the rationale behind current or proposed enhancements to pay for one group over another will be important, as will considering whether there are other ways of achieving that aim (e.g. can you make the differential temporary or change something else to attract or retain the staff). Likewise, having basic pay equal for roles of equal value and then adding on specific targeted enhancements (which have documented legitimate aims and considerations of proportionality behind them) as and when needed for certain roles may help to both determine whether pay is being applied equally and to defend equal pay claims.

If you are going to seek to audit and analyse the fairness of pay in your organisation, be mindful that much of that work will be disclosable and there would need to be an intention to correct issues/risks which are identified by equalising pay or terms.

Do contact Karen Bates (who has assisted clients with defending equal pay litigation) to find out more.