Equality Bill

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Clause 64

Defence of material factor
Question proposed, That the clause stand part of the Bill.
The Chairman: With this it will be convenient to discuss new clause 25—Defence of material factor (No. 2)—
‘(1) The sex equality clause in A’s terms has no effect in relation to a difference between A’s terms and B’s terms if the responsible person shows that the difference is because of a material factor—
(a) which does not constitute discrimination because of sex within the meaning of section 13, and
(b) which is within subsection (2).
(2) A factor is within this subsection if—
(a) as a result of the factor, A and persons of the same sex as A are or would be put at a particular disadvantage when compared with persons of the opposite sex, but
(b) the responsible person shows that relying on the factor is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary.
(3) A sex equality rule has no effect in relation to a difference between A and B in the effect of a relevant matter if the trustees or managers of the scheme in question show that the difference is because of a material factor which—
(a) does not constitute discrimination because of sex within the meaning of section 13 and
(b) which is within subsection (2).
(4) “Relevant matter” has the meaning given in section 62.
(5) For the purposes of this section, a factor is not material unless it is a material difference between A’s case and B’s.’.
Lynne Featherstone: As currently worded, the clause allows employers defending equal pay claims to avoid the need to justify discriminatory pay objectively. Subsection (l)(a) allows employers to defend a claim by simply pointing to another reason for the pay differential that is not sex—not a protected characteristic, that is, sex. An employer only needs to refer to paragraph (a) because there is an “or” at the moment, rather than an “and”. If the employer cannot find or identify another reason, it is only then that the obligation kicks in to justify the differential in pay objectively.
That is inconsistent with European law and the decisions of the European Court of Justice in equal pay cases appealed from the UK. In practice, it means that where there is a female-dominated group, such as cleaners or home care workers, in local government, where it has been established that they should be paid the same rates of pay and bonuses as a comparable male-dominated group, such as road sweepers and refuse collectors, all the employer has to do to get out of equalling the pay is to identify a reason for the difference which is not sex. That reason could be something like the need to improve productivity or a need to recruit and retain staff in an environment where one particular gender was difficult to recruit. Once the reason has been identified, there will be no imperative for the employer to justify that reason objectively, and no obligation for them to show that there is a genuine need to improve productivity, that recruitment of a particular gender is difficult, or that the need is a proportionate or necessary reason to perpetuate the discrimination in pay. All the employer needs to do is to cite the other reason without any examination of the strength or veracity of that reason—carte-blanche really, so long as it is not covered by subsection 1(a).
The important point is that the female and male worker groups do jobs of equal value, and that equal value, by that stage, should have been evaluated as being equivalent under a recognised job evaluation scheme. It is only after that equality has been proved that the employer is able to raise the defence of material factor. It is important that the defence is fair and complies with European law.
The clause replicates the worst aspects of the judgment made in law under the Equal Pay Act 1970, a decision that has been roundly criticised and is currently under appeal in two cases at the Employment Appeal Tribunal and Court of Appeal. This is therefore a golden opportunity to bring United Kingdom equal pay law back into line with European law.
11.30 am
We have left out from our new clause subsection (3) on pay protection. I understand that the Government’s intention is not to scare the horses. For example, when pay has to be equalled up, if the disparity is huge and public sector organisations are faced with levelling pay, clause 64(3) allows for the long-term objective of reducing inequality. The Liberal Democrats want to test the Minister on that because it seems very much like letting them off the hook. Subsection (3) attempts to deal with the pay protection for groups of workers whose pay is reduced as a result of removing discrimination in pay.
For the majority of negotiated equal pay outcomes that seek to bring the pay of underpaid groups up to the level of the rates enjoyed by the comparable higher-paid work groups that does not simply involve raising the pay of the lower paid to that of the higher paid. It is important to note that many women and men have their pay reduced as a result of job evaluation in local government, and it is not always simple to state that it is necessarily men who are highly paid and that only women are underpaid. That said, there are often situations when large male-dominated groups are the subject of dramatic pay reductions and receive pay protection. As a result, what generally happens is that the higher-paid groups have their pay reduced and underpaid groups have their pay increased. In pay protection, the pay of groups rated as equal in a job evaluation is set somewhere in the middle of those two positions.
To have a system that requires employers to bring the pay of underpaid workers up to the level previously enjoyed by the higher-paid groups would be financially very difficult. I understand completely why, three years in, the majority of employers would find it hard if such a process had to be carried out immediately. I assume, therefore, that subsection (3) is about transitional arrangements, but the use of the phrase “long-term” would give far too much power and timing to the employer and less consideration to the employees.
Pay protection will be acceptable only if it is for a limited period, and the clause as drafted makes pay protection that perpetuates discrimination in pay unlawful. That is because such protection cannot be seen to have the purpose of reducing the gender pay gap and would therefore not be justifiable. It would make it difficult for all parties who genuinely desire a negotiated resolution of pay discrimination, and will create uncertainty. I should welcome the Minister exploring that long-term measure so that I can understand better if something in the clause will protect against an open-ended, kick-into-the-long-grass outcome. I await her response.
The Solicitor-General: I am struggling to identify the case to which the hon. Lady referred. Can she give me more information so that I can take it on board?
Lynne Featherstone: I am trying to find the reference. I was assured that I had it, but I do not now seem to have it to hand.
The Solicitor-General: Okay, I will press on without the reference, although I might not be able to deal with the point made without the case being identified. New clause 25 would replace clause 64, which restates and clarifies the existing position of the definition of a general material factor. They are not a massively different remit. First let me concentrate on three aspects of the hon. Lady’s amendments, and then deal directly with the pay protection points. It may be that she can find the case in the meantime. If not, we will have to correspond about the precise terms.
New clause 25(2)(a) deals with the hypothetical comparator point again, as it says that
“A and persons of the same sex as A are or would be put at a particular disadvantage when compared with persons of the opposite sex”.
That would stop us taking on the new clause in the first place, as it is about the hypothetical comparator.
Lynne Featherstone: I am not sure that it is quite of that nature. The first part of the wording is taken directly from clause 64(1).
The Solicitor-General: This is subsection (2)(a).
Lynne Featherstone: I apologise. I was looking at the wrong subsection.
The Solicitor-General: I thought I had said (2)(a), but I may not have said the right section. What the hon. Lady has drafted, as a result, in subsection (2)(a)—
“A factor is within this subsection if—
(a) as a result of the factor, A and persons of the same sex as A are or would be put at a particular disadvantage when compared with persons of the opposite sex”—
is a direct reference back to the hypothetical comparator point.
Lynne Featherstone: If the Minister returns to subsection (1) of both clause 64 and new clause 25, she will see that the only difference is the word “and” instead of “or”.
“A factor is within this subsection if”
is the argument about “and” and “or” rather than the hypothetical comparator. If one leaves in the “or”, the issue is in subsection (2), which is
“objectively justified by a legitimate aim”.
The aim here is not to address simply a hypothetical comparator, but the ability of an employer to point at any reason for a differential in pay other than sex as the protected characteristic covered by paragraph (a).
The Solicitor-General: The summary of the way the defence operates was not entirely accurately put by the hon. Lady—where a factor directly discriminates against women, the defence fails; where it indirectly discriminates, it must be objectively justified. A factor that is not gender discriminatory must be material and significant, but where there is no discrimination, there is no need for a justification. That is fairly straightforward.
Clause 64 reflects the position under European law, and if I have misunderstood subsection(2)(a), I will just pass over it. The next point is that the objective justification test for indirect discrimination would, in the new clause, replace the concept of proportionate means of achieving a legitimate aim with the preferred usage “appropriate” and “necessary”. That is a block that we have already run round a couple of times. We worry that the term “necessary” can be, and has been given a overly narrow interpretation domestically. For that reason, and among others that I cited earlier, we do not want to make that change.
Lastly, the new clause is directive because the word “and” between subsections (1)(a) and (1)(b) requires a responsible person to show that the factor that he seeks to rely on is neither directly nor indirectly discriminatory as set out in subsection (2). On the other hand, clause 64(1)—this is the point that I have just made—provides that a responsible person must show that the factor is not the difference of sex or indirectly discriminatory within the meaning of subsection (2). We do not think that there should be a burden on the responsible person to disprove any indirectly discriminatory effect of a material factor, unless the claimant puts forward some evidence suggesting that there is such an effect. The “and”, as opposed to the “or”, would be unnecessarily onerous on the responsible person, unless there was evidence to suggest that there was a discriminatory effect.
Obviously there is a need for a material factor defence, and I do not think that the hon. Lady is saying anything different from that. The explanatory notes give one example, which is about a bonus payment. It would largely benefit male employees in this example, and can be justified because it is a proportionate means of achieving the legitimate aim of encouraging employees to work unsociable hours. There are almost fine shades of distinction between the hon. Lady’s clause and our clause, when we are driving at the same purpose, but the two aspects that I have referred to make her clause unacceptable.
I should draw to the Committee’s attention points about clause 64. It removes the word “genuine”, which many of us are used to when describing the material factor defence, but it does not change the substance of the current law. I want to make that clear. Employers will still have to show that the factor is not a sham or pretence—subsection (1) makes it clear that the difference must be because of the material factors. It will have to be real. Secondly, subsection (2) incorporates the effect of European Community law in respect of objective justification of indirectly discriminatory factors.
Finally, subsection (3) contains a new provision, stating that the long-term objective of reducing pay inequality is always to be considered a legitimate aim for the purposes of subsection (2)—the hon. Lady characterised that as the long grass provision. It is intended to acknowledge that strategies to reduce long-term pay inequality may need a reasonable time to work before equality is achieved. It is not intended to be a “get out of jail free” card for discriminatory employers. Any action taken to achieve that aim has got to be proportionate, but we intend to encourage those on both sides of pay negotiations to move forward.
The hon. Lady talked about pay protection. As she rightly said, where there is unequal pay, the availability of consensual arrangements—negotiations—is important in coming to a situation in which the move, albeit direct, deliberate and steady, towards equal pay is done at a rate that is realistic for the employer in question. To drive that agenda, we put the provision in, making it clear that there is, as it were, a statement about that being a practical and acceptable way forward. The provision is certainly not intended to let employers off the hook.
In the example referred to by the hon. Lady, unless the pay protection had the effect of gradually bringing the parties closer within a foreseeable time, all that would be done is to re-entrench the previous discriminatory unequal pay. Theoretically, a further action could be brought. Unequal pay will always have to be drawing nearer to equality; the provision just acknowledges that there is sometimes a need for delicacy, but we intend that process to happen as quickly as it can.
Lynne Featherstone: I have listened carefully to the Minister and we are not miles apart, to be honest, except on that interpretation of the first differential between “or” and “and”. I shall go back and have a look at it in light of what the Minister has said. I shall be looking at what might be termed transitional arrangements but, for the moment, I am happy—the Minister has tried to answer my questions. On that basis I shall not press for a Division.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.

Clause 65

Exclusion of sex discrimination provisions
Question proposed, That the clause stand part of the Bill.
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