International Equal Pay Day: Looking to the future of pay equality

On International Equal Pay Day, we examine the law as it has been designed to protect employees from receiving disparate pay on the basis of their sex.

Equal pay has been a topical feature of the media for several years due to mass claims brought by women. Although equal pay is a value held by employers and government alike, it is not straightforward and often requires a cultural shift to achieve fully. 

On International Equal Pay Day, we examine the law as it has been designed to protect employees from receiving disparate pay on the basis of their sex.

The legal framework

Equality Act 2010 

Currently, the right to receive equal pay for equal work applies to both men and women who are in the same employment as set out in the Equality Act 2010 (“EqA”) and European Court of Human Rights (“ECHR”) Statutory Code of Practice on Equal Pay 2016. The mechanism through which this is achieved is by implying a ‘sexual equality’ clause into the employee’s employment contract if no express clause has been included.  

Equal work can be categorised as: 

• like work, where the two roles involve similar tasks, skills, and knowledge. 
• work rated as equivalent, rated under a job evaluation scheme. 
• work of equal value, roles which are not on the face of it, the same but are equivalent in effort, skill, and decision-making.  

Bringing a claim for equal pay 

To make an equal pay claim, a woman or a man must show that any pay term or conditions, including overtime, bonus, allowances, pension contributions and standby payments, are less favourable than another employee of the opposite sex. The individual can identify a comparator if an employee of the opposite sex is doing like work or work of equal value for the same or an associated employer. 

Readers may have seen from recent media coverage that equal pay liability can be costly and often business critical for employers. There are two reasons for this.  Firstly, an employee can claim for back pay for up to six years in England & Wales and 5 years in Scotland, counting back from the date when their claim was issued or the date of any subsequent amendment application (the “claim period”). Additionally, if the tribunal finds that the reason for the pay disparity is tainted by sex, then unless the employer has taken steps to harmonise pay, it is possible that the tribunal’s judgement becomes more far reaching than just the current cohort of claims 

Employers often seek to justify pay disparity by using material factor defences (“MFD”) to explain why a woman or man was paid differently for the same work.  While maintaining a pay differential can protect the value and skill required for the role and boost market competition, equal pay legislation serves as a crucial gatekeeper for equality between the sexes. Without a genuine MFD, there is a risk that certain groups could be marginalised by the pay standards set by the competitive job market over time. 

Gender Recognition Act 2004

Although equal pay legislation has played a pivotal role in workplace equality, recent commentary has suggested that its strict interpretation may take the EqA further away from protecting individuals from receiving unjustified disparate pay.  More recently, the government have been called upon to clarify the meaning of sex and confirm whether equal pay protection extends to individuals whose gender identity is different to a colleague who receives more favourable pay. The cornerstone of legal recognition for transgender persons in the UK is the Gender Recognition Act 2004 (“GRA”). This Act allows individuals to apply to the Gender Recognition Panel for a Gender Recognition Certificate (“GRC”), which legally affirms their gender identity. If granted, a GRC allows a person to change their gender on legal documents to reflect their lived identity, such as on their birth certificate, and acquire the rights of their acquired gender. 

The interaction between the Gender Recognition Act 2004 and the Equality Act 2010 can have significant implications for equal pay claims. 

Upon obtaining a GRC, transgender persons receive equal pay protections equivalent to those of cisgender individuals of the same gender. This has the effect of changing the sex that a person has as a protected characteristic for the purposes of the EqA.  Specifically, a transgender woman with a GRC is recognised as a female claimant and comparator, while a transgender man with a GRC is treated as a male claimant and comparator. 

The current impact of gender recognition on equal pay 

Claims for equal pay are often slow, intricate, and expensive. The impact of a GRC can, however, further compound this complexity. 

If an employee has identified as the opposite sex for a substantial portion of their career, they may not be alive to whether their employment terms are less favourable. For example, a transgender man, who now holds a GRC, experienced less favourable treatment during his earlier years when he was legally classified as a woman. If we assess his situation based solely on his current legal sex (male), it could appear that there is no unequal treatment between him and his female colleagues. However, this overlooks the historical disparities he has faced. As a result, there is a risk of failing to identify his potential equal pay claim because the true impact of his past mistreatment has not been fully recognised. Alternatively, if he had experienced more favourable treatment before obtaining his GRC, we could miss the genuine disparity in pay that occurred during his time as a legally female employee for comparator purposes. 

If a claimant initially identifies a colleague of the opposite sex as the most appropriate comparator, but that colleague then subsequently acquires a GRC, the EqA would prohibit the claimant from using them as the comparator in their claim. Excluding the colleague with a GRC from consideration would require the claimant to seek an alternative comparator, which can be particularly challenging for those individuals of the same sex as the individual bringing the claim who are seeking to piggyback on the initial equal pay claim. In many cases, finding a suitable replacement comparator may be difficult or impossible, potentially derailing not only individual claims but also entire group actions. For claimants relying on a shared legal strategy, it is possible that it could lead to the collapse of the group’s case or diminishing their chances of success and leaving them without recourse for addressing pay discrimination.  

As GRCs are currently granted to individuals who have lived in their acquired gender for at least two years, it is likely that their current impact is primarily qualitative rather than quantitative. However, if the GRA were amended to reduce the timeframe required for granting a GRC (e.g., from two years to six or nine months), this could expand the effect of GRCs on equal pay claims. For instance, if an individual could obtain a full GRC after living in their acquired gender for only six or nine months, it might increase the likelihood of equal pay claims involving individuals who recently completed the gender recognition process or obtained a GRC while a claim was ongoing.  

Horizon scanning- the definition of sex and what this could mean for equal pay. 

The EqA protects against discrimination on the grounds of sex. However, sex has not been clearly defined under the EqA and the issue of what it means has come under intense debate. The question of whether sex under the Equality Act should include transgender men and women as their affirmed gender, including those who have a GRC, was reignited during the build up to the UK general election.   

For the purposes of equal pay claims, if the definition of sex was amended to mean biological sex, this could mean that transgender people (including those with a GRC) would be treated as their assigned gender at birth rather than their affirmed gender. This could have the effect of reversing the rights of transgender women to compare themselves to a legally male counterpart who earns more, and vis versa. However, the impact of this may be minimal, as under the EqA, you can be discriminated against based on your perceived gender. This means that, for instance, if a transgender woman was employed on less favourable terms based upon her being a woman, or rather being perceived as being a woman by her employer, she would still have the same rights under the equal pay provisions as she has now.  

More recently, it has been debated whether the provisions remain fit for purpose as equality law continues to evolve to reflect a more informed society on gender, race and disability. Only time will tell what reform, if any, the new Government will introduce to tackle the increasingly challenging issue of pay inequality in the UK. Elsewhere, employers can consider the criteria that underpins their pay structure, ensuring that they reflect the value that each role contributes to the business.