Next Equal Pay Appeal: When can Employers rely on Market Forces?

The claims were brought by more than 3,500 retail employees, most of whom were women, who compared themselves with warehouse operatives. The retail and warehouse roles had already been found to be of equal value. The central issue was whether Next could establish a material factor defence under the Equality Act 2010 to explain the difference in pay.

The original tribunal accepted that the pay arrangements were not directly discriminatory because of sex but found that they placed the predominantly female retail workforce at a particular disadvantage. It concluded that Next had not justified the difference in basic pay, treating the employer’s reason as, in substance, a desire to control costs.

The EAT disagreed with that approach. It held that the tribunal had focused too narrowly on cost and had asked the wrong question. The correct issue was not why retail staff were not paid more, but whether paying warehouse staff higher rates was a proportionate way of achieving a legitimate business aim.

On the facts, Next was able to show that higher warehouse pay was needed to recruit and retain enough staff and to maintain effective warehouse operations. Those labour market pressures did not apply in the same way to retail roles. The EAT therefore found that the basic pay difference was capable of being justified by sound business reasons, rather than sex.

For employers, the case is a reminder that market forces can form part of a material factor defence, but only where they are specific and evidenced. General assertions that one role is harder to recruit for, or that the market rate is higher, may not be enough. Employers should be able to explain what pressures existed, when they arose, how they affected pay decisions and why they applied to one group rather than another.

Relevant evidence may include benchmarking data, vacancy levels, turnover statistics, recruitment records, pay review papers and contemporaneous management documents. The more significant the pay gap, the more important it will be to show that the difference is objectively justified and kept under review.

The decision also shows that each element of pay and benefits may need to be considered separately. Although Next succeeded in relation to basic pay, not every aspect of the tribunal’s earlier decision was overturned. Employers should therefore avoid assuming that a justification for one payment or allowance will automatically justify all differences across a pay structure.

This decision is helpful for employers, but it is not a blank cheque. Equal value work does not always require identical pay, but any difference must be supported by a genuine, non-discriminatory reason and clear evidence. Regular pay audits are essential. If comparable groups are paid differently, employers should identify the reason, test whether it remains valid and record the evidence supporting it. That preparation can make a substantial difference if a claim is brought.

Employers should review pay practices before issues arise, particularly where workforces are divided by site, role or working pattern and one group is predominantly male or female. A well-evidenced material factor defence may succeed, but the analysis must be objective, proportionate and free from sex discrimination.

Esther Marshall

Member