The claimants were nine female Inspection and Information Officers working with the Commission's Housing Inspectorate. Colleagues, mostly male, on different pay scales and more senior job titles had been transferred from the Housing Corporation in 2004 and were the subject of pay protection. In October 2007 these posts were amalgamated, and a selection exercise took place for 11 posts to be filled from 15 current workers. Two of these posts went to male ex Housing Corporation workers who because of their pay protection were paid on a higher scale than the females also appointed to the new posts. Equal Pay Act claims were issued and the ET concluded that there was indirect sex discrimination which could not be justified.

In this judgment Underhill J first considers whether the Commission had to justify the differential. He states that he doubts whether "Enderby" discrimination applies but in any case the statistical base to support such a finding was "very frail" He also found that, although the outcome of the amalgamation disadvantaged the female employees there was no inherent reason why men should be disproportionately advantaged by the pay protection policy. Having found no evidence of indirect discrimination, the objective justification issue did not arise. However Underhill J does address the point and concludes that the pay protection scheme had a legitimate aim and was a proportionate means of achieving that aim, noting, in contrast Redcar, that there was nothing discriminatory that the Commission was seeking to protect.

______________

Appeal No. UKEAT/0123/10/LA

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 9th-10th November 2010

Judgment handed down on 18th March 2011

Before

THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)

MS. K. BILGAN

MR. S. YEBOAH

THE AUDIT COMMISSION (APPELLANT)

MS. S. HAQ AND OTHERS (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

**APPEARANCES**

For the Appellant
MR. CHRISTOPHER JEANS (One of Her Majesty's Counsel)
MS. JUDE SHEPHERD (Of Counsel)

Instructed by:
The Audit Commission
The Legal Team
Millbank Tower
Millbank
London
SW1P 4HQ

For the Respondent
MS. HELEN GOWER (Of Counsel)

Instructed by:
Linda Sohawon
Prospect
New Prospect House
8 Leake Street
London
SE1 7NN

**SUMMARY**

EQUAL PAY ACT – Material Factor Defence and Justification

Two roles ("IIO" and "SIIO") amalgamated into a new role ("SIO"), on the basis that affected employees retain their existing points on the relevant pay scale – Following amalgamation the two highest-paid of the eleven ISOs are the only two males, both ex-SIIOs – Common ground that difference between the pay of the IIOs and the SIIOs pre-amalgamation was not discriminatory – Tribunal find that the differential is indirectly discriminatory and that objective justification had not been proved

**HELD:**

(1) The evidence did not justify a finding of prima facie indirect discrimination on either an Enderby or a PCP basis; and accordingly it was unnecessary for the Respondent to prove objective justification

(2) Even if justification were required it had been proved – A pay protection policy was a proportionate means of achieving a legitimate aim provided that, as here, it did not incorporate past discrimination

**THE HONOURABLE MR JUSTICE UNDERHILL****INTRODUCTION**

1. This is an appeal against the decision of an Employment Tribunal sitting at London Central, chaired by Employment Judge Sigsworth, allowing claims of equal pay by nine female employees of the Audit Commission. The case was heard over five days in September 2009, and the Judgment and Reasons were sent to the parties on 3 December 2009.

1. The Commission was represented before us by Mr. Christopher Jeans QC and Ms. Jude Shepherd: Mr. Jeans did not appear in the Tribunal. The Claimants were represented by Ms. Helen Gower of counsel, who also appeared before the Tribunal.

**THE FACTS**

1. One of the responsibilities of the Commission is to inspect housing provided by local authorities and registered social landlords. As regards the latter, that role was initially carried out by the Housing Corporation, but in 2004 its functions were transferred to the Commission.

1. Prior to October 2007 there were two jobs in the Commission's Housing Inspectorate described as Inspection and Information Officer ("IIO") and Senior Inspection and Information Officer ("SIIO"). Both provided administrative support for the primary functions of the inspectorate. The roles were broadly similar, but the SIIO job had a higher level of responsibility. Both jobs were in the same pay grade – FL4. The pay scale for that grade incorporated 23 incremental points, from 22-45. Progression up the grade had for many years been based on assessment of performance, though broadly speaking employees could expect to move up over the years. An employee's position on the pay scale in any given year would reflect a combination of their entry point, their length of service and their performance history.

1. There were as at the end of September 2007 eleven IIOs, all female. There were five SIIOs, but that represented only four posts, since two of the SIIOs job-shared. The three full-time SIIOs were men, and the two job-sharers were women. The SIIOs had all been transferred to the Commission from the Housing Corporation in 2004. At the Corporation they had been described as "programme managers" and were in its grade 5. They had long service (which in the Corporation, unlike the Commission, produced automatic progression up the relevant scale, i.e. without any performance-related element). When they transferred to the Commission they were placed at a point in its scale which protected their existing remuneration: two at least, the comparators in this case, were at, or almost at, the top of the FL4 scale, earning over £36,000 p.a. As for the IIOs, some had also transferred from the Housing Corporation, where their role was described as "inspection assistant" and they were in its grade 6. They too were placed on transfer at the point in the FL4 scale which preserved their current pay; but since their Corporation grade was lower than the programme managers' the point at which they came in was lower. The remainder of the IIOs were "home-grown". None of the IIOs had reached any higher than point 38: their pay ranged from just over £23,000 p.a. to just over £31,500 p.a.

1. It will be seen that, although it was the position of the Commission before the Tribunal that SIIOs "attracted a higher pay point" than IIOs because of their greater responsibilities (see para. 12 below), that position is rather over-simple in the case of the SIIOs actually in post in October 2007. They owed their position at the top of the scale essentially to the point that they had reached while at the Housing Corporation. It is fair, however, to say that the differential from the ex-Housing Corporation IIOs reflects their different grading while at the Corporation; and no doubt if they had started in the Commission their greater responsibilities would have required them to start at a higher point on the FL4 scale than a new IIO.

1. The decision was taken to create, with effect from 1 October 2007, a new job of "Inspection Support Officer" ("ISO"), to replace the old jobs of IIO and SIIO. Eleven ISO posts would be created. The Commission had a published "Management of Change Procedure", which gave guidance for such situations (though recognising the need for "the necessary flexibility and management discretion to accommodate particular circumstances"). The procedure provided, at para. 4.2.1, that "where there are only minor changes to a job profile or person specification for a post, or posts, the current post holder(s) will be considered for assimilation to the new post(s)": that is, the holder could expect, other things being equal, simply to be moved from the old job to the new. Para. 4.3, however, provided that "where there is a requirement for more substantial changes to job roles" employees whose jobs had "significant similarities" with the new role should be "ring-fenced": that means that they would be given priority for appointment to the new post. The procedure provided that where there were more people in the ring-fence than there were new posts available there would be a competitive assessment.

1. The ISO role was substantially closer to the old IIO role, but it nevertheless incorporated some elements of the SIIO role. The question arose whether the IIOs should simply be "assimilated" to the new role, in which case no competitive assessment would be required, or whether the SIIOs should be included with the IIOs in a ring-fence, in which case selection would be necessary. Ms. Gower submitted that the case for assimilation was strong, because the new role was so close to the old ISO role, while the SIIOs would have to learn a great deal. Ms. Poyntz of the Commission's HR department indeed recommended that course, partly because of her assessment of the degree of similarity between the roles but partly also because she was concerned by the equal pay problems that might arise if a male SIIO were selected for the new post and (as would be the case – see below) brought his current rate of pay with him. However, there is no finding by the Tribunal that the ring-fence route was not open to the Commission under the Management of Change Procedure; and the project team in the event decided for the ring-fence alternative on the basis that it was concerned to get the best people for the job. The process was described as the "amalgamation" of the two roles. That meant that the eleven ISOs had to be chosen from a total pool numbering fifteen (one of the job-sharing SIIOs had left the Commission). In the result, the successful candidates consisted of nine of the IIOs and two of the SIIOs, being two of the men – a Mr. Pilgrim and a Mr. Robinson. We should mention that there was one element of the work of the SIIOs – so-called "programming" – which was not incorporated in the new ISO job. A single post was created to discharge that role: that went to a Ms. Llewellyn, who had not previously been either an IIO or an SIIO.

1. A job evaluation study (referred to in the Reasons as "the informal Hay evaluation") was carried out for the new ISO job. It too was placed in grade FL4 but towards the bottom of the scale – specifically, at points 22-30. However, that was largely theoretical as regards the first post-holders, since it was the Commission's policy in the case of employees being moved to another job in the same grade that they should retain their previous position on the incremental scale. Thus the ex-IIOs and the ex-SIIOs brought with them the levels of earnings which we have set out above, incorporating the disparities about which Ms. Poyntz had expressed concern. In order to mitigate those disparities the four lowest-paid SIOs were uplifted to pay point 32, giving them earnings of £26,332 p.a; but that only reduced the differentials to a small degree.

**THE CLAIMS AND THE ISSUES**

1. In June 2008 all nine of the ex-IIOs commenced proceedings against the Commission under the Equal Pay Act 1970 claiming equal pay with the two ex-SIIOs, Messrs. Pilgrim and Robinson, in respect of the disparities in their pay since 1 October 2007: there was no claim in respect of the period prior to the amalgamation. It was, inevitably, accepted in the course of the pre-hearing procedures that the Claimants and their comparators were doing "like work" within the meaning of section 1 (2) (a) of the Act, and that accordingly the only issue was whether the Commission had a so-called "GMF defence" – that is, a defence under section 1 (3) of the Act. Section 1 (3) reads:

"(3) An equality clause falling within subsection (2) (a), (b) or (c) above shall not operate in relation to a variation between the woman's contract and the man's contract if the employer proves that the variation is genuinely due to a material factor which is not the difference of sex and that factor—

(a) in the case of an equality clause falling within subsection (2) (a) or (b) above, must be a material difference between the woman's case and the man's; and

(b) in the case of an equality clause falling within subsection (2) (c) above, may be such a material difference."

1. The broad framework of the applicable law was not in issue before us. It was common ground that the burden was on the Commission to identify the "factor" to which the differential complained of was due – or, to use Lord Nicholls' simpler terminology in Glasgow City Council v Marshall [2000] ICR 196, "the explanation" for that differential. Once that explanation was established, the issue was whether it was "tainted by sex" – that is, whether it involved direct or indirect sex discrimination, applying the established principles of EU and domestic discrimination law. So far as indirect discrimination is concerned, it is now recognised that this label in fact covers two distinct phenomena – so-called "PCP-type" and "Enderby-type" discrimination: see the summary in [Newcastle-upon-Tyne Hospitals NHS Foundation Trust v Armstrong]() [2010] ICR 674, at para. 20 (pp. 682-3). The former category derives from (now) art. 2.1 (b) of EU Directive 2006/54/EC, which defines "indirect discrimination" as occurring:

"…where an apparently neutral provision, criterion or practice would put persons of one sex at a particular disadvantage compared with persons of the other sex, unless that provision, criterion or practice is objectively justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary."

That EU–derived definition is substantially reproduced in section 1 (2) (b) of the Sex Discrimination Act 1975. As regards the latter category – that is, Enderby-type discrimination – this was first recognised in the decision of the ECJ in  Enderby v Frenchay Health Authority [1994] ICR 112, where a group of female speech therapists were claiming equal pay with a group of predominantly male pharmacists. The Court acknowledged that the disparity in pay could not be attributed to any specific "measure" or "particular sort of arrangement" (i.e. what the Directive now calls a "provision criterion or practice"), but it continued (at p. 161 G-H):

"16. However, if the pay of speech therapists is significantly lower than that of pharmacists and if the former are almost exclusively women while the latter are predominantly men, there is a prima facie case of sex discrimination, at least where the two jobs in question are of equal value and the statistics describing that situation are valid.

17. It is for the national court to assess whether it may take into account those statistics, that is to say, whether they cover enough individuals, whether they illustrate purely fortuitous or short term phenomena, and whether, in general, they appear to be significant.

18. Where there is a prima facie case of discrimination, it is for the employer to show that there are objective reasons for the difference in pay. Workers would be unable to enforce the principle of equal pay before national courts if evidence of a prima facie case of discrimination did not shift to the employer the onus of showing that the pay differential is not in fact discriminatory (see, by analogy, the judgment in Danfoss Case 109/88 [1989] ECR 3199 at 3226 (para 13)).

19. In these circumstances, the answer to the first question is that, where significant statistics disclose an appreciable difference in pay between two jobs of equal value, one of which is carried out almost exclusively by women and the other predominantly by men, art 119 of the Treaty requires the employer to show that that difference is based on objectively justified factors unrelated to any discrimination on grounds of sex."

The requirement of objective justification referred to at para. 19 of the judgment is substantially identical to the requirement in the case of PCP-type discrimination that the employer shows that the PCP is a proportionate means of achieving a legitimate aim; and we will use the term "justification" as a convenient shorthand for both.

**THE TRIBUNAL'S REASONING**

1. Paras. 1-4 of the Reasons are essentially introductory, but para. 4 contains a summary of the explanation for the differential on which the Commission relied. This reads as follows:

"The Respondent's GMF case is that the primary material reason as to the difference in pay between the male and female ISOs is the fact that, prior to October 2007, although the Claimants and their comparators were at all times employed in roles falling within the FL4 (or F4) grade, the male employees were employed in a more senior role attracting a higher pay point than the Claimants. As a consequence of the restructure in 2007, the roles of SIIO (senior inspection and information officer) and IIO (inspection and information officer) were deleted and the role of ISO created. Following a competitive selection process, employees from both the former SIIO and IIO roles were appointed. The Respondent's policy was that in those circumstances the employees would maintain that pay point so long as their new role was in the same pay grade. The question of pay protection or red circling only arose in circumstances where an individual is to be employed in a lower grade, which was not the case here, according to the Respondent. The fact that the Claimants and their comparators were therefore previously employed in different roles with different levels of responsibility but falling within the same grade therefore accounts for the entirety of the differential in their levels of pay, namely that the male employees have maintained, or had increased, their IIO level pay. The Respondent also relies on evidence of other factors which have led to the Claimants' and their comparators' placement on their respective pay points, such as different pay histories which can be lengthy and complex and which inform their current level of pay. The Respondent's case is that this accounts for the wide range of pay between the Claimants themselves, not only as between the Claimants and their comparators. These factors include the fact the former Housing Corporation employees previously obtained incremental pay progression linked to length of service in their former employment, whereas Audit Commission employees have always been subject to performance related pay. Further, on the TUPE transfer, the levels of pay for former Housing Corporation employees were protected when they transferred to the Respondent."

As discussed below (see para. 33), the phrase "pay protection or red circling" is there used somewhat idiosyncratically. In one sense "pay protection" is precisely what the Commission's policy afforded. But that terminology seems to have been regarded as referring only to cases where employees retained their old pay in another grade.

1. Para. 5 contains the Tribunal's findings of fact. These were, as the Tribunal had observed at para. 3 of the Reasons, largely uncontroversial. They are sufficiently summarised for present purposes at paras. 3 to 8 above.

1. At paras. 6-11 the Tribunal summarises the applicable law. We need not reproduce that summary here. However, we should note that at para. 6 the Tribunal re-states the "GMF" relied on by the Commission, as follows:

"In this case, the primary material reason put forward by the Respondent for the difference in pay between the male and female ISOs is the fact that, prior to October 2007, although the Claimants and their comparators were at all times employed in roles falling within the FL4 grade, the male employees were employed in a more senior role attracting a higher paid point than the Claimants. There was then the restructure of 2007, the deletion of the roles of SIIO and IIO and the creation of the ISO role, into which, following a competitive selection process, employees from both the former SIIO and IIO roles were appointed. The Respondent's policy, in order to ensure pay protection for their employees, was that in these circumstances employees maintained their pay point so long as their new role was in the same pay grade. Thus, it is said by the Respondent that the fact that the Claimants and their comparators were previously employed in different roles with different levels of responsibility but falling within the same grade accounts for the entirety of the differential in their levels of pay. The Respondent's case is that the amalgamation of the two jobs at different seniority levels, and the application of the Respondent's policy to maintain employees' existing pay points in such circumstances, is clearly the material and genuine reason for the differential in pay and that this is not a sham or pretence. It is common ground, and the Claimants accept it, that this is the reason causally for the difference in pay."

The first half of that passage is substantially identical to the formulation in para. 4 of the Reasons (see para. 12 above), but it develops differently. The earlier formulation also refers to various "other factors". Ultimately we do not think anything turns on these differences.

1. The Tribunal's conclusions appear at para. 12 of the Reasons, which we need to reproduce in full. They are as follows:

"12.1. The GMF defence. The parties agree that the amalgamation of the two jobs at two different seniority levels, and the application of the Respondent's policy to maintain an employee's existing pay point in such circumstances, is the effective cause of the pay differential between the Claimants and their comparators, and it explains the whole of the disparity between them. Further, the Claimants do not dispute that this cause of the pay disparity is the genuine reason behind it. Length of service, on its own, save as part of the history and background, is no longer relied on by the Respondent as a genuine material factor on its own account. It also appears to be accepted by the Claimants that the reasons given for the pay differential were material in the sense of being causative of the difference in pay, and so they were significant and relevant.

12.2. The taint of sex discrimination. There is agreement as to the pool for comparison, but the statistical significance of the pool is in dispute between the parties. The Claimants maintain that the statistics are striking. There are 100% of women in the disadvantaged group, and 100% men in the advantaged group as at October 2007. Further, the Claimants say that there were only ever five people in the SIIO grade, three men in full time jobs and two women working part-time as job shares, and at the time of the restructure one of the women had left and so there were three men and one (50%) woman in the SIIO role. So far as the IIOs were concerned, they have always been 100% women from 2004. Further arguments are advanced by the claimants to show that these statistics are not fortuitous or short term. The IIO/ISO role is and was an administrative role, for a number of years exclusively filled by women. This role is a support role and fits in with family responsibilities, as compared with a front line role such as a housing inspector. Mrs. Eastwood is a graphic illustration of this, as she left or went on maternity leave and was not able to return to her housing inspector role in practical terms after her child was born, and so went into the support role of IIO. It is right that the SIIOs were also in a support role, but they did have more management responsibility. Looking at the statistics of the Respondent's workforce as a whole, the administrative type roles were traditionally populated by a majority of women. In 2004, programme manager work was taken from the ISCs and given to the SIIOs when that post was created. It has been suggested by the Claimants that this was to justify paying them more. The pay differential that was created or maintained at that time, albeit in different jobs, continued from 2004 to 2007.

12.3. We therefore conclude that the statistics about the pool make-up are not fortuitous or short term. The IIO role might be described as 'women's work'. The SIIO role, 'men's work'. Moreover, in this agreed pool the statistics clearly indicate disparate impact. The pool, containing all housing support officers, is not too small as to be statistically insignificant. The Respondent has argued that the Claimants were not disadvantaged in terms of section 1(2)(b) of the 1975 Act, because they suffered no pay loss in the pay structure and four of them in fact received a pay rise. However, we interpret the words of the section as to mean that we should look at the relative or comparative disadvantage of the Claimants compared with their comparators. The Claimants are at a particular disadvantage when compared with their comparators, and there is a substantial difference in pay. We remind ourselves that we are dealing with a case of equal pay, that is pay differentials between men and women, not overall with what is fair pay. Thus, had the Claimants and their comparators all received pay reductions in accordance with the informal Hay evaluation, for example, there would have been no equal pay case. The Claimants have established a prima facie case of sex discrimination, and the burden of proof shifts to the Respondent. We conclude that the Respondent is not able to show that there is no taint of sex discrimination. The advantaged group are now exclusively male, and historically the SIIO grade was predominantly male. The disadvantaged group is exclusively female and indeed always has been. The Respondent has admitted like work, so we do not have to consider in any detail the portfolio and stretching objectives arguments. We refer back to our findings of fact. We have in mind that on the case law we should take a broader approach to indirect discrimination in equal pay cases. In 2004, there was a justifiable distinction between the IIO and the SIIO role, and they were doing different work, and the Claimants did not appeal the assimilation decision at that time. However, in 2007 there was a deliberate decision to include the SIIOs in the ring fence for consideration for a role (ISO) which is largely an IIO role, as we have found on the facts. Further, this was in the context of a redundancy situation where four jobs were going to be made redundant in any event. What the Respondent has done is directly and knowingly create a pay disparity of, at its maximum, more than £10,000 between men and women doing the same work. This was not fortuitous, it was deliberate, and the Respondent created this situation well aware that it was being suggested by the Claimants and indeed their own HR department that such a policy had equal pay implications.

12.4. There were alternatives, we find. It cannot be argued by the Respondent that there was no other way to restructure. The Respondent says that they wanted to retain the skills and experience of their workforce. However, in the context of this job, the ISO job, the SIIO skills and experience were not suited to it to the same degree by any means as the IIO skills and experience, where the match was much better, so much so that we have heard that the Claimants have spent a lot of time training their comparators to do large parts of the ISO job. There are a number of alternatives, as postulated by the Claimants. First, assimilation of the IIOs to the ISO role. The evidence of the Claimants that the IIO job was 90% of the ISO role was not challenged in cross examination. Half of the SIIO's job was programming, work that was then taken away from them to give to a programme manager on the restructure. Second, appointment to pay grades within F4 generally on the basis of skills and experience with no maximum pay point. The comparators would then be on the same or lower pay points to the women, and the disadvantage of comparators doing like work to the Claimants for higher pay would be removed. Third, appointment to pay points within F4 grade generally on the basis of skills and experience. applying a maximum pay point of 38. The comparators would be on the same or lower pay points as the women, and the disadvantage would be removed. Fourth, appointment to pay points applying the informal Hay job evaluation. Some of the Claimants would lose out and others would not, but the disadvantage of male comparators being paid more would be removed. Fifth, vary the policy on red circling, and allow red circling of the comparators' pay even though they were in the same grade. This would have had the effect of reducing the discriminatory impact of the appointment on existing pay points over a shorter period of time than is likely under the current system.

12.5. So far as the second and third arguments are concerned, then the Respondent maintains that this has wider implications for the organisation as a whole and is undesirable, and moreover would be counter to their policy of pay protection. So far as the fourth suggestion is concerned, they say they would have to move away from a policy on pay protection. These arguments may have some merit, but there seems to us to be no reason why the IIOs could not have been assimilated in this exercise into the ISO posts as per the first suggestion. The pay protection argument would fail, because the SIIO posts would be made redundant, although the SIIOs could apply for the programme manager role. So far as the fifth suggestion is concerned, red circling could have been introduced into this exercise. These are two alternative options that would strike a better balance between the discriminatory effect of the provision on the employee and the reasonable needs of the employer. The Respondent asserts that the only alternative option open would have been to appoint on the basis of the informal Hay evaluation. The Claimants submit that this is not correct, and we agree with them. There is nothing in the Respondent's policies which requires this, and they were not constrained to adopt that informal evaluation, and indeed the managers at the time did not agree with it and it was not mentioned as an option to the Claimants. The first time it has arisen as an option is in the course of this case.

12.6 Objective justification. We are therefore not satisfied on the evidence that the Respondent has rebutted the taint of sex discrimination in this case, and they must therefore seek to objectively justify that discrimination. The legitimate aim of the Respondent, as put forward by them, is to stop the Claimants and their comparators suffering a reduction in pay, and there is a legitimate reason behind this in that had they sought to do so there was a significant risk of the loss of skills and experience, both of the comparators and the Claimants. However, on the evidence it seems to us that the Claimants would not have gone below point 32, and would have attempted to negotiate the pay upwards. The Claimants concede that maintaining skills could be a legitimate objective in a general sense as opposed to in this particular situation. However, they do not concede that it is a legitimate aim to maintain everybody's existing pay, because of the discriminatory effect of that. It cannot be right, say the Claimants, to have a legitimate aim that is contrary to the equal pay legislation. Moreover, it seems to us that this policy is also contrary to the Respondent's own gender and diversity policy as set out in detail in writing by them, and said to be their highest priority.

12.7 Even if there was a legitimate aim, such as retaining skills and protecting pay, we have to consider whether the achievement of it was done by means that were appropriate and necessary. The Claimants say that there were less discriminatory ways of achieving those aims. A less discriminatory way of achieving the retention of skills would have been to appoint on an appropriate pay point, measured by Hay or otherwise, having assessed skills and experience, offered the jobs to everyone, see who was successful and then red circle the pay of those on the higher pay points. That would have meant at least there would not have been permanent pay protection, as has in fact happened. Alternatively, the Respondent could have eliminated the problem at a stroke, we conclude, by assimilation. See above, at paragraph 12.5. Given that, on the evidence, the Claimants had a near match for the ISO and the comparators did not, by assimilating the IIOs to the ISO posts, eleven to eleven, would have meant retaining the right skills for these posts and not losing them. There is nothing that we have seen in the Respondent's policies that says that you cannot assimilate in these circumstances. Further, an assessment of skills and experience and appointment on appropriate pay points accordingly would have retained skills in the more general sense. There has been no real argument on the cost of making the SIIOs redundant as against the IIOs. No cost/benefit analysis was conducted by the Respondent. We conclude that the Respondent should have looked at the advantages of assimilation more closely before deciding who to appoint. By appointing SIIOs to the ISO posts, their pay policy was obviously going to create problems for them. There was an extreme lack of foresight on the part of the Respondent, despite the warnings that they received.

12.8. Our findings of fact show that the Respondent's performance management system will not allow the Claimants to catch up with their comparators either at all or in any meaningful timescale. Indeed, looking at the statistics, we note that for the four lowest paid Claimants on point 32, as compared with Mr Robinson on pay point 44, whereas the gap in pay on 1 October 2007 was £10,331, by 1 October 2008 it had increased to £10,800, so it was actually widening, all because of the practice of continuing to pay the comparators an annual cost of living uplift as a percentage of their pay. In fact, in the time since the restructure, only two Claimants have received PMS awards. Mrs Eastwood has received three in total, one in one year and two after an appeal in the second year. Ms Stewart has received two, one in each of two years. We know that only 30% of staff generally get an increment in any given year. Thus, not only is the pay disparity very large in financial terms, as we have indicated, being over £10,000 between the top and the bottom, even between Mr Robinson and Mrs Wright, who is the best paid Claimant, the gap was £5,086 on 1 October 2007 and £5,317 on 1 October 2008, and therefore also in her case it is widening. We conclude that the chances are that the pay disparity will not reduce significantly or even at all over time, and is quite likely to get wider. Doing a rough calculation, even if Ms Stewart maintained her one increment per annum, which is very unlikely, she would take seven years to catch up Mr Robinson. For Mrs Eastwood, an even more unlikely scenario of maintaining two increments per annum, it would take her three to four years to catch up. However, the average Claimant will never catch up. We are also mindful that the Respondent put forward all this justification after the event, not considering it at all at the time.

12.9. Thus, even if the Respondent can establish a legitimate aim (see above, paragraph 12.7), we conclude that they have failed to establish or show us that they have taken appropriate, necessary or proportionate steps to achieve that legitimate aim. In this case, the skills retention argument favours keeping the Claimants and making the SIIOs redundant, in the absence of any costing of options, and in circumstances where four posts had to be deleted anyway. The protection of pay of the comparators argument falls away if the SIIOs are made redundant. The legitimate aim point is therefore substantially weakened. On the other hand, there is a huge and stable (at best) or increasing (more likely) pay disparity here, so the Respondent's arguments on appropriate and necessary steps have to be particularly strong. They are not, in the light of the reasonable alternatives, the Respondent's failure to anticipate the equal pay issue and their after the event justification. Therefore, the GMF put forward being tainted by indirect sex discrimination, the Respondent has failed to objectively justify that indirect discrimination. Their defence to the equal pay claims of the Claimants therefore fails and it follows that the Claimants are successful."

1. In broad terms, therefore, the Tribunal found that the explanation relied on by the Commission (summarised at para. 12.1) involved indirect sex discrimination (paras. 12.2-12.5) and that it could not be justified (paras. 12.6-12.9). The finer details of that reasoning are not at all points entirely clear, and it will be necessary to consider some of them further in addressing the grounds of appeal.

1. We should, however, make one point at this stage. The Tribunal at para. 12.1 describes the Commission's explanation for the differential as being "the amalgamation of the two jobs at two different seniority levels, and the application of the Respondent's policy to maintain an employee's existing pay point in such circumstances". That focuses the attention squarely on what happened in 2007. On one view, that is only part of the picture. It is, to put it no higher, arguable that in order fully to account for the differential complained of, it is necessary not simply to take as a datum the pay differentials as they existed at the moment of amalgamation but to examine why they were present in the first place. In particular, is it not relevant that the comparators had, as we understand it, longer service than all or most of the Claimants ? Assuming for present purposes that some differential to reflect different lengths of service was justified, it would be curious if those Claimants with, say, two or three years' service should, if the claim is otherwise well-founded, be entitled to be moved at once to the top of the incremental scale. And there are in fact, as the Tribunal recognises in its fuller summary of the Commission's explanation at para. 4 of the Reasons, a number of other elements in the "lengthy and complex" pay histories of the Claimants and their comparators which also arguably contributed to the differentials (e.g. the different systems of pay progression employed at the Commission and in the Housing Corporation). However, as it records at para. 12.1, reliance on length of service, although originally pleaded by the Commission, was expressly abandoned in the course of the hearing; and both parties told us firmly that the case had proceeded below on the basis that the Tribunal should confine its enquiry to the decisions taken at the point of amalgamation. We are, we confess, a little uneasy at this state of affairs: although it makes for an easier analysis, we are not sure that it does justice to the complexity of the situation. But we accept that we should not go behind the approach deliberately adopted by both parties and the Tribunal.

1. That approach has consequences for both parties. On the one hand, the Commission cannot, as we have said, seek to rely on the different lengths of service of the Claimants and their comparators or other differences in their pay histories. On the other, we must proceed on the basis that the differences between the pay of the Claimants and their comparators as at 30 September 2007 were not discriminatory. If they subsequently became "tainted by sex" that can only be as a result of what occurred on 1 October. The Tribunal appears to have accepted this: see not only para. 12.1 but its finding at para. 12.3 that "in 2004 there was a justifiable distinction between the IIO and SIIO role, and they were doing different work." But Ms. Gower in any event acknowledged it in the course of her oral submissions. She told us that it had originally been a "subsidiary" part of the Claimants' case that there was historic discrimination in the arrangements under which the SIIOs were transferred in 2004; but she accepted that the Tribunal had made no such finding and it was not open to her to maintain such a case before us. This is a point of some significance, to which we will return in due course.

**THE APPEAL**

1. The Notice of Appeal pleads a large number of points, not all of which we need consider. There are essentially two areas of challenge – first, to the Tribunal's finding that a state of affairs had been proved which required objective justification; and, secondly, to its decision on justification. We take the two in turn.

**(1) DID THE COMMISSION HAVE TO JUSTIFY THE DIFFERENTIAL?**

1. The basis for the Tribunal's view that the Commission had to establish an objective justification for the differential between the Claimants' pay and their comparators' was its conclusion that the differential was indirectly discriminatory. It seems from the written submissions below (which we have been shown) that the Claimants relied on either or both of the recognised types of indirect discrimination identified at para. 11 above. There are references to both in the Tribunal's Reasons, though they are not very clearly distinguished. Specifically, para. 12.2 and the first few sentences of para. 12.3 focus on "Enderby-type" indirect discrimination; but a little way into para. 12.3 the Tribunal refers to section 1 (2) (b) of the 1975 Act, which defines "PCP-type" discrimination, and it goes on to consider, using the language of the sub-section, whether the Claimants were "at a particular disadvantage when compared with their comparators". It must be right to examine the Tribunal's conclusion on both bases, particularly since the distinction between the two types, while indispensable as an aid to clear analysis, may sometimes be blurred in practice and should not be allowed to become a straitjacket. We take them in turn.

1. So far as Enderby-type discrimination is concerned, we are bound to say that we are not sure that it has any application in the present case. The importance of Enderby is that it allows discrimination to be inferred even in circumstances where no "provision criterion or practice" having a discriminatory impact as between men and women can be identified: the rationale is that the existence of a discriminatory state of affairs justifies the inference of an unidentified discriminatory cause (which may in fact often consist of "stereotyping" rather than any step or measure with a discriminatory effect). But here we know what the cause of the differential was – namely, the Commission's policy of allowing "re-structured" employees to retain their previous pay point, together with the fact that the comparators had reached the top of the scale whereas the Claimants had not. In other words, the differential is the result of the application of a "provision criterion or practice", and the question is whether that PCP is inherently discriminatory – that is, whether it "puts women at a particular disadvantage when compared with men". Reference to Enderby seems to us simply to confuse the analysis.

1. If, however, Enderby is in play, the question is whether the statistics referred to in para. 12.2 of the Reasons raise a prima facie case that the differential is the result of some prior discrimination. The Tribunal appears to have thought that they raised a prima facie case of stereotyping – that is, that whereas the IIO role was viewed as "women's work" the SIIO role was perceived as "men's work". We accept Mr. Jeans's submission that there is no sufficient basis for such a conclusion. The problem is not with the IIO side of the equation: the fact that all eleven IIOs were women is highly suggestive, and the Tribunal at para. 12.2 gives reasons why an administrative job such as IIO fits well with family responsibilities. But the question is whether the evidence supports the opposite conclusion for SIIOs. It is true that a majority of SIIOs as at 30 September 2007 were men. But the numbers are so small that it is difficult to attach significance to them: there were only five SIIOs, of whom three were men and two were women. It is true that two of the women shared one job, but that does not seem to us to be material to the question of how the role was viewed – unless indeed it points against the conclusion that it was more suitable for a man. We do not see how those numbers alone could be a sufficient basis for a conclusion that the SIIO role was seen as "men's work". Of course it is not necessary to look at the figures in isolation. If there were features in the evidence, or matters of which the Tribunal was entitled to take account as part of its general understanding of the social or employment background, which rendered it plausible that the SIIO role should be subject to gender stereotyping of the kind suggested, that might cast a different light on the figures. But the Tribunal draws attention to nothing of this kind. The contrast that it draws in para. 12.2 is not between IIOs and SIIOs but between support roles and front-line roles, such as housing inspector; and of course both IIOs and SIIOs were support roles. It is true that the Tribunal does observe that SIIOs "did have more management responsibility"; but that is not enough to support a conclusion that it was perceived as a "man's job". We do not say that that might not be a reasonable conclusion in some work environments, where men are indeed disproportionately represented even at lower management level; but it would not be right to make a general assumption that jobs in lower management are perceived as more appropriate for men, and we cannot see that the Tribunal's single observation, without more, helps in drawing any conclusion from the very frail statistical base available.

1. We turn to PCP-type discrimination, which was where Ms. Gower mostly focused her case. The Tribunal does not identify the provision criterion or practice on which (if it did) it based its finding of indirect discrimination. However Ms. Gower confirmed that the PCP on which she relied was the policy of allowing "restructured" employees within the same grade to retain their previous pay point – in practice, if not in the Commission's terminology, a form of pay protection policy. There is no doubt that it was that policy which produced the disparity complained of in the present case. But is it a policy which puts women at a particular disadvantage when compared with men ? We cannot see that it is. On its face it applies to all employees equally, and indeed most of the Claimants benefited from it as well, because the informal Hay evaluation assigned the ISO role to a lower point on the FL4 scale than most of them had already reached. Ms. Gower acknowledged this, but she contended that the policy benefited Mr. Pilgrim and Mr. Robinson to a greater extent. No doubt it did, but that simply reflects the fact that in this particular case they had reached a higher point on the scale than the ex-IIOs (for reasons which were not themselves discriminatory – see para. 18 above). There is no inherent reason why men should be disproportionately advantaged by such a policy – or in any event no such reason was advanced or featured in the Tribunal's reasoning.

1. In neither respect therefore do we believe that the Tribunal was entitled to find a prima facie case of indirect discrimination. Standing back from the detailed analysis, that seems to us the right result. It is not difficult to see why at first blush a situation where two men are paid substantially more than eleven women doing work of equal value should have set equal pay alarm bells ringing; and we are not surprised that Ms. Poyntz gave the advice that she did. But it is in fact perfectly clear that the immediate cause of the disparity has nothing to do with gender but simply reflects the fact that all the employees affected by the amalgamation came into the new role preserving their previous remuneration. If there was reason to believe that those differences in previous remuneration were themselves discriminatory, that would be a different matter; but there is not. No such finding was made by the Tribunal and even if it were sought to press into service in relation to the pre-October 2007 period its conclusions apparently based on an Enderby analysis, notwithstanding what we say at para. 18, those conclusions are in our view flawed: see para. 22 above. There is some parallel, though the detailed points are different, with the decision of the Court of Appeal in Nelson v Carillion Services Ltd [2003] ICR 1256.

1. It follows from that conclusion that the issue of objective justification does not arise. But we should nevertheless address it in case we are wrong.

**(2) OBJECTIVE JUSTIFICATION**

1. To the extent that the Tribunal found indirect discrimination of the PCP type, the question under this head is whether the application of the pay protection policy represents a proportionate means of achieving a legitimate end. To the extent that it found Enderby-type discrimination, the question is, more generally, whether the difference in pay can be so justified. But since it is the pay protection policy on which the Commission must rely by way of such justification, the issue is the same in either case. We need not set out the well-known authorities governing the correct approach to the issue: we were referred in particular to para. 24 of the judgment of Sedley L.J. in Allonby v Accrington and Rossendale College [2001] ICR 1189 (at pp. 1200-1).

1. The Tribunal's consideration of the justification issue begins at para. 12.6. In that paragraph it considers whether pay protection was indeed a legitimate aim. The discussion is not entirely easy to follow; but the conclusion appears to be that the Commission had failed to establish that the policy had a legitimate aim. In the following paragraphs the Tribunal proceeds, in the alternative, to consider whether, if a legitimate aim had been established, the means were proportionate. It holds that they were not, essentially on the basis (a) that the disparity between the pay of the Claimants and their comparators was very large and unlikely to diminish (para. 12.8) and (b) that there were two ways in which the problem could more appropriately have been addressed (para. 12.7, but incorporating the points made in paras. 12.4 and 12.5). The first such alternative is that the Commission could have chosen the "assimilation" rather than the "ring-fencing" option: that is, all the IIOs could simply have become ISOs, and the SIIOs could have been made redundant. The second is that it could have "red-circled" the pay of the SIIOs, by which it appears to mean (broadly, for the details are not spelt out) that the ex-SIIOs' pay should be frozen until the other ISOs had caught up – what is often called a "mark-time" arrangement. It seems that the Tribunal relied more on the former alternative than on the latter: though both are mentioned in para. 12.5, it is only to the assimilation point that the Tribunal refers in its concluding summary at para. 12.9.

1. In our view if the Tribunal did indeed intend to find that the Commission had not established that its pay protection policy reflected a legitimate aim it was plainly wrong. In our judgment protecting the pay of employees affected by a re-structuring is plainly in principle a legitimate aim. It is legitimate both as a simple matter of fairness to the employees concerned and also because if their pay were reduced it would be difficult to retain them and the employer would be likely to be prejudiced by losing their services. That aim does not of course require any payment to employees who would not suffer a reduction, nor does it require any greater payment than is necessary to make up for the loss that that particular employee would suffer: it applies to the potential losers only, and only to the extent of their loss. It is essential to appreciate that we are not here concerned with a situation such as that in the local authority bonus cases (see in particular Redcar and Cleveland Borough Council v Bainbridge where the payments which it was sought to protect had been discriminatorily withheld from claimants. In cases of that kind, while the legitimacy of giving pay protection to the comparators is not in doubt, the real question is how it can be justified not to give it to the claimants as well. Typically the only available answer to employers in a case of that kind is that immediate equalisation is unaffordable. But here there is nothing discriminatory about the differential which the Commission seeks to protect: see, again, para. 18 above. No question of cost arises. The simple reason for paying protected pay to the Claimants at a lower rate than to the comparators is that their potential loss (that is, if they were paid the rate for the job suggested by the informal Hay evaluation) is not the same; and to that extent they do not fall within the aim of the policy (cf. the analogous point in [Kraft Foods UK Ltd v Hastie]() [2010] ICR 1355, at para. 11 (a) (p. 1360 B-D)).

1. We should add that we do not understand the reference at the end of para. 12.6 of the Reasons to such an aim being discriminatory because it is contrary to the Commission's gender and diversity policy. It will only be discriminatory if its (assumed) effect of advantaging men more than women cannot be justified – but that is the very question under consideration.

1. We turn to whether the policy, or its application in the present case, is a proportionate means of achieving that aim. It is hard to see why not. The extent of the protection matches precisely the loss which the employee would otherwise suffer. It is true that it happens in the present case to produce a situation where a man and a woman doing work of equal value are receiving different – and indeed widely different – amounts; but that is because of the different rates which they were (non-discriminatorily) paid before they were involuntarily moved into the ISO post. It has nothing to do with their being a man and a woman. If the remaining female ex-SIIO Ms. Fletcher, rather than Mr. Robinson or Mr. Pilgrim, had been selected for the new post, the differential between her pay and the Claimants' might have been just as great.

1. As for the Tribunal's suggested alternatives we consider them in turn below.

1. Assimilation. It is no doubt true that if the Commission had decided simply to give the new ISO roles to the existing IIOs, leaving the SIIOs redundant, no equal pay problem would have arisen as between the ISOs because they would all have been women (though there would still have been marked disparities in pay between them) – at least unless and until a man were recruited as an ISO. But we do not see how the fact that no equal pay issue would have arisen if a man on a higher rate had not been employed is relevant to the question of whether the resulting disparity can be justified: "I wouldn't have started from here in the first place" is not a helpful answer. But even if the fact that the Commission could have taken the assimilation route were relevant, we see force in two further points made by Mr Jeans. First, the view of the project team that it wanted to choose the highest-calibre people from both the jobs affected is on the face of it a justifiable objective, and the Tribunal gives no reason to the contrary. Secondly, if the Commission had decided not to take the ring-fencing option at least partly in order to ensure that there were no male ISOs, that would, it seems to us, have constituted unlawful (direct) discrimination against the ex-SIIOs, who would have been deprived of the chance of a job as an ISO on the basis that some of them were men.

1. Red-circling. It is true that a mark-time arrangement of the kind proposed would in principle over the years have reduced the extent of the disparity between the Claimants' pay and the comparators', though in fact it is doubtful what difference it would have made in practice and any reduction would only have been very slow. But we do not believe that the fact that this option was available means that it was disproportionate for the Commission to prefer a more complete and straightforward form of protection. We are of course aware of the recommendation often made that it is good practice for employers to seek to phase out pay protection arrangements over time, and we have no doubt that that is good advice: they can be a potent source of ill-feeling, and where the beneficiaries are predominantly of one gender there is the risk of their being perceived as sexually discriminatory even if they in fact are not. But to say that such phasing-out arrangements are prudent is not the same as to say that an arrangement which does not incorporate them can never be justified. (We need not enter here on the debate, which is by no means resolved, as to whether a red-circle defence can lose its force after a long period of time: in the present case we are concerned with a disparity which is being complained of from the start.) It is important not to lose sight of the fact that the purpose of pay protection is to achieve fairness to an employee, or group of employees, who have been down-graded through no fault of their own. It is also important to emphasise again that what we are considering here is a case where the protected rate of pay is not itself discriminatory in any way: the position would of course be different if the differential which was being protected was itself the product of past discrimination.

**CONCLUSION**

1. We accordingly allow the appeal and dismiss the claims. We regret that a combination of circumstances has led to so long a delay in the promulgation of our decision.