Case No: A2/2009/0628

Neutral Citation Number: [2009] EWCA Civ 1449
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Friday, 4th December 2009

Before:

LORD JUSTICE SEDLEY
LORD JUSTICE LLOYD
and
LORD JUSTICE SULLIVAN

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Between:

Coventry City Council (Appellant)

- and -

Mrs M Nicholls & ors (Respondent)

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(DAR Transcript of
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Adrian Lynch QC (instructed by Geldards LLP) appeared on behalf of the Appellant.

Antony White QC and Catherine Rayner (instructed by Ead Sols LLP Thompsons) appeared on behalf of the Respondent.

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Judgment (As Approved by the Court)
Crown Copyright©

**Lord Justice Sedley: 
**1. This is a renewed application for permission to appeal against a single but potentially decisive limb of a decision of the Employment Appeal Tribunal given on 27 February 2009 and now reported at [2009] IRLR 345. Permission was refused on consideration of the papers by Sir Richard Buxton.  Mummery LJ has directed that the renewal which is now before us be heard by a full court with the appeal to follow immediately if permission is granted.

1. The claim is a union-backed equal pay claim made by a variety of female local authority employees who have been paid less than the council’s refuse collectors, all or most of whom were male.  For the purposes of the preliminary issues with which we are concerned, it is assumed that all the jobs in question were of equal value.  The preliminary question was whether, this being so, Coventry City Council could nevertheless establish one or more genuine material factor defences.

1. Equal pay is assured in principle by the deemed inclusion in contracts of employment of an equality clause.  The genuine material factor defence is afforded by section 1(3) of the Equal Pay Act 1970 which, in its material part, provides:

“An equality clause 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 [constitutes a material difference between the two cases]”

1. For the purposes of the present proceedings it has throughout been common ground that this defence places on the employer the burden of establishing what the material factor is and that (a) the factor is a genuine reason and not a sham or a pretence which existed, and was known to the employer, at the date that the pay was fixed and which continues to the point of the hearing; (b) that the less favourable treatment is due to this reason -- the factor must be a material factor and must be causative, not merely justificatory; (c) the reason must not be the difference of sex, whether by reason of direct or indirect discrimination; (d) the factor relied upon is a significant and relevant difference between the woman’s case and the man’s; and (e) if the factor relied upon is indirectly discriminatory on the grounds of sex, reliance upon it is justified.

1. Before the employment tribunal, Coventry City Council advanced three such factors.  The first, which relied on a genuine need to pay a bonus to the refuse workers, was rejected by the employment tribunal as historically tainted by sex discrimination and objectively unjustified.  The EAT on appeal upheld this as a legitimate finding, and it is against that decision alone that it is now sought to appeal.  The other two were a “supervening cause” argument based on union intransigence frustrating the agreement of a new pay structure, which was rejected as being without the statute, and an argument that the disparate impact of the differential on women employees was justifiable.  The latter argument succeeded before the employment tribunal but was reversed by the EAT and remitted for redetermination.  The former failed again before the EAT and is not now renewed.

1. Our sole concern today is therefore the argument on bonus.  This is described in detail by the employment tribunal in a determination which the Employment Appeal Tribunal commended, as indeed I respectfully would, for its quality.  It is summarised helpfully by Elias J, President of the EAT:

“38. The roots of the bonus arrangements for refuse workers lie in a productivity agreement made in 1999.  By that stage the service was performing poorly. Levels of absenteeism were high, there was significant over-manning, and the council had to resort to agency labour, which was expensive.  There had been an earlier compulsory competitive tendering exercise in 1991 which had led to a more efficient service and under which significant bonuses could be earned.  However, the standards were not maintained.  The Tribunal found as a fact that even if in 1991 the bonus payments were based on achieving a particular level of productivity, that had ceased to be the case by 1999.  In effect the bonus being paid at that time was little more than a supplement to basic pay; it was paid as a matter of course whether productivity targets were reached or not.

39. The 1999 Agreement brought about a number of important changes designed to correct the failings of the services.  It involved a reduction in the number of staff, a significant increase (some 30 pr cent) in productivity, and the payment of a bonus.  In large part, the bonus rewarded attendance at work - or, more accurately, penalised those who did not attend.  There was also a bonus of £10 per week which would be lost if the number of complaints about the service reached a sufficiently high level. In practice, however, this reduction was never likely to arise. Complaints were running in the region of 30 per week and the £10.00 penalty only applied if there were some 600 complaints about the service in any particular week.  Accordingly, there had to be a very substantial deterioration of the service before that number of complaints would be made and the element of the bonus would be lost.

40. It is relevant to note that although an important feature of the 1999 scheme was the productivity improvements, this did not constitute an element of the GMF defence.  The assumption underlying this case (for the purpose of the preliminary issue on section 1(3) only) is that the jobs are of equal value. Mr White QC, counsel for the claimants, submitted that this means that the jobs must be deemed to have been of equal value at the time when the claims were lodged and at relevant earlier dates.  We agree.  The consequence is that the claimant is deemed to be working on equal value with the comparator after taking account of the 30 per cent productivity improvement achieved by the 1999 Agreement.  So the differential in pay cannot be justified by an argument that the refuse workers should be paid more because they work harder or more efficiently than the claimants, and that argument has not been advanced by the council.

41. However, the fact that the bonuses were introduced as part of an overall productivity package is not wholly without significance.  It meant that the new bonus system was self?financing; the benefits derived from employing fewer staff and increasing productivity justified the increase in pay, including the bonuses, which the refuse collectors were (for the most part) receiving after 1999.  The savings effected by this scheme could not have been achieved with respect to any of the claimant groups, as the Tribunal explicitly found.  Accordingly, although the Tribunal did not accept the council’s submission that no equivalent bonus arrangements could be introduced for the claimant groups, they did conclude that it was not possible for such bonus schemes to be introduced on a self financing basis.”

1. Two issues arise.  Was the council called on to justify the payments?  And, if it was, had it shown that the consequent differential was justified?  As to the first question, the employment tribunal held, and the EAT agreed, that it would have been perfectly possible to bring parallel bonus payments -- that is, for attendance and for absence of complaints -- into being for the groups represented by the claimants, or at least that it was not shown that it was not possible.  The EAT also agreed with the employment tribunal that, if the council were right, this would actually support a finding of indirect discrimination.  But the employment tribunal also accepted that there was a difference in the fact that a scheme for the claimants’ grades, unlike that for the refuse workers, could not be self?financing.  (I would interpose that that itself was a finding based on a benign understanding of the self?financing nature of the scheme from Coventry’s point of view.)

1. The employment tribunal went on therefore to ask whether this difference was itself sex-related, and they concluded that it was.  Their reasons for doing so are adequately summarised in the decision of the Employment Appeal Tribunal as including the following:

“47.   […] The 1999 agreement had to be seen in the context of its predecessor, an agreement reached in 1991.  That had involved the payment of bonuses to the refuse workers - a payment which had in fact ceased to be justified well before 1999, and was in effect simply part of basic pay - and it was assumed that the new agreement would have to secure similar payments.

48. The question was, therefore, whether historically there had been any element of discrimination in the payments made to the refuse collectors.  The Tribunal concluded that there had been (paras 8.3.4.16-18):

*‘Mr Dronfield gave evidence, which we accepted, that the large size of the bonus reflected the “high profile nature of the job.”   This we took to be a reference to the fact that refuse workers had a collective industrial muscle, granted to them by the political consequences of their taking industrial action, which other staff did not enjoy. It is a natural conclusion that budgets for the refuse service have always been of a size to meet the pay demands which this position brought about.
….
It is evident that the Council was unwilling or unable to find extra money to increase budgets merely to reward better paid staff.  However, any consideration of what was “self-financing” must start with a consideration of the size of the budget in the first place. The inability of the budget for Social Services transport drivers, and indeed of the budgets for other job groups occupied by the claimants, to yield savings which would “self-finance” bonuses has, as we have noted, been advanced as a reason for not being able to extend bonus schemes to those workers. Indeed, we were told, and we accept, that those services had, by and large, been pared down to the point where they were running at high levels of efficiency. Unlike the refuse scheme, that paring down was achieved with no extra cost to the employer in terms of the wage bill and, in any event, those budgets were rooted, historically, in the context of pay structures which, we now know under-rewarded jobs occupied almost exclusively by women and vice versa. …
The 1999 scheme was capable of being self-financing because it started with a budget that reflected the historically high levels of pay enjoyed by workers in a traditionally male job. We take the view that this history taints the 1999 refuse bonus scheme’.”*

1. It is to be observed that implicit in that last finding is a finding that an equal pay claim would have been unanswerable in the window of time between 1991 and 1999.  However that may be, before this court Mr Adrian Lynch QC reiterates the argument he presented to the Employment Appeal Tribunal.  His complaints, set out in his grounds, are criticisms of the employment tribunal, in essence for adopting a different view from that held by Coventry City Council of the alleged uniqueness of the bonus scheme for refuse workers.

1. This was dealt with by Elias J in the following way in the EAT:

“50.  […] The starting point must be that there is a striking disparate impact in this case. The situation is akin to the facts in Enderby, although we have regard to Mr Lynch’s point that unlike that case, this one is not about differentials resulting from collective bargaining.  Whilst we accept that it is not impossible for an employer to establish that what might appear to be prima facie unlawful discrimination can in fact be explained by non-discriminatory factors, it is no easy task, particularly where the pay differential is significant and long lasting.

51. Mummery LJ in the Bainbridge case (para 59) expressed the view, obiter, that even if Armstrong were right, it would in practice be impossible to rebut sex discrimination where the statistics are as overwhelming as they are here.  That is perhaps putting it too strongly, but the hurdle facing an employer in such circumstances is a very high one.

52. As the EAT pointed out in Surtees, it is a fundamental objective of equal pay law that it should seek to eradicate differences between different groups of workers where, for reasons which are located deep within the structures of society, they consist of workers who are predominantly of one sex or  another.

53. In this case one of the findings of the Tribunal was that the refuse collectors had historically been paid more.  Furthermore, they were paid significantly more by the time the 1999 agreement was introduced, in part by way of a bonus which had lost any justification, and this effectively determined the parameters of the 1999 agreement.  It is true that there was a vital need to improve the service, and that was the immediate cause of the bonus arrangements.  But we agree with the Employment tribunal that the nature and amount of those payments could not be divorced from the historical context; and on the assumption that the jobs were of equal value, that strongly suggested that the likelihood was that historically the difference in pay was not unrelated to sex.

54. We do accept Mr Lynch’s point  that if the  “high profile” nature of the job alone explained the historical difference in pay, then it would be necessary at least to remit the matter back to the Tribunal to determine whether that profile was to any real extent the product of the sex of the job holders.  We suspect that it was, and that there is, and certainly historically was, a tendency for men to be more likely to resort to industrial action than women.  However, it is right to say that there was no evidence to that effect and the Court of Appeal in Armstrong held that it would be wrong for a court to act on such an assumption: see the observations of Buxton LJ at paragraph 117.  But we do not believe that the Tribunal was concluding that this was the sole reason for the pay differential. They also recognised, which cannot we think be seriously in doubt, that  given the pattern of pay differentials across these range of jobs, the sex of the job holder, or features relating to it,  must have had some influence on the pay levels.   Once the difference in pay is to some extent related to the sex of the job holder, then the obligation to justify arises.”

1. Turning to the issue of justification, it is submitted by Mr Lynch, as it was to the EAT, that the employment tribunal had no warrant for concluding that the differential was unjustified.  In particular today Mr Lynch submits that the Employment tribunal overlooked evidence from a witness named Adam Lech which was, he submits, capable of having a bearing -- he would submit a crucial bearing -- on the outcome.  For my part, I am not prepared to infer such a conclusion either from the content of the determination or, with all respect to Mr Lech, from the summarised content of his evidence in Mr Lynch’s grounds and skeleton argument.  The fact is that this was a highly complex case, determined after many days of argument and evidence by a tribunal that had heard far more evidence than can possibly be contained even in a decision as full and careful as that of this tribunal.  A challenge of this kind, in my judgment, needs far stronger ground than is available to it here to succeed.

1. The way in which the Employment Appeal Tribunal dealt with this second issue, standing back, starts at paragraph 55 of their judgment:

“55.  […] The central issue, as the Tribunal recognised, was whether the differential was necessary and proportionate to achieve that aim.  The burden rests on the employer to show that it was.

56. The Tribunal considered that the burden had not been discharged.  They focused on the two elements relied upon to justify the bonus pay, namely the payment referable to attendance at work, and the element referable to customer satisfaction. (For reasons we have given, the productivity benefits could not be considered under this head).  They noted the well established principle that justification will not be established if the same objective could be achieved by less discriminatory means: see Kutz Bauer v Freie und Hansestad Hamburg [2003] IRLR 368. As to the former, they considered that there was no evidence that the employers had sought to deal with the problem of absenteeism by means other than cash incentives.  In particular, there was evidence from the council’s own witness that the council had not given thought as to whether a less discriminatory procedure, such as the council’s usual procedure for dealing with absenteeism, might have sufficed. This was so notwithstanding that it was used elsewhere in the council.  Furthermore, by 2004 the link between the payment of the bonus and absenteeism had virtually disappeared so that the payment was no longer referable to the objective of improving the service. There could not conceivably be any justification after that date.

57. As to the customer satisfaction objective, again the Tribunal was not satisfied that the imposition of effective management supervision arrangements would not have sufficed to ensure satisfactory performance.  The bonus arrangements gave extra money to these particular workers merely for doing what they were contractually obliged to do. It was far from obvious that cash incentives were the only effective way to ensure satisfactory performance.  This was particularly so given that the payment was automatic unless the level of dissatisfaction reached very significant levels.  There would need to be 600 complaints a week before any deduction was made, and the average was 30.  In effect the link between pay and performance was extremely tenuous.

58. Finally, the Tribunal noted that £30 was paid without reference to either of these factors, and they said that they had no satisfactory explanation as to why that was done.  Mr Lynch criticised this particular conclusion on the grounds that a council witness had proffered an explanation.   However, as Mr White observed, the tribunal did not say that they had received no explanation, simply no satisfactory one.

59. Mr Lynch argued that the Tribunal erred in law.  Their analysis was wholly unrealistic.  It would have been impossible to have achieved these objectives without giving suitable rewards to the refuse collectors.  There was evidence that the effect of what was done was that the absenteeism level did drop significantly; it was fanciful to think that the same result would have been achieved by stricter managerial controls alone.

60. We must remind ourselves that it is not for the EAT to assess the evidence, but merely to determine whether there was a proper basis for the conclusion reached below.  We are satisfied that there was.  The Tribunal received evidence that the absenteeism procedures were not even considered as a possible way of achieving the objective; it was simply assumed that bonuses should be maintained in order to retain (and in some cases improve) pay levels.  No doubt it would have been open to a tribunal to find that the alternatives were not realistic possibilities. But that is not the point.  In our judgment the finding was open to this Tribunal for the reasons it gave.

61. It is also alleged that in concluding that alternative means for dealing with absences might have been adopted, the Tribunal failed to have regard to the evidence of a Mr Lech who had expressly stated that normal management techniques would not have sufficed.  However, the Tribunal was not obliged to refer specifically to his evidence, let alone to accept it, particularly in circumstances where it was not an opinion expressed when the bonus scheme was introduced,

62. As we have said, the evidence overall clearly demonstrated that no consideration had been given to the potentially discriminatory effects of the bonus scheme at that time by the manager adopting the scheme. Whilst this does not of course defeat a justification claim, it does oblige the court to look with some care at arguments relied upon by way of ex post facto justifications: see the observations of Mummery LJ in R (on the application of Elias) v Secretary of State for Defence [2006] IRLR 934 para 129.

63. The Tribunal’s conclusions with respect to the £10 payment is plainly justified.  In truth it has no real impact on the standard of service at all.  In practice, it is an addition to basic pay which is never likely to be taken away even where performance is very poor.  In our judgment, it was manifestly open to the Tribunal to say that there were other management supervision techniques which could have achieved this particular objective of preventing performance becoming chronically bad.

64. In our judgment, the Tribunal was entitled to find that the twin objectives of reducing absenteeism and securing an effective service could have been achieved by less discriminatory means.  It follows that the appeal against the Tribunal’s finding on the bonus GMF fails.”

1. In the light both of a very full and careful employment tribunal determination, and of a lucid and coherent judgment of the Employment Appeal Tribunal upholding it in this regard, Mr Lynch has, I am afraid, failed to persuade me that the employment tribunal’s determination is even arguably vitiated by an error of law, or therefore that the EAT has arguably erred in upholding their decision in relation to the bonus scheme.

1. In reaching and now explaining this conclusion, I have not considered it appropriate to substitute my own reasoning for that of the EAT or to try to put the same reasoning in different words.  This is for a reason.  The appeal from an expert tribunal of first instance to a superior expert tribunal on a question of law, but a question of law shot through with issues of fact and practice, ought ordinarily to be the end of the road in a case as dependent as this one is on knowledge of, and judgment about, employment practices.  It is only if a frank mistake of law impacting on the outcome can be identified that this court should be invited to second-guess the Employment Appeal Tribunal.

15.This application for permission to appeal has, in my judgment, failed to establish any such arguable error, and for my part I would according refuse it.

**Lord Justice Lloyd: 
**16. I agree.

**Lord Justice Sullivan: 
**17.I also agree.

Order:  Application refused