The two claimants’ and their comparator’s contracts were transferred to Scottish Enterprise and subsequently to the respondent, both transfers being subject to TUPE. It was agreed that all three jobs were of equal value for the purposes of s1 of the Equal Pay Act. On transfer to Scottish Enterprise in 2002, the claimants’ salaries were roughly £10,000 less than that of their comparator and this continued to be the case until the claims were presented at the Tribunal in 2008. From 2004 until 2008 all three employees, in common with all Scottish Enterprise employees, received routine ‘across the board’ pay increases, year on year, which meant that, in effect, the claimants pay could not catch up with that of their comparator. The Tribunal found that Scottish Enterprise carried on awarding salary increases to the comparator without questioning whether or not his contract required them to do so and they did not have TUPE constantly in mind. They referred to there being a lack of evidence generally to show that TUPE was the reason why Scottish Enterprise awarded the comparator pay increases, despite accepting that Scottish Enterprise had ‘in general terms pay practices which avoided singling out employees or freezing salaries’ and a policy of ‘across the board payments’ and ‘consistency in treatment’. The gist of the Tribunal’s reasoning was that from 2004 onwards, Scottish Enterprise should have taken steps to rectify the pay disparity by ‘red circling’, ie freezing, the comparator’s salary.

The EAT held that the Tribunal had erred in law. Their findings were demonstrative of there having been a genuine explanation for the pay disparity complained of which was not, in any way, gender related. The causal chain between TUPE and the disparate pay had not been broken.

__________________

Appeal No. UKEATS/0042/10/BI

EMPLOYMENT APPEAL TRIBUNAL

52 MELVILLE STREET, EDINBURGH, EH3 7HF

At the Tribunal

On 25 May 2011

Before

THE HONOURABLE LADY SMITH, MISS S AYRE FIPM FBIM, MR R THOMSON

SKILLS DEVELOPMENT SCOTLAND CO. LTD (APPELLANT)

(1) MISS MAIRI BUCHANAN; (2) MS PATRICIA HOLLAND (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

For the Appellant
MR T LINDEN (One of Her Majesty's Counsel)

Instructed by:
Shepherd & Wedderburn Solicitors
155 St. Vincent Street
Glasgow
G2 5NR

For the Respondents
MS A JONES (Solicitor)

Maclay Murray & Spens LLP
Quartermile One
15 Lauriston Place
Edinburgh
EH3 9EP

EQUAL PAY ACT – Material factor defence and justification

Equal Pay. Genuine material factor defence. TUPE applying to both Claimants and comparators. Employment Tribunal which upheld claims on basis that employers should have taken action to "red circle" the comparator's pay found to have erred in law. On Tribunal's findings, the causal chain between TUPE and the disparate pay complained of had not been broken. Further, no basis on which Tribunal could have found that Respondents' explanation tainted by sex. Appeal upheld and claims dismissed.

1. This case concerns two equal pay complaints. The Claimants are two women who rely on the subsistence of a significant pay differential between them and a male comparator who carried out work of equal value to them, following TUPE transfers, and continues to do so. Their claims were met by a "genuine material factor" defence under s.1(3) of the Equal Pay Act 1970 ("EPA") in which the employers advanced TUPE as being explanatory of the differential.

1. The employers appeal from the judgment of an Employment Tribunal sitting at Edinburgh, Employment Judge F Eccles, registered on 3 June 2010, holding that:

"(i) the variation between the claimants' contracts and the comparator's contract is not genuinely due to a material factor which is not the difference of sex in terms of Section 1(3) of the Equal Pay Act; (ii) the claimants' contracts shall be deemed to include an equality clause; (iii) the terms of the claimants' contracts concerning pay and bonus payments shall be modified in terms of Section 1(2) (c) of the Equal Pay Act 1970 so as to be no less favourable than the terms of a similar kind in the contract of the comparator, Mr John Sweeney (iv) remedy including any arrears of remuneration to be awarded the claimants will be considered by the Employment Tribunal at a Remedy Hearing."

1. We will continue referring to parties as Claimants and Respondent. The Claimants were represented by Ms Jones, solicitor before the Tribunal and before us. The Respondent was represented by Ms L Murphy, solicitor, before the Tribunal and by Mr T Linden QC, before us.

1. The facts relevant to the issues raised on appeal and as found by the Tribunal can be summarised as follows. The Claimants and their comparator, Mr John Sweeney, first came to be employed by the same employer, Scottish Enterprise, in April 2002. They had each been employed by different employers prior to that and their transfer to Scottish Enterprise was subject to TUPE. Their and their comparator's contracts of employment was subsequently transferred to the Respondent, again subject to TUPE. The Claimants and comparator were all employed as customer service managers by Scottish Enterprise and in a similar role by the Respondent, and it was agreed that their jobs were of equal value for the purposes of s.1 of EPA.

1. On transfer to Scottish Enterprise in April 2002, the First Claimant's salary was £33,983, the Second Claimant's salary was £32,864 and Mr Sweeney's salary was £42,760. Mr Sweeney's contract of employment that transferred with him provided that he was entitled to pay increases to £45,721 on 1 January 2003, to £47,389 on 1 August 2003 (which he received) and then:

"On the expiry of 2003, your salary will be reviewed on an annual basis as per normal arrangements applying from April 2004."

1. The Claimants received a 4% pay increase on 1 April 2003. The Claimants and Mr Sweeney received a 1% pay increase with effect from 1 April 2004. Thereafter, from 1 July 2004, they, in common with all Scottish Enterprise employees, received routine "across the board" pay increases, year on year. The pay gap between them remained broadly the same – of the order of £10 /12,000. When the present claims were presented (10 September 2008), the First Claimant was earning £42,612, the Second Claimant was earning £42,407 and Mr Sweeney was earning £54,943.

1. On the Tribunal's findings, Scottish Enterprise carried on awarding salary increases to Mr Sweeney without questioning whether or not his contract required them to do so and they did not have TUPE constantly in mind. As we discuss further below, the Tribunal appear to have considered that TUPE could only be the explanation for the continued disparity if Scottish Enterprise were actually thinking about it and at least articulating to themselves that it was the reason why salary increases were awarded to Mr Sweeney, as is evident from their observation at the end of paragraph 81:

"Albeit … Mr Hopkin made reference to TUPE in general terms, it was in the manner of an explanation for the disparity in pay after the event as opposed to when the payments were made."

1. They do, however, appear to have accepted Mr Hopkin's evidence and we do not see that it detracts from the explanation tendered by the Respondent being that the continuing series of pay increases was caused by TUPE; at no point does the Tribunal find that it was not a genuine attribution on their part. It was not, for instance, suggested that the reference to TUPE was a fraud or sham.

1. The Tribunal refer to there being a "lack of evidence generally to show that TUPE was the reason why Scottish Enterprise awarded the comparator pay increases" (paragraph 80) but that is in the light of their approach being that Scottish Enterprise required to be thinking of TUPE whenever pay increases were decided on and of them appearing to have accepted evidence that Scottish Enterprise had "in general terms pay practices which avoided singling out employees or freezing salaries" and a policy of "across the board payments" and "consistency in treatment." (also paragraph 80). That evidence was given by way of providing the explanation for the continuation of the pay disparity as between the Claimants' and Mr Sweeney's salaries.

1. In July 2004, Scottish Enterprise introduced and operated a Performance Related Pay Scheme ("PRP") which allowed for performance related bonuses to be paid. The PRP scheme also provided:

"If it is deemed that an employee is overpaid for their current position their pay may be "red circled" (frozen) until such times as the salary is in line with the grade of their current role."

1. It was, however, as above noted, not the practice of Scottish Enterprise to freeze salaries. Mr Sweeney's pay was not frozen. During the period under consideration, the Claimants, Mr Sweeney and all other Scottish Enterprise employees received, according to the Tribunal's findings, "across the board" bonuses under the PRP scheme. The Tribunal found that Scottish Enterprise did not consider red circling Mr Sweeney's salary so as to exclude him from the award of any bonus under the PRP scheme. They also found that his salary was high for his grade.

1. In April 2008, the Respondent decided to undertake a job evaluation study which would include, amongst other posts, that held by the Claimants and their comparator, with a view to completing the study by October 2009. They were reluctant to take any steps to address individual pay anomalies pending its completion.

1. We have already referred to the terms of the Tribunal's judgment. We observe that it does not specify the date from which the Claimants' contracts of employment are deemed to include an equality clause nor does it specify the terms of the equality clause, both of which we would have expected to have been determined by the Employment Tribunal at this stage, even if the matter of determining appropriate compensation was to be left over until a remedies hearing. It was of particular importance for the Tribunal to do so since they found that the Respondent's defence was, to an extent, established; they accepted that TUPE was the explanation for the disparity in pay between April 2002 and April 2004 but not thereafter (see paragraph 82). Thus, the Tribunal were not minded to uphold the complaints articulated in the Claimants' ET1's insofar as they related to the years 2002 to 2004.

1. The gist of the Tribunal's reasoning was that "from 2004 onwards" (paragraph 82), Scottish Enterprise (and subsequently the Respondent) could and should have taken steps to rectify the pay disparity by "red circling"/freezing Mr Sweeney's salary. They appear to be saying that the employers should have asked themselves whether or not Mr Sweeney's contract of employment obliged them to carry on awarding salary increases once the specified increases were exhausted (£47,389 on 1 August 2003). The Tribunal state that they were not satisfied that his contract obliged them to do so (paragraph 79) but provide no explanation of how or why they reached that view. In particular, they do not carry out any analysis of the relevant term in his contract. There is also some indication that, separately, the Tribunal consider that Scottish Enterprise should have taken steps to freeze Mr Sweeney's salary as a means of rectifying the disparity. The import of their reasoning is that the Respondent's explanation was not good enough because Scottish Enterprise and they could have thought about the matter and done more sooner.

1. We note, in passing, that given the salary figures involved, even if Mr Sweeney's salary had been frozen at its August 2003 level, the Claimants would not have caught up with him by the date the claims were presented (when they were earning £41,776 and £41,575 respectively).

1. Although the Tribunal rejected the Respondent's defence insofar as it related to the period post April 2004, they made no finding that the Claimants had suffered discrimination on grounds of sex. Nor did they address the question of whether or not they had suffered indirect discrimination. In particular, they made no finding that the Respondent's explanation was "tainted by sex". There is no suggestion that what the Tribunal appear to regard as culpable inactivity on the part of Scottish Enterprise was motivated or influenced by gender related reasons.

1. There are no findings that show that there was any relevant provision, criterion or practice apt to result in women having been less favourably treated than men. Further, there was no suggestion that either the Claimants or Mr Sweeney were members of larger identifiable groups of employees. There was a single group of employees in this case, with three members – the two Claimants and Mr Sweeney.

1. There are some findings regarding a pay audit that was carried out by Scottish Enterprise in 2003 – it identified that Mr Sweeney was one of a group of four males who had previously undertaken roles in local careers companies whose salaries were protected and, being high, were stripped out for analysis purposes. There was also a finding that although 77% of the staff were women, the senior grades were dominated by men. We note, however, that the Claimants, whilst on lower salaries than Mr Sweeney, were evidently employed at the same senior grade as him – they were evidently not amongst the 77% referred to.

1. The starting point is that in terms of section 1(2)(c) of the Equal Pay Act 1970 *("EPA"),* where a woman is employed to do work which is of equal value to that performed by a man, if any term of her contract of employment is less favourable than a similar term in the man's contract, the relevant term in the woman's contract (in this case, the term directly relating to pay) "shall be treated as so modified as not to be less favourable". Thus, in the case of less favourable pay, the woman's contract will be treated as though it had the same pay provisions as contained in the man's contract. However, establishing that a woman is employed to do work of equal value to that performed by a man will not necessarily lead to the importation into the woman's contract of what is referred to as an "equality clause". That is because it is open to the employer to show that the difference in pay or other conditions is explained by something that has nothing to do with sex: section 1(3) provides:

"(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 with subsection (2)(c) above, may be such a material difference."

1. So, in an equal value case, if the employer establishes a genuine explanation – not a sham, fraud or pretence - for the variation in the contracts and that that explanation does not involve sex, then he need not go further. In particular, he need not show objective justification. If the employer proves a gender neutral explanation for the difference in pay, that is sufficient. In an individual case, it may seem that the explanation for the difference demonstrates that it is unfair or unjustified on moral grounds but that is not relevant. As observed by Lord Browne–Wilkinson in Strathclyde Regional Council v Wallace and others [1998] IRLR 146 at paragraph 23, the purpose of EPA is to eliminate sex discrimination in pay, not to achieve fair wages. He continued:

"Therefore, if a difference in pay is explained by genuine factors not tainted by discrimination that is sufficient to raise a valid defence under subsection (3); in such a case there is no further burden on the employer to 'justify' anything."

1. Similarly, in Glasgow City Council v Marshall [2000] IRLR 272, Lord Nicholls of Birkenhead said, at paragraph 18:

"The scheme of the Act is that a rebuttable presumption of sex discrimination arises once the gender based comparison shows that a woman, doing like work or work rated as equivalent or work of equal value to that of a man, is being paid or treated less favourably than a man. The variation between her contract and the man's contract is presumed to be due to the difference of sex. The burden passes to the employer to show that the explanation for the variation is not tainted with sex. In order to discharge this burden the employer must satisfy the tribunal on several matters. First that the proffered explanation, or reason, is genuine, and not a sham or pretence. Second, that the less favourable treatment is due to this reason. The fact relied upon must be the cause of the disparity. In this regard, and in this sense, the factor must be a 'material' factor, that is, a significant and relevant factor. Third, that the reason is not 'the difference of sex'. This phrase is apt to embrace any form of sex discrimination, whether direct or indirect. Fourth, that the factor relied upon is, or, in a case within s.1(2)(c) , may be a 'material' difference, that is, a significant and relevant difference between the woman's case and the man's case."

And, at paragraph 19:

"When s.1 is thus analysed, it is apparent that an employer who satisfies the third of these requirements is under no obligation to prove a 'good' reason for the pay disparity."

1. An aspect of that analysis which is of particular relevance in the present case is the reference to causation. If the employer establishes a subsisting causal link between a non gender related explanation and the difference in pay complained of, the defence is made out. Normal principles of causation apply and so, if there is no supervening factor to break the causal chain, the link will be established. The case of Benveniste v University of Southampton [1989] IRLR 122, where the temporary reason for restriction of a female lecturer's salary – financial constraints temporarily prevalent at the time of her appointment – ceased to exist, is an example of a supervening factor (the ending of the temporary financial constraints) breaking the chain of causation. Conversely, Glasgow City Council v Marshall, where the employers pointed to a historical basis for pay disparity – two different nationally negotiated pay scales – is an example of the chain not being broken. At paragraph 22, Lord Nicholls said:

"…the education authorities identified the factor which caused the pay disparity: teachers and instructors were remunerated according to two different nationally negotiated pay scales. …….As the Lord President observed, it would be wrong to conclude that the causal connection was broken simply because the education authorities could have chosen to pay the instructors more."

and, when explaining why he rejected the argument of the applicant instructors based on a submission to the effect that the s.1(3) defence could was not made out because the historic practice of maintaining a pay differential had been continued through inertia, said, at paragraph 24:

"The gist of the tribunal's reasoning was that the authorities could, and should, have done something about the pay disparity and, because they had not done so, could not bring themselves within s.1(3). For the reasons stated above, I take the view that this was an erroneous approach to the application of the statute…"

1. King's College London v Clark EAT/1049/02 is another example of the causal chain not being broken despite the fact that the employer could have acted differently following a TUPE transfer. The Employment Tribunal had found that there was no causal connection between TUPE and the employee's disparate pay because when they had carried out a grading review, they could have brought her into line with her comparator's terms and conditions (the reason they did not do so was that they mistakenly and genuinely thought that her post was properly graded when it was not).

1. On appeal, this Tribunal, at paragraph 23 of their judgment, record the submission for the employer in the King's College London case as having been:

"………..the Respondent in 1998…. made no judgment on the respective gradings but continued their terms and conditions as before, as it was obliged to do under TUPE. The causal chain was not broken by the fact, as the Tribunal found, that the Respondent considered the Applicant's grading in July 1999 but mistakenly concluded that it was correct."

1. This Tribunal agreed with that submission and at paragraph 29 said:

"We agree that the grading review in July 1999 did not break the causative chain stretching back to the historical difference in pay due to the protection afforded by TUPE to Mr Tate's terms and conditions of employment. Further, even if the Respondent mistakenly concluded that the Appellant was correctly graded, at a level lower than that of Mr Tate, in July 1999, such mistaken, if genuine belief, is itself capable of amounting to a material factor for the purposes of the section 1(3) defence. See Plaskitt approved in Wallace."**

1. We turn then to the recent discussion in the judgment of this Tribunal delivered by Underhill P in the case of [Bury Metropolitan Council v Hamilton & Others]() [2011] IRLR 358 at paragraph 14, where, having had regard to authorities including the above, he set out a helpful structured analysis:

"(1) It is necessary first to identify the explanation for the differential complained of. (In the language of the statute, this is the 'factor' to which the differential is due but the terminology of 'explanation' used by Lord Nicholls in Marshall is generally less clumsy.) The burden of proof is on the employer.

(2) It is then necessary to consider whether that explanation is 'tainted with sex'. What that not altogether happy metaphor means is that the explanation relied on must not itself involve sex discrimination, whether direct or indirect (see per Lord Browne –Wilkinson in Wallace , at p.148 and per Lord Nicholls in Marshall at p.274).

(3) In considering whether the explanation involves direct or indirect discrimination, the ordinary principles of the law of discrimination apply. That means that:

(a) if the differential is the result of direct discrimination (in the sense established in Nagarajan v London Regional Transport [1999] IRLR 572) the defence under s.1(3) will fail;

(b) if the differential involves indirect discrimination of either the 'PCP' or 'Enderby' type – as to this distinction see paragraph 16 below – the defence will fail unless the employer proves that the differential is objectively justified, applying the classic proportionality test;

(c ) if the employer's explanation involved neither direct nor indirect discrimination the defence will succeed, even if the factor relied on cannot be objectively justified – this is most vividly illustrated by the 'mistake' cases such as Yorkshire Blood Transfusion Service v Plaskitt [1994] ICR 74 and Tyldesley v TML Plastics [1996] IRLR 395 approved in Wallace.

(4) In conducting the exercise under (3) the ordinary principles governing the burden of proof in discrimination claims will apply. Thus, if the claimant shows a prima facie case of discrimination (in the sense explained in Madarassy v Nomura International plc [2007]), the burden shifts to the employer to prove the absence of discrimination."

and at paragraph 16, he explained that, in referring to there being two distinct types of indirect discrimination, he had in mind (i) where an employer applies a "provision, criterion or practice" which puts or would put women at a particular disadvantage compared with men, and (ii) the type of discrimination recognised in Enderby v Frenchay Health Authority [1993] IRLR 591, where two groups of employees doing work of equal value receive different pay and there is a sufficiently substantial disparity in the gender of the two groups, referred to in submission in Bury **as "tainting by numbers".

1. For the Respondent, Mr Linden submitted that the Tribunal's judgment was the result of their misunderstanding the relevant concepts. In particular, they had failed to understand the concepts of genuineness and materiality that were inherent in s.1(3) EPA and had failed to appreciate that the fundamental question was whether there had been sex discrimination in relation to the pay of the Claimants and their comparator: EPA s.1, Article 4 of 2006/54/EC, Strathclyde Regional Council v Wallace and others, Glasgow City Council v Marshall, Bury Metropolitan Borough Council v Hamilton & ors.

1. The Tribunal's real criticism was, he submitted, that the Appellant had not done more to narrow the pay gap but, on its own findings, that was because they had followed a standard approach rather than singling out the comparator for special treatment. The standard approach plainly flowed from the imposition on Scottish Enterprise of his contract of employment by reason of TUPE. The Tribunal had plainly accepted that gender neutral explanation for the origins of the difference in pay and they had not found that the application of the standard approach to pay increases thereafter was adopted for reasons of or related to gender. In these circumstances, the s.1(3) defence had to succeed however much the Tribunal may have felt that greater efforts to narrow the pay gap could have been made. It was absurd to suggest that the awarding of an "across the board" 1% pay increase meant that the cause of and reason for the differential ceased to be TUPE. It was evident that the disparity in pay could be traced directly back to the effect of TUPE and there had been no supervening factor to break that chain of causation. Insofar as the Tribunal appeared to suggest that an originating cause would cease to have effect if the employer did not continue to have it in mind, they were wrong. Causation is an objective matter, not a subjective one.

1. Mr Linden submitted that Clark v Kings College London was illustrative of what had occurred in the present case; just as TUPE did not cease to be causative there, so it did not cease to be causative here.

1. Mr Linden added that if it was not accepted that the Tribunal had in fact found that there was a gender neutral explanation for the pay disparity, it was clear from the findings in fact that they did make that the reason for the disparity was a gender neutral reason and that meant that this Tribunal could proceed on that basis, following the approach in Khan v Home Office [2008] EWCA Civ 578.

1. As to disposal, it was Mr Linden's submission that the appeal should be upheld and the Claimants' claims should be dismissed; there was nothing to remit, there being no pleadings or findings in fact on which a case of indirect discrimination (a matter specifically not adjudicated on by the Tribunal) could be made out.

1. Ms Jones' central submission was that the Tribunal had rejected the Respondent's explanation for the pay differentials and it therefore followed that there was sex discrimination; they did not require specifically to find that such discrimination had occurred – it was only where a tribunal found that there was a "sex taint" to the reason for the disparity that it required to do so. Accordingly, Ms Jones' submission seemed to be that a finding in favour of claimants would follow even where a tribunal does not consider that gender formed any part of the explanation for the pay disparity. The rebuttable presumption, which placed a heavy burden on the Respondent (Snoxell and Davies v Vauxhall Motors Ltd [1977] IRLR 123) was not rebutted. That meant that it was established that the Claimants had been discriminated against on grounds of sex. Whilst recognising that the President had, in Bury**, indicated that the burden could be discharged simply by showing at a factual level how the state of affairs complained of had come about, it was, she stressed, still an onerous burden. She did not, however, elaborate on what she meant by "heavy" or "onerous" in this context and we observe that there is nothing in the legislation to suggest that, for instance, a higher standard of proof applies where an employer seeks to establish the s.1(3) defence.

1. Ms Jones founded heavily on an Irish case, Fearnon v Smurfit Corrugated Cases (Lurgan) Ltd [2008] NICA 45; [2009] IRLR 132. That case concerned circumstances in which an employee who had transferred to the respondent under TUPE had his salary "red circled" to protect his original contractual provisions and received pay increases under that contract over a period of 14 years; the Court of Appeal in Northern Ireland accepted that the length of time that a discrepancy in salary had endured because of red circling was not irrelevant to consideration of whether a "genuine material factor" defence was made out. Ms Jones referred to the tribunal of first instance in Fearnon having relied on comments in Snoxell to the effect that a point will come when "red circling" wastes away "until eventually it vanishes" (per Phillips J at p.129). That was, she submitted, indicative of there being what she referred to as an "evaporation" principle, as mentioned in the Benveniste** case; there would come a point when the mere effluxion of time would be destructive of what had originally been a well founded "genuine material factor" defence.

1. The Tribunal had, Ms Jones submitted, found overall that TUPE was the excuse not the cause. The defence was, accordingly, not made out and the Tribunal had not erred. Ms Jones also referred to observations made by Elias P, as he then was, in the case of Coventry City Council v Nicholls** [2009] IRLR 345 at paragraph 9, to the effect that on the face of s.1(3) it is enough for an employer to show that the reason for the differential is not sex but "it does not work in quite such a simple way".

1. Turning to the matter of contractual obligation, Ms Jones did not make any submissions under reference to the terms of Mr Sweeney's contract but she submitted that it was clear from the Respondent's own policy that they were entitled to withhold pay increases if an employee was overpaid and there was no evidence that it was only because of the terms of Mr Sweeney's contract that the increases were paid.

1. If the appeal was to be upheld, Ms Jones submitted that there should be a remit for the Employment Tribunal to consider whether or not there was indirect discrimination. In support of that submission, Ms Jones submitted that there were aspects of the evidence which were capable of supporting a conclusion that the reason for the pay disparity was tainted by sex such as the pay audit evidence. The present case was, she submitted and "Enderby type situation" and in support of that submission relied on a comment by Mrs Justice Cox at paragraph 42 of MOD v Armstrong [2004] IRLR 672 that:

"..indirect discrimination in relation to pay bears a broader meaning than that which applies in the non-pay Sex Discrimination Act context…..What matters is whether, in any particular case, a tribunal is satisfied on the evidence before them and the facts found that the pay difference is caused by a factor or factors which are related to the difference in sex between the applicant and her comparator."

1. We consider that Mr Linden's submissions are well founded and are satisfied that the Tribunal erred in law. Their findings in fact were demonstrative of there having been a genuine explanation for the pay disparity complained of which was not, in any way, gender related. Although the language used by the Tribunal is that they did not accept that the reason advanced by the Respondent "was either genuine or material" (paragraph 82), they do not begin to suggest that this was a case of sham, fraud or pretence or, indeed, that the impact of TUPE was not highly material in the context of this case. Rather, the reasoning set out in their judgment shows that they rely on the failure to take action to address the pay disparity sooner (by freezing Mr Sweeney's pay) as having broken the causal chain, allied to which is the suggestion that it was broken because they were not thinking about TUPE at each pay review. Further, the basis for their view that action should have been taken by the employers appears to be that there was no contractual obligation to award pay increases to Mr Sweeney after April 2004. Although Ms Jones approached her submissions on the basis that the Tribunal had "rejected" the Respondent's explanation, properly understood, this was a "break in the causal chain" case, not one where the Tribunal had disbelieved the explanation tendered. Indeed, there is no doubt that they accepted that TUPE operated so as to impose Mr Sweeney's pre-existing contract of employment on Scottish Enterprise and that that contract had not been varied. Nor was there any suggestion that Mr Sweeney had waived any of his rights under it. Further, the findings show that once his contract was transferred, it in fact operated so as to pay salary increases year on year. There was no basis other than his contract for those payments being made.

1. The relevant clause in Mr Sweeney's contract (set out above) is, we consider, readily capable of being interpreted so as to entitle him to whatever pay increases were being awarded under his employer's "normal arrangements" which, on the findings in fact were that percentage increases and PRP bonuses were paid to all employees each year "across the board". The Tribunal should have recognised that. The ability, under the PRP scheme, to freeze the pay of an employee who was being overpaid, relied on by Ms Jones, is, we consider, neither here nor there, given the finding in fact that it was not the practice of Scottish Enterprise to freeze salaries. Further, the terms of that policy did not effect any variation of Mr Sweeney's contract of employment; its terms remained intact. The Tribunal's criticism of Scottish Enterprise for not having considered freezing Mr Sweeney's pay is, accordingly, irrelevant – on their own findings in fact, had they specifically considered the matter, the answer would have to have been that Mr Sweeney's pay would not have been frozen. The Tribunal failed, however, to recognise that; their thinking appears not to have proceeded beyond the fact that Scottish Enterprise could have frozen Mr Sweeney's pay. Further, given the terms of Mr Sweeney's contract, any employer considering imposing a pay freeze on him would require to have recognised that that would, potentially, have amounted to a breach of the term to which we have referred.

1. In the circumstances, we are not persuaded that the absence of any specific consideration of the effect of TUPE or of the question of whether or not Mr Sweeney's pay could be frozen was such as to break the causal chain. We agree with Mr Linden that the findings in fact show that TUPE was and remained the cause of the pay disparity. The application of the employer's standard approach to pay increases after April 2004 did not break the causal chain that emanated from the gender neutral fact of the effect of TUPE beginning in April 2002.

1. In the light of Ms Jones' submissions to the effect that an "evaporation" principle applied, we should add that it is not, in our view, the law, that the mere effluxion of time causes a gender neutral explanation to lose its "non–sex" character. We do not read either Snoxall (where the arguments did not consider questions of causation) as authority for that proposition. Nor, in our view, is Fearnon**, where the concern of the Court of Appeal in Northern Ireland was simply to point out that length of time could be a relevant factor, since otherwise:

"…it would be possible for an unscrupulous employer to allow a difference in earnings to persist while knowing that the initial reason for it no longer obtained." (per Kerr LJ at paragraph 12)

1. It is evident that the court's concern was to see to it that employees would be able to rely on all factors, including those such as envisaged by Kerr LJ, that could be demonstrative of bad faith; the example given demonstrates how such factors could, taken as a whole, be destructive of the genuineness of the employer's explanation. There was, however, no suggestion whatsoever in the present case that Scottish Enterprise and the Respondent were other than genuine or honest in their dealings.

1. The Tribunal failed to realise that their findings in fact were demonstrative of the Respondent having tendered and their having accepted an explanation which was genuine, material and which was not gender related. To say that they "rejected" that explanation does not make sense; it leads to an absurdity whereby, notwithstanding it being a gender neutral explanation, the conclusion has to be that it was gender related because the explanation was, in the Tribunal's view, unsatisfactory. Further, it fails to have proper regard to the principle explained in Wallace and Marshall that claims under the equal pay legislation can only succeed if there is a finding of sex discrimination. It does, we agree, appear as significant that the Tribunal drew no such conclusion in this case.

1. We accept, of course, that in an individual case, it may not simply be a matter of the employer showing that "the reason is not sex" (see: Coventry City Council v Nicholls) – it may not simply be a matter of the employer showing that there was no direct discrimination. That is because the facts and circumstances of an individual case may show that there was indirect discrimination (as was the issue in Coventry City Council v Nicholls) such as where the pay criterion adopted adversely affects women but not men – then the difference will require to be objectively justified before a tribunal can properly conclude that there is no "sex taint" to the explanation. In the present case, however, we cannot identify any finding that could support a case of indirect discrimination. The pay audit information, relied on by Ms Jones, does not do so; the Claimants and comparator are all part of the same group of senior employees. Disparate pay to different employees within the same group cannot of itself be indicative of discriminatory practice. More, pointing to a gender based explanation of one of the types identified by Underhill P at paragraph 16 of Bury would be required. Nor is there any question of the findings in fact pointing to the application of a discriminatory PRP. In these circumstances, there is no basis for a remit.

1. In these circumstances, we will pronounce an order upholding the appeal and dismissing the Claimants' claims.