Section 78 of the Equality Act: the practicalities of promoting pay transparency
Author: Darren Newman
Consultant editor Darren Newman considers the forthcoming implementation of s.78 of the Equality Act 2010, which requires larger employers to publish pay information to show whether or not there are differences in the pay of their male and female employees.
Almost everyone would accept that one of the great barriers to combating discrimination is a lack of transparency. How do you know that you are being treated less favourably than others if you have no idea how others are being treated? When it comes to sex discrimination the problem is particularly acute because one major area of inequality is pay, which in many organisations is treated as a confidential matter between employer and employee.
The Equality Act 2010 attempts to tackle this particular problem. Section 77 of the Act renders unenforceable any term of an employee's contract that seeks to prevent employees from discussing their pay - at least when the discussion is focused on any possible discrimination. It also extends the right not to be victimised to any employee engaging in such discussions. However, the value of this provision is more symbolic than real. It does not give anyone a right to find out what other people are being paid but relies on individuals choosing to share this sensitive information.
The Equality Act also contained a provision - introduced by the Employment Act 2002 - whereby employees could issue their employer with a questionnaire asking whether or not they were on equal pay with specific individuals, and if not, why not. That too fell short of requiring the employer to disclose the actual pay of potential comparators, and in any event the equal pay questionnaire procedure was repealed by the coalition Government in the Enterprise and Regulatory Reform Act 2013.
One other measure designed to promote transparency is s.78 of the Equality Act, which allows for Regulations requiring employers with 250 or more employees to publish information about pay designed to show whether or not there are differences in the pay of male and female employees. The incoming coalition Government decided not to implement this provision, preferring to work with employers to encourage them to publish gender pay gap information on a voluntary basis. However, this voluntary approach has not worked, with only a handful of employers taking the plunge, and the Government has now accepted that s.78 needs to come into play.
This requires a commencement order bringing s.78 into force, followed by a consultation on how the implementing Regulations should be framed. Since this has been left to the very end of the Parliament it will clearly be for the next Government - whatever its hue - to work on the detail and draft the Regulations. Surprisingly, however, the Government is taking a more prescriptive approach by accepting an amendment to the Small Business Enterprise and Employment Bill currently before the House of Lords. That amendment requires the Government to issue Regulations under s.78 within 12 months of the passing of the Act.
This allows all three main parties to claim some credit. The Conservatives can say that they are taking action on the gender pay gap, the Liberal Democrats can claim that they have won the argument within the coalition, and Labour can point out that it was their amendment - following on from a private member's bill sponsored by Labour MP Sarah Champion - that forced the Government's hand.
Amid all this self-congratulation it is worth questioning how easy it will be for the new Government to come up with a set of useful Regulations. At their most basic, the Regulations could simply require employers to publish the average pay of men and the average pay of women in their organisation. This could be seriously misleading, however, as averages are easily distorted. If a company has one highly paid female executive this could significantly affect the overall picture. Similarly an employer could narrow its gender pay gap by contracting out a group of low-paid largely female workers such as cleaners or catering staff.
To avoid these problems it will be necessary to require employers to break down the average pay of men and women by category. This may turn out to be complicated. It will probably need to be done by region, and it would be surprising if employers were not also obliged to specify separate figures for full-time and part-time staff - although in the modern workplace this is not the straightforward division it once was. If an employer has a grading system, it could publish the pay of men and women on each grade. But suppose an employer has only a range of different job titles with no formal underpinning pay structure? And what of individuals who may or may not be employees - freelancers, agency temps, zero hours workers - how do we make sure that they are accounted for properly?
Defining pay may also prove complicated. Total earnings in the previous year would seem a sensible measure, but would that take account of basic pay and overtime? Would it be better to record hourly earnings? But then how would the pay of hourly paid employees be compared with the pay of those on a salary working unspecified hours of unpaid overtime? Bonuses would have to be included, as would commission. Taking all of these factors into account could create a huge financial headache for organisations, but if the information required is too simplistic it will have very little value.
In considering this subject, we should also remember that there is much more to equal pay than the gender pay gap. Behind that single figure is a plethora of factors, both social and economic. While a large gender pay gap can tell us something about the level of sex discrimination in the economy, it is not an accurate measure of this. In addition, its use in discrimination law is limited. The law is concerned with equal pay for equal work: it does not require that men and women are, on average, paid the same no matter what work they are doing. A claimant will therefore struggle to use any information published by an employer under these Regulations because the Regulations will not help to answer the central question - am I being paid less than someone doing equal work to me and, if so, why?
For the past 40 years, discrimination has been fought by individuals claiming that they themselves have been discriminated against. That has clearly not been enough to create equality and it is right to see discrimination as a corporate governance issue rather than just a series of individual disputes. However, statistics can be spun and manipulated in a way that a successful equal pay claim cannot. A future Government should not lose sight of the importance of individual claims in ensuring equal pay for equal work.
