Next store workers win equal pay claims

More than 3,500 former and current retail staff have largely succeeded in their equal pay claims against Next.

This is the first equal pay group action in the private sector to reach the final stage, and the first to succeed. It is attracting a lot of interest, particularly from other retailers who face similar claims.

In this briefing we consider this decision and what it means for other employers.

What was the claim?

Six years ago, a group of mainly female store workers brought equal pay claims against Next. They argued that their work was of equal value to the work done by Next’s warehouse staff (who were better paid), and that they should be paid the same.

In May 2023, they succeeded in showing that their work was of equal value to the work done by warehouse staff. The next question for the tribunal was whether Next had a ‘material factor defence’ under section 69 of the Equality Act 2010 – i.e. whether it could show that the difference in pay could be explained by a reason (a material factor) that was not sex discrimination.

Any material factor cannot involve direct sex discrimination (i.e. be specifically because of their sex), nor can it potentially amount to indirect discrimination (i.e. put one sex at a particular disadvantage) unless the employer can show it is a proportionate means of achieving a legitimate aim.

Basic Pay

Next argued that several factors explained the difference in basic pay, including market forces and price, recruitment and retention of warehouse staff, maintaining 24/7 work in the warehouse, incentivising high productivity and attendance in the warehouse, and business viability, resilience, and performance.

It explained that the market rate for a warehouse operative is more than for a sales consultant, that it paid staff in both groups the “market rate” in a cost-constrained context (noting that it was harder to recruit and retain warehouse workers, and paying the market rate was necessary to ensure the required level and quality of workforce).

Direct discrimination

An Employment Tribunal (ET) found that these factors did not involve direct discrimination because they were not influenced by sex. Instead, they were driven by cost and profitability.

Indirect discrimination

However, the ET went on to find that the factors did potentially involve indirect discrimination given that retail workers were predominately women (77.5%), so paying retail workers less than warehouse workers (who were 52.78% men) had a disproportionate impact on women.

Whilst the tribunal noted that the difference in gender make up of the warehouse workers was not substantial, it noted that pay levels were set by benchmarking against the market generally and, taking the market as a whole, there was a significant imbalance favouring men.

As the tribunal found that the factors involved indirect discrimination, Next needed to justify using these factors to set pay – i.e. they needed to show that this was a proportionate means of achieving a legitimate aim.

Legitimate aims and proportionality

Next argued that their legitimate aims were viability, resilience, successful business performance, maintaining 24/7 warehouse work and incentivising warehouse productivity and attendance. The ET accepted that these were the reasons that the pay was set as it was. However, it found that these aims were all related to costs, and costs alone cannot be a legitimate aim. Next could have afforded to pay the higher rate but chose not to.

It also found that, even if costs were a legitimate aim, paying different sums of basic pay to retail and warehouse workers was not proportionate because the business need (to reduce costs) was not sufficiently great as to overcome the discriminatory effect. There needed to be something more to justify or explain the difference. The ET said that using market forces as a “trump card” would “defeat the objective” of equal pay legislation as “lower pay in particular sectors due to indirectly discriminatory practices could then be lawfully sustained in perpetuity”.

Bonuses and premiums

The tribunal also upheld the equal pay claims concerning ‘unconsolidated’ pay awards, different Sunday pay / night-time / overtime premiums, lack of paid rest breaks for retail workers, and different long service awards. The reasons for the differences in these elements of pay were again all about costs, and costs could not be a valid justification.

However, Next’s material factor defence was upheld in respect of several bonuses and premiums paid to warehouse workers. The tribunal found that these were based on legitimate business needs (and not based solely on cost) and were proportionate.

What does this mean for employers?

There are a few takeaways for employers.

• It should be noted that this case was decided on its own very specific facts and so a similar claim (involving a national retailer or otherwise) could be decided differently in the future.
• It was also based largely on historic pay differences between retail and warehouse workers. As the living wage has increased, the pay of retail workers has correspondingly increased, meaning pay disparity going forward is likely to be much smaller.
• What this case makes clear is that relying on “market forces” or costs saving alone to justify unequal pay between job roles is likely to be very risky. Employment tribunals are aware that allowing “market forces” to justify differences in pay is likely to lead to indirectly discriminatory practices being “lawfully sustained in perpetuity,” and costs saving alone is unlikely to be a legitimate aim, unless you are talking about emergency cost cutting to save a business.
• However, Next justified several bonuses and premiums on the basis that they were directly relevant to the specific challenges of the warehouse environment, such as an attendance bonus that was paid in one warehouse to stop workers joining a competitor (where there was aggressive competition among local retailers for warehouse labour), and a public holiday premium paid for a limited time period because the warehouse had 24/7 operating requirements (which the retail stores did not). If such payments can be linked to the specific challenge of the role, particularly where they are paid for a limited time, they are likely to be much less risky.
• Next has said it is planning to appeal against this decision, and so unless and until the decision is upheld in a higher court, we are unlikely to see significant changes amongst employers in the sector. We would anticipate that this case may be appealed through the senior courts for some time, possibly years, given its ramifications.
• Note that the new Labour government has pledged to extend equal pay protections to ethnic minorities and disabled workers, so watch this space.

Co-author: Catherine Roylance

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 10 September 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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