Employment Issues / In the News

Will Pay Audits Deliver Equality?

Could the threat of an equal pay audit lead to businesses settling defendable disputes prior to tribunal hearings?  Kevin Poulter, an associate in the employment department of Bircham Dyson Bell LLP, predicts what the proposals will mean for employers.

Pay Review for Sex Bias Firms

The Equality Act 2010 included a provision requiring equal pay audits for large employers, but this was never implemented. Although the concept was revisited in the “Modern Workplaces” consultation last year, nothing further materialised. Now Lynne Featherstone MP has announced the government intends to proceed with the proposal to give employment tribunals the power to order employers to carry out equal pay audits.

What are the proposed changes and who will they affect?

The proposal, which is part of the government’s official response to the “Modern Workplaces” consultation and report, is that companies which lose cases on equal pay grounds will be required to carry out a compulsory pay audit across the organisation. The employment tribunal will be obliged to make such an order subject to certain exceptions – provisionally these are initially for micro-businesses, companies that have undertaken an audit within the past three years, and those that have transparent pay practises or could show a good reason why it would not be useful.

The proposals have come at a time when the government has publicly declared its intention to get rid of any unnecessary red tape which it believes is inhibiting business and economic growth. Although there is a proposed exception for micro-businesses, there is little doubt that owner managed businesses, SMEs and smaller PLCs may struggle to cope with the administrative burden of completing such an audit exercise.

It is to be applauded that the government is taking seriously the equality laws, although in reality the threat of an audit being ordered is likely to be another reason for businesses to settle disputes prior to tribunal hearing. By settling matters they will avoid completely the risk of a potentially costly and time-consuming company-wide pay audit. However, employee claimants may now have extra leverage to force employers into a settlement position in circumstances where the claims are unfounded or malicious. The risk of the audit may mean defendable cases go untested.

What impact could the proposals have on tribunals?

Equality of pay is something the tribunals have been dealing with for many years. Giving employment judges a new weapon in their arsenal to combat inequality of pay claims is useful, but the suggestion that a pay audit should be compulsory takes away the discretion that the tribunal system has been founded on. There may be circumstances in which a judge is reluctant to make a determination where the compulsory sanction is disproportionate to the deemed transgression.

What do you think is likely to be included in the publication requirements?

Following consultation, I would expect minimal information to be made public by the audit. However, the risk of bad publicity is likely to be a significant threat to most businesses.

How onerous and costly will it be? Are there possible data protection issues?

The costs of an audit may be integrated into larger businesses as part of the day-to-day HR function. Smaller businesses are unlikely to have the internal resources to conduct such an audit however. They may be forced to appoint consultants or HR professionals to undertake the audit which could come at significant expense depending on the size of the company, number of locations, spread of functions and even international considerations.

Before the issue of data protection can be addressed, it will be important to determine the scope and recipients of any audit information. If it is to be public, issues may arise, particularly in smaller organisations where it may be easy to identify which employee is which, even if names are redacted or anonymised. It’s likely any such issues will be resolved prior to implementation.

Will the proposals be able to deliver?

It depends what the goal is. If the goal is to deliver on equality promises and produce a workforce which is treated on an equal footing, the answer must be “No”. Those businesses which knowingly breach the equality legislation will settle matters before any order is made, which makes commercial sense. SMEs and smaller businesses may not, particularly in the current economic climate, have the capital or reserves to make sufficiently attractive settlement offers. For those organisations, such claims and the orders that will follow are likely to mean businesses closing, unable to sustain themselves through numerous claims or negative publicity.

What can employers do now?

Employers should take this opportunity to engage with the government through the consultation. The only way that the recommendations of the “Modern Workplaces” report will be met is if business works with the government to ensure the right balance is drawn.

The best way to avoid the risk of claims and the potential for a pay audit to be ordered is for a business to treat its employees fairly across the board, from recruitment through to termination. Being fair doesn’t mean being generous and employees generally realise that a secure job is not to be taken for granted. Content and well-informed employees will generally not raise claims.

What is the next stage?

The consultation is said to commence later in the year and businesses and business groups are well advised to keep abreast of its progress.

Interviewed by Kate Beaumont

This interview first appeared in the Daily Telegraph on 15 June 2012 

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