Supreme Court: Lord Reed P, Lord Hodge DP, Lord Lloyd-Jones, Lady Arden and Lord Leggatt JJSC, [2021] UKSC 10, [2021] ICR 786, 26 March 2021

This is the latest in a series of cases in which the UK’s highest court has had to consider whether a group of women employees are entitled to compare themselves with a group of male employees working for the same employer but employed in a different establishment. Section 1(6) of the Equal Pay Act 1975, which was in issue in this case, provides so far as relevant that “men shall be treated as in the same employment with a woman if they are men employed by her employer or any associated employer at the same establishment or at establishments in Great Britain which include that one and at which common terms and conditions of employment are observed either generally or for employees of the relevant classes”. Section 79(4) EqA, also in issue, provides that a comparator may be someone employed by the same or an associated employer at another establishment at which “common terms apply … (either generally or as between [the claimant] and [comparator]”.

In Leverton v Clwyd County Council [1989] AC 706 the House of Lords ruled that the “common terms and conditions” in s6(1) referred to terms and conditions generally applied at the establishments in which the claimant(s) and comparator(s) worked rather than (as the employer argued) to the terms and conditions of claimant(s) and comparator(s). The latter approach would of course have had the effect of defeating every claim, since no claimant would seek to compare her terms and conditions to those of an individual whose terms and conditions were the same. In Leverton v Clwyd the House of Lords suggested that the paradigmatic “though not necessarily the only example, of the common terms and conditions of employment contemplated by the subsection” were those governed by the same collective agreement (§7 per Lord Bridge with whom Lords Griffiths, Ackner, Templeman and Goff agreed). In British Coal Corpn v Smith [1996] ICR 515 the House of Lords ruled that “common terms and conditions” within s1(6) EqA meant terms and conditions which were substantially comparable on a broad basis, rather than the same terms and conditions subject only to de minimis differences. and in Dumfries and Galloway Council v North [2013] UKSC 45, [2013] ICR 993 the Supreme Court upheld an appeal against a ruling by EAT that in order to benefit from s1(6) a claimant had to show that there was a “real possibility” that a comparator at a different establishment could be employed at her establishment to do the same or a broadly similar job to the one which he does at the other establishment, applying Leverton and British Coal Corporation  and pointing out that the EAT’s approach added an “unwarranted gloss” to the wording of the subsection and would have defeated the object of the exercise. The Court ruled that the “common terms” requirement in section 1(6) required a purely hypothetical exercise of asking whether, assuming that the comparator was employed to do his present job in the claimants’ establishment, the current core terms and conditions would apply (an exercise which has come to be known as the “North hypothetical”).

In the instant case Asda appealed a decision of the lower courts that the claimants (35,000 individuals, predominantly women, employed in its retail business) were entitled to compare themselves for the purposes of an equal pay claim to predominantly male employees employed at Asda’s distribution depots. Retail and distribution locations were geographically distinct and had different terms and conditions of employment, distribution (but not retail) employees benefitting from collective bargaining. A tribunal, the EAT and the Court of Appeal all ruled that this “common terms” requirement was fulfilled. The Supreme Court rejected Asda’s appeal, Lady Arden delivering a judgment with which Lords Reed, Hodge, Lloyd-Jones and Leggatt agreed.

At §5 Lady Arden referred to the three cases mentioned above as demonstrating that “what is required is simply (1) that the terms and conditions of employment of the comparators must be broadly the same at their establishment and the claimants’ establishment, and (2) that, if there are no employees of the comparator’s group at the claimants’ establishment and it is not clear on what terms they would have been employed there, the court or tribunal applies what is known as the North hypothetical and considers whether the comparator’s group would have been employed on broadly similar terms to those which they have at their own establishment if employed on the same site as the claimants”. She went on at §6 to state that “The North hypothetical provides the short and direct answer in this case”, going on to remark that “there was a substantial amount of evidence led in the employment tribunal which was not required” and that “[t]he proceedings became markedly over-complicated”, and issuing “guidance on future case management of issues raised by the common terms requirement involving a cross-establishment comparison” at §§68–71 below. At §§20-28 she considered the decisions in Leverton, British Coal and North, citing Lady Hale’s summary in the last of these cases of the relevant principles as follows (§§12-13, cited by Lady Arden at §26):

“[12] First, the “common terms and conditions” referred to in s.1(6) are not those of, on the one hand, the women applicants and, on the other hand, their claimed comparators. They are, on the one hand, the terms and conditions under which the male comparators are employed at different establishments from the women and, on the other hand, the terms and conditions under which those male comparators are or would be employed if they were employed at the same establishment as the women. Second, by “common terms and conditions” the subsection is not looking for complete correspondence between what those terms are, or would be, in the woman’s place of work. It is enough that they are, or would be, broadly similar.

[13] It is also plain from the reasoning of both Lord Bridge in Leverton and Lord Slynn in British Coal Corpn that it is no answer to say that no such male comparators ever would be employed, on those or any other terms, at the same establishment as the women. Otherwise, it would be far too easy for an employer so to arrange things that only men worked in one place and only women in another. This point is of particular importance, now that women are entitled to claim equality with men who are doing completely different jobs, provided that the women are doing jobs of equal value. Those completely different jobs may well be done in completely different places from the jobs which the women are doing.”

At §20 Lady Arden acknowledged that this was the first cross-establishment case in which the claimants and the comparators’ terms and conditions were not both fixed on both sides by collective bargaining agreements, referring to Lord Bridge’s observation that the “presence of a collective bargaining agreement would be a paradigm but not the sole situation in which a cross-establishment comparison could be made”. At §30 she remarked that in each of the cases considered “the Appellate Committee and this Court adopted a robust, purposive approach. These cases further show that there can be ‘common terms’ not only where the claimants and the comparators are employed under the same collective bargaining agreement but also where they are employed under different collective bargaining agreements”. She agreed at §32 with the Court of Appeal’s statement that it would not be “necessary for an employment tribunal to apply the North hypothetical if on the facts it is satisfied that there were common terms applying either ‘generally’ or as between the relevant classes of employees’ and went on to conclude that the tribunal had been entitled to find on the evidence that the distribution employees would have been employed on substantially the same terms if they had been employed at the claimants’ site, and that they would not have received the retail employees’ terms.

Lady Arden rejected as “too broad” Asda’s argument that the fact that the claimants and comparators were employed under different employment regimes was inconsistent with any finding that common terms and conditions applied, stating at §45 that “Lord Bridge did not go that far: he continued after the sentence [“There may be perfectly good geographical or historical reasons why a single employer should operate essentially different employment regimes at different establishments”] by saying that ‘In such cases’, ie if there were good reasons for having different employment regimes, then the common terms requirement would defeat the equal pay claims. The common terms requirement is only a threshold test and thus not a test to be used to exclude the possibility of a case where despite the presence of different establishments there is sufficient commonality of terms to mean that the claim should go to the next stage. As explained, the North hypothetical is now one way in which a sufficient degree of commonality can be achieved”. At §46 Lady Arden stated that “it would be surprising if equal pay claims could be stopped in limine simply because the comparators were employees of predominantly one sex who were located in a separate establishment and had had the benefit of a collective bargaining agreement, negotiated on behalf of that particular group of employees alone”, going on to reiterate that the concern of s79(4) EqA and its predecessor is “is with geography rather than employment regimes” and that “the common terms requirement is intended to operate only within a very narrow compass where the differences in terms and conditions are wholly or mainly derived from the physical separation of the comparator’s establishment, and … it is not intended to prevent claims merely because as events have turned out there are different employment regimes”.

At §50 Lady Arden rejected Asda’s criticism of the tribunal’s factual finding that there was broad similarity between he terms and conditions at the various locations, stating that the tribunal had been “wrong to entertain a detailed, line by line comparison of terms” and that the claimants succeeded on the North hypothetical the importance of which, she explained at §51, was to allow a tribunal to determine “whether the classes of employees in question would remain on substantially the same terms if (hypothetically) they were transferred in their current roles to the other site”, in which case  or whether “their terms are tied to their location for some reason so that they would acquire the other group’s terms on transfer, they are not common terms. But, if their core terms are unaltered by the hypothetical relocation, then the common terms requirement is satisfied and the one group may be a comparator for the other, the reason being that any difference due to difference of location can be eliminated.” At §55 she rejected the claim that a North hypothetical had to be applied on the basis that the distribution worker would perform his role physically within the claimants’ workplace (in which case the employer’s argument that he would have been paid in line with retail wages would have been strengthened). Lady Arden ruled that this was inconsistent with the finding in North in which, allowing a comparison between female nursery nurses and learning assistants employed in schools and male manual workers, the Supreme Court there “specifically held that it did not have to be ‘feasible’ for the hypothetically relocated employees to be able to carry out their role at the other group’s establishment. Just as there was no statutory requirement that the transfer should be a realistic possibility so there was no statutory requirement that it should be feasible.” (citing Lady Hale at §32).

“56 It follows that all the employment tribunal needed to do in this case was to make the assumption that the distribution employees could carry out their role at a location appropriate for this purpose at the claimants’ establishment, even if this was contrary to the fact. It could have achieved that by envisioning a depot next to the retail store at the claimants’ establishment. It then had to ask whether, on this assumption, the distribution employees would continue to be employed on the same or substantially the same terms as they were employed at their own establishment. That is also all that the employment tribunal would need to be invited to do in a future case of this kind”.

At §59-67 Lady Arden summarised the law on the common terms requirement and the implications for future case management by employment tribunals, emphasising at §62 that “the limited function of the threshold test is to ‘weed out’ … comparators who cannot be used because the differences between them and the claimants are based on geographical factors, and possibly also historical factors”, at §63 that “the threshold test is relatively incidental to the principal stages in an equal pay claim”, at §64 that “The ‘weeding out’ goal can be achieved by asking whether the comparators would be employed on the same or substantially the same terms if they were employed at the claimants’ establishment” and at §65 that “For this purpose, as regards location, it must be assumed that the comparators would continue to perform their existing role and that they would do so on an appropriate part of the claimants’ establishment. It would be wrong to assume some change in the way they discharge their role, so they should be assumed to work in separate premises if that is what their work requires”. There would (§66) be cases in which the North hypothetical was not required “because the comparators’ terms and conditions are the same or substantially similar irrespective of where they work”. In future (§68) “Even when evidence is led and the employment tribunal must make factual findings on the issue whether the comparators would be employed on the same or substantially the same terms at the claimants’ establishment as at their own establishment, the fact-finding exercise can and should be kept within tight bounds. The employment tribunal should not countenance a prolonged enquiry into this threshold test … [and] appeals are to be discouraged”, in each case because the employer would be able to rely on the GMF defence if pay disparities were justified. Tribunals were not required to perform any form of line by line comparison of different sets of terms and conditions (§70). And finally:

71 The aim of the equal pay legislation is to remove pay disparities that are endemic in some pay awards and which do not properly reflect the value of the work for which they are paid. If in the absence of firm case management the threshold test is elevated into a major hurdle mirroring other elements of an equal pay claim, the purpose of equal pay legislation will be thwarted, and the pay disparities will not be investigated. This outcome would be contrary to the object of the equal pay legislation as recognised by Lord Slynn in British Coal, which was to allow comparisons between employees who did not and never could work in the same workplace (see para [24] above). Furthermore, as Lady Hale explained in North at para [35] (set out at para [28] above), the common terms requirement is not to be used as a proxy for other elements in equal pay claims, such as the evaluation of the comparability of the work done by the claimants and the comparators. To use the common terms requirement in this way would permit the fail-safe to triumph over its limited function and substance.

Claimants: Andrew Short QC, Naomi Cunnungham and Paul Livingstone, instructed by Leigh Day

Respondents: Lord Pannick QC, Ben Cooper QC and Hollie Higgins, instructed by Gibson Dunn & Crutcher LLP