In a recent case heard by the Edinburgh Employment Tribunal, Buchanan and anor v Skills Development Scotland Co Ltd (‘Buchanan’), it has been held that an employer could not successful rely on having maintained terms under TUPE as a genuine material factor defence in order to defeat an equal pay claim. Whilst the decision stemmed from the particular facts of the case and will therefore not apply in all circumstances, the case is a useful reminder of the problems that employers face when confronted with pay differentials as a result of a TUPE transfer.
In the Buchanan case, the comparator’s higher remuneration initially stemmed from circumstances where he and the claimants were transferred to the employer in accordance with TUPE. However, whilst the Tribunal recognised this, it held that nothing had obliged the employer to continue to increase the comparator’s salary (after the period prescribed in his contract for fixed annual raises) causing the difference in pay to be maintained. Further the Tribunal held that there was no evidence that suggested TUPE had been considered by the employer when doing so.
The main issue for consideration by the Tribunal was whether the pay differential between the claimants and the comparator was due to a “genuine material factor other than sex” – i.e. the protection of the comparators contractual terms under TUPE.
In reaching its decision, the Tribunal held that the employer had been obliged to honour the contractual pay increases specified in the comparator’s contract but that once the relevant period of time for such increases had passed there was no continuing obligation to do so. It also held that at the material time the employer had not given any thought to whether it was contractually obliged to continue increasing the comparator’s pay, or whether it was required to do so as a result of ongoing TUPE obligations.
Although the Employment Appeal Tribunal (‘EAT’) has held that it is permissible for an employer to rely on a ‘historical’ reason for a pay differential, the Tribunal in this case was not satisfied that the historical reason of TUPE was the cause of the pay differential once the period for the prescribed contractual pay increases had expired.
Although the decision is only a first instance decision rather than a more definitive decision from the EAT , it usefully highlights the issues employers face in situations where, as a result of TUPE, they find themselves with different levels of pay for employees doing the same or similar work. The most prudent approach in such circumstances would be to “freeze” the pay of the high paid employees until their lower paid colleagues catch up (unless there are contractual terms or an established custom or practice requiring pay increases) in which case additional considerations will apply if the employer is to avoid claims of constructive dismiss and / or breach of contract.
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