1.1 Who should read this practice note?
This practice note is designed for partners, human resources professionals and anyone involved in the management of a law firm.
1.2 What is the issue?
Employers must pay equal amounts to people doing work of equal value, which is broadly similar or is rated as of equivalent value. Most commonly this relates to gender, but it also relates to other groups protected under the law (eg employees from different ethnic groups and disabled staff).
This practice note refers particularly to gender pay gaps. It covers the law underpinning the right to equal pay, offers advice on the duty of employers and suggests steps firms should take to address equal pay.
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2 What is equal pay?
Equal pay refers to the right of all employees to receive the same level of pay as someone performing work of equal value. In this sense, pay refers to any and every part of an employee’s pay package, terms of employment and benefits, such as bonuses and pension contributions (see section 5.1 Equality of terms below for more information).
Equal pay is a legal obligation. Specific rules apply to ensure that men and women are paid comparable amounts. There should never be a difference in the pay of a man and woman doing work of equal value that can be explained in terms of difference in their sex.
Employers must also ensure that discussions about equal pay are protected. No one should be victimised following a request for information about pay for the purpose of making a claim of discrimination with regards to pay (based on any protected characteristic).
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3 What is the problem?
In 2014, the gender pay gap across all private practice solicitors stood at 30 per cent.1 This gap is more substantial than that in the wider market, where women earn 19.1 per cent less than men (measured by gross hourly pay) in the same year.2
Although research suggests that gender pay gaps in the UK can be explained by a range of material factors (such as differences in industries and the types of occupations typically held by women), at least a third of equal-pay gaps are still not explained easily by such material factors. In these cases discrimination may be a contributory factor.3
Similarly, research by the Law Society in 2009 found that, while the majority (92 per cent) of the gender pay gap in private practice could be explained by different employee attributes (experience, grade, practice area, etc), the remaining 8 per cent could not be explained and could be potentially attributable to discrimination.4
The pay gap is not just seen in gender. Other research by the Law Society5 also from 2009, indicates that there was also an 18 per cent pay gap between Black, Asian and Minority Ethnic (BAME) private practitioners and their white counterparts. Although in this case it was found that ethnicity alone did not appear to be a significant determinant of pay earnings, the gap was potentially indicative of wider inequalities in employment faced by BAME solicitors (preventing access to higher paid jobs and legal practice areas).6
There is evidence to suggest law firms are beginning to take equal-pay gaps seriously. For example, in 2013 the Law Society’s Diversity and Inclusion Charter showed 45 per cent of large firms had a written commitment to equal pay and had plans to conduct an equal-pay review. Given only 2 per cent of firms were in the same position the previous year, this was a significant increase. However, in 2013 only a fifth of firms (22 per cent) stated they had actually completed an equal-pay audit and were undertaking appropriate processes to ensure equal pay. It is still a concern that progress has been relatively slow in this area.
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4 Why do something about it?
This practice note highlights some of the ways you can address equal pay in your firm (these approaches are considered in more detail in the toolkit). Taking these measures will help you to:
- reduce the risk of expensive and potentially embarrassing equal-pay claims (firms that have had successful equal-pay claims made against them are required to pay compensation and/or back-dated pay)
- show you are compliant with the law
- attract and retain the best talent by showing you are a fair and equitable employer
- show clients and prospective clients you are committed to equality and that you can walk the walk, as well as talk the talk
- help to improve relationships between staff across your firm
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5 Key principles
5.1 Equality of terms
The Equality Act 2010 sets out equality of terms provisions, which state men and women performing work of equal value (see section 5.1.1 Equal work below) should receive the same pay. Here, pay refers to any part of the pay package, terms of employment and benefits, including:
- basic pay
- overtime rates and allowances
- performance-related benefits
- severance and redundancy pay
- access to pension schemes
- benefits under pension schemes
- hours of work
- annual leave entitlement
- company cars
- sick pay
- employee benefits (eg private medical insurance)
The equality of terms provision applies irrespective of the size of your firm.
5.1.1 Equal work
The Equality Act 2010 sets out three ways in which an individual’s work can be determined to be equal to that of another employee:
- Like work - if their work is broadly similar and the differences that do exist are not of practical importance in relation to the terms of the work. Practical importance refers to something that people do in practice as part of their job (such as additional responsibilities they have or skills they bring to bear on their work) and not just something in their job description. When comparing two employees using this criterion, it is important to consider the frequency with which differences in work occur in practice and the nature and extent of those differences.
- Of equal value - if the work of each employee is equal in terms of the demands made on them. These demands should reflect factors, such as effort, skill and decision-making, level of responsibility, knowledge and working conditions.
- Rated as equivalent - this occurs if a job evaluation has rated two jobs as equivalent. It is important to note the job evaluation must itself be non-discriminatory. An evaluation that, for example, placed less weight on attributes commonly associated with female roles could not be used to justify treating two different jobs as inequivalent.
Where possible you should use an analytical job-evaluation process to establish equivalent jobs and jobs of equal value, as this can be the best defence in an equal-pay claim.
A person wishing to make an equal-pay claim must select another person to compare their work with. The person they compare themselves to is called a comparator. Employers have no say in an individual’s choice of comparator when the individual makes a claim. The comparator needs to be a real person and not hypothetical.
A comparator could be:
- someone the person making the claim currently works with
- the predecessor in the claimant’s job
- someone the claimant used to work in the same employment with before a TUPE transfer to the current employer
An individual may claim equal pay with someone who works:
- for the same employer at the same workplace
- for the same employer but at a different workplace, where common terms of employment apply
- for an associated employer
- for another employer in the same establishment or service, particularly if there is a common source for the decisions about pay (ie the difference in pay is attributable to one source) and there is a single body able to adjust pay gaps.
5.1.3 Sex-equality clause and rule
Under the Equality Act 2010, the terms of an individual’s employment are treated as including a sex-equality clause (if they don’t already include one). A sex-equality clause is the provision that ensures the terms of the employment of one individual are comparable with those of another person who is of the opposite sex and performing work of equal value (as defined above). It has the following effect:
- where a term of the claimant’s employment is less favourable then a corresponding term of the comparator’s, the claimant’s terms are modified so they are no less favourable (the claimant’s terms are brought up to match the comparator’s: the comparator’s terms cannot be brought down)
- if the claimant doesn’t have a term which corresponds with a term in the comparator’s employment and benefits the comparator, then the claimant’s terms are modified to include such a term
In the same vein, the terms of an occupational pension are treated as having a sex-equality rule, to ensure terms are as favourable to the claimant as they are to the comparator.
5.2 Disclosure of gender-pay information
In 2011, the government introduced a voluntary reporting scheme, 'Think, Act, Report', to encourage companies to report gender-pay information. Following a relatively low uptake, the government has decided to introduce regulations that will require companies with 250 or more employees to carry out equal-pay reviews and publish information relating to their gender pay gap.
Provisions in the Small Business, Enterprise and Employment Act 2015 mean these regulations (outlined in Section 78 of the Equality Act 2010) must come into force before the end of March 2016. The 2015 act states:
'The secretary of state must, as soon as possible and no later than 12 months after the passing of this act, make regulations under Section 78 of the Equality Act 2010 (gender pay gap information) for the purpose of requiring the publication of information showing whether there are differences in the pay of males and females.
The secretary of state must consult such persons as the secretary of state thinks appropriate on the details of such regulations prior to publication.'
Section 78 of the Equality Act relates to the disclosure of information and will determine, amongst other items:
- how to calculate the number of employees
- what information will be required
- when it is to be published
- the form and manner in which it is to be published
The section also provides that failure to comply is punishable by a fine, likely to be around £5000. Beyond that, details of the regulations are pending and will be subject to a public consultation launched by the government on 14 July 2015 (to be completed on 6 September 2015). The response to the consultation will help inform the development of new regulations on gender pay gap reporting. The government's Equalities Office has confirmed that following this first consultation, it will seek views on the draft regulations the following winter.
In light of the above, this practice note may need to be reviewed in 2016 following any announcements by the government on the implementation of Section 78.
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6 Who can make an equal-pay claim and how?
The right to receive equal pay for equal work applies to:
- all employees, at all levels, on all contract types (full-time, part-time, casual or temporary), regardless of length of service
- other workers - for example, the self-employed - whose contracts require personal performance of the work
- employment carried out in Britain, or where there is a sufficiently close link between the employment and the UK
The definition of employee is very wide. Someone described as a fixed-share or salaried partner could be an employee.
Claims for equal pay are taken through employment tribunals.
An employee can lodge an equal-pay claim against their firm at any point during their employment. If the employee leaves the firm, a claim should generally be lodged with a tribunal within six months of the end of the claimant’s employment. However, this time limit can be affected by the following:
- whether the claimant has an incapacity
- whether the employer has deliberately concealed the pay inequality
- whether the claimant has been engaged on several contracts
- whether there has been a fundamental change to the claimant’s contract of employment
- whether there has been a TUPE transfer
- whether the claimant is in the Armed Forces
It is the claimant’s responsibility to ensure they submit their claim within time and seek advice on how other circumstances may affect the time limit in their case.
6.2 Burden of proof
The claimant must provide sufficient information to show an employment tribunal that their employer paid them less than a comparator for performing the same work. If this is done - and if the employer denies the claim - the employer must then show that the difference in pay can be accounted for in other ways than by reference to the difference in the sex of the claimant and comparator.
6.3 Defence of material factor
An employment tribunal will accept an employer’s defence if they can show that the difference between the claimant and comparator’s pay is due to a material factor that is unrelated to the sex of the employees. A material factor has to be significant, relevant, and the genuine cause of the inequality. Possible material factors might be a difference in the qualifications held by the employees, geographical differences (such as London weighting) and responses to a skills shortage.
It is important to note the material factor cannot itself be discriminatory or unjustifiable.
For example, market forces will not be a sufficient defence if it is deemed that the market itself unfairly discriminates against men or women in certain positions. Firms cannot pay women less than men for equal work just because the sector does so. It is important to note, for small firms in particular, that ‘affordability’ is not a blanket defence in relation to equal pay.
Even if an employer shows that a material factor is not directly discriminatory, a claimant may argue that it is indirectly discriminatory. This means it is a policy or arrangement that, while applied uniformly, adversely affects one particular sex. In such a case, the employer must show the policy or arrangement is a proportionate means of achieving a legitimate aim.
What constitutes a legitimate aim will vary from case to case, but it should be legal, non-discriminatory and represent a real objective consideration. For example, if a firm had a pay-protection arrangement in which female employees receive less protection but male employees, prior to reorganisation in the firm, had been at a higher point on the pay scale, then the pay-protection system would be unlikely to be seen as indirectly discriminating in that respect.
If an employee’s claim is successfully upheld, an employment tribunal will make a declaration of their rights in relation to the claim. The claimant is then entitled to:
- having their pay (including terms and benefits, etc) rise to match that of their comparator
- equalisation of contractual terms for the future
- compensation of damages if the claim is about terms
- back-dated pay if the claim is about pay (this can be awarded up to a maximum of six years from the claim being filed with the tribunal). The tribunal may also award interest
The employer will also be required to carry out an equal-pay audit, unless specific exemptions apply (see section 7.4.1 Mandatory pay audits for more information).
Between 2000/01 and 2010/11, the average compensation awarded in successful pay discrimination cases was approximately £18,500. Given the scale of disparities in pay across the legal sector, paying compensation and backdated pay (particularly if this includes interest) could prove costly to many firms.
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7 Steps law firms should take to address equal pay
It makes good business sense to take proactive steps to address equal pay before you receive an equal-pay claim. The remainder of this practice note outlines some key actions you should consider to improve equality of pay in your firm.
7.1 Low-risk pay systems
It is an employer’s responsibility to ensure their pay system is free of gender bias. This helps to reduce the risk of an equal-pay claim being made. The Equality and Human Rights Commission (EHRC) provides detailed guidance on low-risk pay systems . Here is a summary:
- Transparent: Pay systems that are not transparent are at particular risk of being found to be discriminatory. A transparent pay and benefit system is one that anyone - employer, employee, trade union - can understand. In particular, people should be able to identify how each element of their pay contributes to their total earnings in a pay period. The Equality Act 2010 makes pay-secrecy clauses in employment contracts unenforceable and protects employees from victimisation if they seek to ascertain what other employees earn. The reporting of information relating to a firm’s gender pay gap has been voluntary thus far (unless the firm has had an equal-pay claim upheld against it at an employment tribunal). However, reporting of equal-pay gaps will be legally required for firms of 250 or more people in the future (see 7.4 Voluntary and Mandatory Equal-Pay Audits below).
- Systematic: The more systematic and simple your pay and bonus system is, the easier it will be for people to understand it, and the lower the risk will be that gender imbalances will creep in. It helps if you have a clear pay structure and publish it. Small firms may find this easier, as their pay systems tend to be less complex.
- Inclusive: A single reward structure for all employees reduces the risk of challenge.
- Well-managed: Keeping pay structures up to date and maintaining a systematic document trail whenever decisions are made about pay will also reduce the risk of challenge. This may be a particular issue for small firms without a separate human resources department and who may have fewer formal, written policies than larger firms.
- Sensitive to job demands: Equal-pay claims are based on the performance of equal work. This includes job demands (eg the types of skills, knowledge and effort required on the job). Therefore, in deciding pay structures, it is important firms do not just consider job roles, but take into consideration other factors, such as job demands. For medium and large firms this may involve implementing a non-discriminatory, analytic job evaluation (see other resources for more information).
- Monitored: In order to manage risk, it’s important to monitor pay outcomes across all equality groups. This allows action to be taken before something becomes a problem.
7.2 Equality impact assessments
Firms should consider carrying out an equality impact assessment whenever changes are made to the organisation’s pay structure. This should assess whether individuals with particular protected characteristics are adversely affected by the change and, if so, whether this impact is disproportionate. Any potentially discriminatory policy changes should then be rectified.
7.3 Discussions about pay
Under the Equality Act 2010, discussions about pay are protected. Everyone should be able to talk about equal pay. This provision covers not just gender, but all protected characteristics. Terms of employment which appear to make it harder for an employee to disclose information about the terms of their employment or seek information about a colleague’s terms of employment are unenforceable when the employee is seeking to make a disclosure or seeks information about pay.
Furthermore, employers must ensure that no employee is victimised for:
- seeing information that would be relevant to a pay disclosure
- making, or seeking to make, a pay disclosure
- receiving information disclosed in a pay disclosure8
7.4 Voluntary and mandatory equal-pay audits
An equal-pay audit is a process of comparing the work of men and women performing equal work, highlighting any pay gaps, assessing the reasons for these differences in pay, and devising a plan to close any unlawful pay gap. Although most legal cases to date in the field of pay and reward relate to gender, unequal pay affects employees from a range of different protected equality groups (eg BAME employees and disabled employees). As a result, many organisations undertaking equal-pay audits take the opportunity to examine differences not only between women and men, but also between other groups protected under the Equality Act 2010. An equal-pay audit should include all staff (be they salaried partners, directors, senior associates, associates, senior assistants, assistants, paralegals, legal executives or trainees) and support staff in any departments (including administration, human resources, marketing, finance and IT).
Equal-pay audits are not merely data-collection processes. They are a commitment to address any differences in pay for which there is no material reason. As such, the audit must have the authority to deliver any change necessary. If you don’t conduct equal pay reviews, then inequalities in pay can remain hidden and you are less likely to know whether you are at risk of equal-pay claims.
Employment tribunals have the power to order an organisation in breach of equal-pay legislation to complete a compulsory pay audit (provided the claim was submitted after 30 September 2014). However, a recent addition to the Small Business, Enterprise and Employment Act 2015 enabling Section 78 of the Equality Act 2010 to come into force is likely to make equal-pay reviews and their reporting mandatory for businesses employing 250 or more people.
As such, law firms may find themselves in one of three situations:
- for most law firms of 250 or more people: there is a growing need to prepare for the introduction of mandatory equal-pay reviews (more on this in section 5.2 Disclosure of gender pay information)
- for some law firms who have had a successful equal-pay claim made against them: there may be a requirement to conduct a pay audit (see section 7.4.1 Mandatory pay audits below for more information)
- for firms employing fewer than 250 people: conducting a voluntary equal-pay audit still presents an opportunity to examine pay at the firm and resolve any differences before they become a problem
7.4.1 Mandatory pay audits
An employment tribunal may require an employer losing an equal-pay claim to conduct an equal-pay audit, unless specific exemptions apply. The employer must then publish the results of the audit on their website and notify employees.9
The employer will not be required to carry out a pay audit if:
- an audit carried out in the last three years meets the requirements (ie includes information about the pay of the employees involved in the audit, identifies any differences in pay and reasons for those differences, includes plan’s to prevent equal-pay breeches occurring or continuing)
- can identify whether action is needed without an audit
- the instance of unequal pay found by the tribunal provides no reason to think there may be other instances of unequal pay
- the disadvantages of conducting an audit would outweigh the benefits
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8 More information
8.1 Other guidance
8.2 Useful contacts
ACAS (The Advisory, Conciliation and Arbitration Service)
ACAS provides information and advice to employers and individuals on legislation and on industrial relations practices and procedures.
Telephone: 08457 47 47 47
Textphone: 08456 06 16 00
Practice Advice Service
The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 020 7320 5675 from 09:00 to17:00 on weekdays or by email email@example.com. Further information can be found on the Practice Advice Service pages.
Risk and Compliance Advisory Service
If you require further support, the Risk and Compliance Advisory Service can help. Please contact us on 020 8049 3748, or email firstname.lastname@example.org.
Find out more about the Risk and Compliance Advisory Service
The Law Society is grateful to Asif Afridi, deputy CEO at brap, for his assistance in drafting this practice note.
1 Law Society (2014) Private Practice Earnings
2 ONS, Annual Survey of Hours and Earnings 2014, Provisional Results, December 2014
3 Home Office research cited in Peplow (2013) Review of published evidence on the equality of pay in legal services, Legal Services Board
4 The Law Society (2009) Gender and earnings in private practice: findings from the 2008 salary survey
5 The Law Society (2009) Ethnicity and earnings in private practice - findings from the 2008 salary survey
6 Law Society (2010) Ethnic diversity in law firms: understanding the barriers
7 EHRC Equal Pay in Practice Checklist 19: High risk grading and pay practices
8 Equality Act 2010
9 Practical Law, Mandatory equal pay audits: time to review the gender pay gap?
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