New guidance on discrimination

The coming into force of the equal pay questionnaire process on 6 April 2003 was accompanied by a newspaper headline-grabbing decision of the Employment Appeal Tribunal in the case of Barton v. Investec Henderson Crosthwaite Securities.

The EAT's judgment, reported in the Times Law Reports on 16 April 2003, is a landmark one. In making its ruling, the EAT has given important new guidance for Employment Tribunals to follow in all sex bias cases as well as particular guidance on opaque discretionary bonus arrangements. The EAT's issuing of new guidelines is based on the change in the law made by the Sex Discrimination (Indirect Discrimination and Burden of Proof) Regulations 2001, and as such will be of great interest to all advisers and employers.

There is not enough room here to set out the new 12-point guidance in full, and anyway it may yet be subject to further appeal. Nonetheless, the EAT's new guidelines are intended to replace guidelines given by the Court of Appeal in 1992, in the case of King v. Great Britain China Centre, which were subsequently approved in 1998 by the House of Lords in the case of Zafar v. Glasgow City Council. These are higher courts than the EAT, but the decisions in question predate the change in the law. This is, however, such a controversial area, and the sums and principles at stake in the Barton case are so great, that further appeal seems likely.

The EAT's guidelines provide for a two stage legal test in all sex bias cases.

In the first stage, the applicant employee must prove, on the usual balance of probabilities test, facts from which the tribunal - in the absence of an adequate explanation - could conclude that unlawful discrimination had taken place. In other words, what could be inferred from the primary facts. Inferences could also be drawn from any failure to comply with the relevant code of practice issued by the Equal Opportunities Commission. In its new guidelines, the EAT emphasises the importance of the use of the word 'could' in the new law (see Section 63A of the Sex Discrimination Act 1975). If inferences of unlawful discrimination 'could' be drawn, then the burden of proof moves to the respondent employer and the second stage begins.

In the second stage, the respondent employer has to prove, again on the usual balance of probabilities test, that its treatment of the applicant employee had nothing to do with her sex. According to the EAT, a tribunal has therefore not merely to assess whether the respondent had proved an explanation from which inferences of non discrimination could be drawn, but whether that was in fact adequate to discharge the burden of proof. Since the relevant facts would normally be in the possession of the respondent employer, clear, logical and convincing evidence would normally be needed to discharge the burden of proof. In particular, said the Employment Appeal Tribunal, an Employment Tribunal would need to examine carefully any explanations by the respondent employer for its failure to deal with the relevant questionnaire procedure and/or a relevant code of practice.

Specifically on the equal pay claim over the discretionary bonus practice, the EAT relied heavily on the EOC's Code of Practice on Equal Pay of 1997. The EAT reminds us all that this states that employers should operate a pay system which is 'transparent' (that is, one where each element of pay is clear and easy for employees to understand), and where any elements of pay which could contribute to pay differences between employees are readily understood and free of sex bias.

The EAT went on to say that, as a consequence, no Employment Tribunal should be seen to condone in its judgments a bonus culture that involves secrecy and/or lack of transparency, because of the large amounts involved as a reason for avoiding equal pay obligations. The EAT therefore criticised the original Employment Tribunal decision for apparently doing this.

There are two lessons advisers and employers can draw from this decision. First, that the change in law introduced to comply with the European Union Burden of Proof Directive has made a substantial difference to sex discrimination law; and, second, that in the equal pay field opaque discretionary bonus practices are highly vulnerable to attack.

In the meantime, it is far from the end of the road for Miss Barton's case, which has been sent back for rehearing. The key remaining issue in the case is now her equal pay claim over the vastly different discretionary bonuses paid to her and a male colleague.

The EOC Code of Practice on Equal Pay can be found online at: www.eoc.org.uk/ EOCeng/EOCcs/legislation/law_code_of_practice_equal-pay.asp

First published in Chartered Secretary, May 2003