More than ever, issues of gender equality and pay and sex discrimination in the workplace are at the forefront of public consciousness. Against the backdrop of significant momentum behind the #MeToo movement and other gender equality campaigns in the United Kingdom and elsewhere, we take a look at some of the key themes around women in the UK workplace, the legal framework currently in place, and proposals for change.
To mark the centenary year of women being granted the right to vote in the United Kingdom, the Fawcett Society in January published its “Sex Discrimination Law Review”. The timing of the report could not have been more apt, with stories of sex discrimination and gender inequality breaking almost daily, powerful social media campaigns promoting women’s rights coming to the fore, and women’s marches occurring in London and cities around the world.
In the UK, we have witnessed in the press the widespread condemnation of the Presidents Club following serious allegations of harassment at their recent fundraising dinner. There has also been close public scrutiny of the BBC in light of an apparent pay disparity between men and women, as well as equal pay claims threatened against retailer Tesco on the basis that women have been paid less than men for work of equal value, which it is reported could amount to liability of 4 billion British pounds ($5.5 billion). The focus is turning now to companies reporting their gender pay gap, with a 4 April 2018 deadline looming for private sector and voluntary employers with 250 or more employees (30 March 2018 for public sector employers) to publish their reports.
In the current climate, and particularly in light of the abolition of employment tribunal fees in the UK last summer, allegations and claims of harassment and discrimination (whether explicit or unconscious) are likely to be made against many employers in the coming months and years.
Whilst the Fawcett report acknowledges that significant progress has been made toward gender equality, it emphasises that much remains to be done. The report provides a comprehensive review of current sex discrimination laws, focusing on the areas of pay, family friendly rights, workplace harassment, violence against women, and access to justice.
Perhaps of most interest to employers—given that the requirement to publish gender pay gap reports is a matter of weeks away—are the report’s extensive recommendations on pay. The Fawcett Society advocates introducing civil penalties for noncompliance with gender pay gap reporting and enhancing the powers and resources provided to the Equality and Human Rights Commission (EHRC) to carry out enforcement activity to provide a more immediate impact on companies that are noncompliant with the Gender Pay Gap Reporting Regulations. Fawcett also recommends that the regulations be amended to break down the gender pay gap by age, disability, ethnicity, sexuality, and part-time status and that by 2020, the regulations should apply to employers with more than 50 employees.
The report further recommends the reintroduction of Equal Pay Questionnaires and the introduction of mandatory equal pay audits every three years for employers with over 250 employees. Fawcett also suggests that the indicative timetable for equal value and equal pay claims should be enforced by the Employment Tribunals and, notably, that class actions should be developed for equal pay claims and automatically include pension contributions, whilst not diminishing a woman’s right to pursue an individual claim. In respect of workplace harassment, the report suggests the reintroduction of Section 40 of the Equality Act 2010 to guarantee legal protection against harassment by third parties, and the extension of protection from harassment under Section 26(5) to pregnancy and maternity as well as marriage and civil partnership status.
Whilst some critics of the report have questioned the practicability of implementing a number of its recommendations, the report undoubtedly contributes to the discussion on gender equality in the workplace and progresses the conversation about equality more broadly. Employers should be prepared for further changes to the legal and enforcement framework and should ensure that the issue of equality remains an important topic on board agendas.
The Fawcett report’s recommendations on the gender pay gap are well timed to capitalise on the increasing focus on women’s pay. Consultation on the EHRC’s enforcement powers in respect of gender pay gap reporting is currently taking place (discussed below), and the first annual pay gap reporting deadline is only weeks away. So far, it is estimated that a little more than 8% of in-scope employers have published their pay gap data. Many big names such as Deloitte, Airbus, and Weetabix have already published, but a significant majority have yet to do so.
To date, limited data has been reported by the banking sector, where it is estimated that the pay gap is significantly higher overall than the national average gap of 17.4% mean (18.4% median). One of the few UK banks to have reported published a gender pay gap of 31% mean (24% median), which, consistent with market expectations, is notably higher than the national average. However, in its narrative, the bank makes a case for the positive gender diversity initiatives it is implementing and the progress it intends to make.
In the retail sector, the reports published demonstrate even greater hourly pay gaps. One fashion retailer has reported a 64.8% mean (54.5% median) hourly gender pay gap. However, that retailer used its narrative to conduct a “deep dive” analysis to break down the statistics into retail and corporate staff. At the snapshot date, the retailer employed 1,710 female employees and 44 male employees. Of the 44 male employees, 39 were employed in the corporate head office. By removing corporate staff from the gender pay gap calculation, the company was able to demonstrate that it has a negative gender pay gap (i.e., the average female earns more than the average male) relative to the majority of its staff.
In the pharmaceuticals industry, few employers have yet published. One prominent company in the sector reported a 10.8% mean (8.6% median) hourly pay gap. However, the report’s accompanying narrative explains that across all of that employer’s UK sites and divisions, women earn more than men on average.
Notably, the Office of National Statistics (ONS) has concluded in new analysis published on 17 January 2018 that, contrary to popular belief, the majority of the gender pay gap in the UK cannot be explained by differences in characteristics between men and women and the types of jobs that they do. The study focuses on the median (rather than the mean) gender pay gap and finds that only one-third of the pay gap can be attributed to observable differences in the characteristics of men and women and the jobs they do—such as differences in average age, job tenure, company size, and occupation. With regard to the unexplained remainder, the ONS states that more analysis is needed on family structures, education, and career breaks. Until that is done, the ONS stresses that the unexplained element should not be interpreted as a measure of discriminatory behaviour (although it concedes that this may play a part).
The EHRC has stated that it will take enforcement action in response to breaches of the Gender Pay Gap Reporting Regulations. However, there remain questions about the extent of the EHRC’s legal powers, and this issue is currently under review. The draft policy sets out a range of activities that the EHRC plans to undertake, including promoting awareness and educating employers, monitoring compliance in conjunction with the Government Equalities Office, and publishing compliance rates. It also intends to resolve noncompliance through informal resolution where possible, followed by formal enforcement action where necessary. This will range in escalation starting with investigations, followed by the seeking of formal agreements and, where agreement is not ultimately reached, proceeding to unlawful act notices.
The EHRC will initially focus its enforcement work on employers which fail to publish the information required by the regulations. However, it is unclear exactly how the EHRC intends to identify in-scope companies which have not reported. Whilst in many cases it may be obvious, there will be hundreds of employers which hover around the 250-employee mark which may be in or out of scope depending on entity structure and employment relationships. It is difficult to see how the necessary information to allow the EHRC to assess whether an employer should be in scope will be accessible to the EHRC without the Commission using its investigative powers, which, based on the current proposals, are only available after the informal resolution stage.
As a further step, if it has capacity to do so, the EHRC intends to take enforcement action against employers for publication of inaccurate data. Once again, it is difficult to see how the EHRC will be able to assess the accuracy of information published by any particular company without exercising its investigative powers in the first place. Clarity from the EHRC on its proposals in this regard would be welcome.
Notably, the Financial Times has already analysed data reported by companies to date, querying statistics published which seem improbable. Six employers have changed the data they originally entered on the government portal as a result of this analysis—one of them doing so on three separate occasions. The potential impact on reputation and brand as a result of such public scrutiny is therefore as significant as the risk of potential enforcement measures. This should act as an added incentive for employers to ensure that the data they publish is accurate and stands up to scrutiny.
Whilst Fawcett focusses heavily on enforcement and the need for the law to be progressive in relation to equality, it does appear that most of the employers which have already published gender pay gap statistics understand the broader impact on their businesses—particularly in relation to company brand, pipeline talent, employee engagement, and business growth. Of the companies that have published reports to date, most have taken the opportunity to educate readers—who will include employees, clients, customers, and shareholders—on the difference between unequal pay and the gender pay gap, emphasising that the latter is due to unequal distribution of men and women in the workforce as opposed to any element of direct discrimination. Many have also sought in the narrative to set out details of efforts being undertaken to address and close the gap and to measure and report progress on an ongoing basis.
This data will no doubt be used by employers to demonstrate their commitment to equal opportunities for other purposes, including in response to pitch opportunities and requests for proposals (RFPs). Helping employees and potential future recruits to understand the pay gap and encouraging them to participate in related initiatives also will be of critical importance in procuring employee engagement, reducing the potential for complaints and employee turnover, and mitigating the risk of potential claims.
Whilst we are able to identify some themes from the reports published to date, it is clear that most employers are waiting until closer to the reporting deadline to publish their reports. These companies are likely planning to assess the trends emerging from employers which have released their statistics early, in order to learn from what and how early reporters published. We are expecting to see a significant increase in activity in the weeks running up to the deadline and will issue further updates as more data is published.
Also likely to gain momentum is the Fawcett report and its recommendations. Whilst lacking the direct ability to change the law, the report is well timed to benefit from the momentum of rising media interest in sexual harassment, equal pay, and other important equality issues.
For employers, prevention is better than cure. Any pay disparity identified should be investigated and measures taken to address inequality before claims arise. Policies dealing with harassment and discrimination should be reviewed and enforced, with regular training given to employees. Understanding the company’s culture and promoting transparency and open communication are important steps toward achieving a diverse, fair, and productive working environment.
If you have questions on the topics discussed in this LawFlash or would like to know how we can help with reporting obligations under the Gender Pay Gap Reporting Regulations or wider equality measures, please contact any of the following Morgan Lewis lawyers: