Private companies equally affected by pay problem | 31 July 08

PRIVATE companies are unlikely to escape the equal pay controversy currently sweeping the public sector, a leading law firm has warned.

Organisations ranging from NHS Trusts to local authorities are facing thousands of claims from current and former staff alleging that they have been paid less than male counterparts.

One council alone – Cumbria County Council – is facing a £50m equal pay claim from 3,000 female cooks, cleaners and care workers.

While most equal pay claims have been lodged in the public sector, employment experts at North law firm Ward Hadaway warn that private companies could find themselves landed with similar claims, especially if they provide goods and services to public sector organisations.

Tim Smith, employment partner at Ward Hadaway, said: “Under the recent Equality White Paper, it appears that if an organisation wants to tender for a contract with the public sector, they’re going to have to be able to show that they’re taking steps to reduce wage inequality between the sexes.

“The obvious way to do this is by carrying out an equal pay audit of their workforce. However, if this audit flags up serious anomalies between male and female pay, a company could leave itself open to equal pay claims from its employees.”

Under equal pay legislation, if a man and a woman do a similar job, they should be paid the same, all other factors being equal. They should also be paid the same if the jobs they do, while different, are of equal value to their employer.

Finally, if an employer carries out a job evaluation study and a male and female employee have the same scores under that study’s rating, they should be paid the same.

While the legislation does allow some flexibility in terms of paying people more, such as adding a London weighting to a wage or paying more for employees with additional skills and responsibilities, employers have to ensure their pay structure is not biased towards one sex or another.

Mr Smith said: “Public sector employers have been introducing equal pay evaluation studies that have thrown up huge anomalies, usually in situations where female employees have been doing work of equal value but have historically been paid less.

“With the help of unions and no-win no-fee solicitors, employees have lodged tens of thousands of equal pay claims, each of which allow the employee to claim up to six years’ back pay, so costs to public sector organisations have mushroomed.”

As well as changes likely to be ushered in by the Equality White Paper, private companies already face potential equal pay issues in dealing with the public sector.

For example, any private company that takes over a council service is potentially at risk from equal pay claims, because when council staff transfer to a new employer, liability for equal pay claims transfers with them.

As a result, several private companies are refusing to take on contracts to run council services unless local authorities agree to pay any equal pay claims.

In the case of Cumbria County Council, this has led to private caterers refusing to take on contracts to provide school meals.

Tim Smith said: “Equal pay is a very tricky area for employers to navigate through and the situation is likely to become even more difficult as time goes on.

“This is why getting good advice and planning out a strategy to deal with the issue is increasingly becoming a must for all employers, whatever sector they work in.”

  • Could this affect your company? Would you like further advice on equal pay? If so, please contact Tim Smith by emailing or click here for details on how our Employment Law team can help you.