The Government has announced that it will proceed with plans to require employers who lose equal pay claims before an employment tribunal to undertake and publish equal pay audits. The proposal for imposing mandatory pay audits on employers as a means of tackling the gender pay gap was included in last year’s ‘Modern Workplaces’ consultation. The details of how an employment tribunal’s power to order a pay audit would operate – in particular, the contents of the audit and the publication requirements – will be the subject of further consultation later in the year. The Government’s response to other elements of the ‘Modern Workplaces’ consultation, such as a new system of shared parental leave and an extension of the right to request flexible working to nearly all employees, will be published in due course.
To help develop its equal pay audit proposal, the Government commissioned IDS to examine a sample of equal pay tribunal claims and identify any indications from those cases that a pay audit order might have been useful. Our report, taken together with the consultation responses, suggested that there is evidence that in some cases a pay audit would be productive to ensure pay inequality does not continue in that employment. The Government has therefore decided to proceed with mandatory pay audits. In its view, pay audits will have no impact on the overwhelming majority of businesses, but will ensure that those employers who have broken the law ‘look at their pay structures in detail to avoid breaking the law again’. Micro businesses (i.e. those with fewer than 10 employees) will initially be exempt from the proposal, although this will be reviewed once there has been an opportunity to see how the audits work in practice.
Under the proposal, employment tribunals will be obliged to impose pay audits on employers who are found to have discriminated on the ground of sex in contractual or non-contractual pay matters where continuing discrimination is likely. However, an audit would not be ordered where one has been completed in the last three years, the employer has transparent pay practices or the employer can show a good reason why it would not be useful. Failure to comply with a tribunal order for a pay audit will result in a civil financial penalty. This would be a variation of the civil financial penalties regime contained in the Enterprise and Regulatory Reform Bill currently going through Parliament, which allows tribunals to impose a financial penalty on employers who have breached workers’ employment rights. Clause 13, which sets out the scheme, would be amended to ensure that in relation to equal pay cases the civil penalties regime would be varied so that, where a tribunal makes an audit order, it will not be able to apply a civil penalty unless the order is not complied with.
The Government recognises that its decision to impose equal pay audits on employers may appear to be at odds with its de-regulatory approach to employment relations. However, it argues that it is not inconsistent with this approach to ‘apply pressure at the point where the law has been shown to have been broken’. Furthermore, the proposal will supplement its ‘Think, Act, Report’ framework – a voluntary initiative intended to encourage private and voluntary sector organisations with 150 or more employees to think about gender equality in their workforces, particularly in the key areas of recruitment, retention, promotion and pay. In any event, the proposal’s impact will be limited to those employers who have breached the law, and will be of ‘real value to other employees’ where it applies.
A consultation on the detail of how the tribunal’s power to order an audit would operate will be launched later this year. The consultation will consider the practical issues around the imposition of audits as well as the likely impact of such audits on the number of employers settling cases. The Government intends to introduce legislation on equal pay audits when Parliamentary time allows.