Law & Audit

EQUAL PAY AUDITS UNDER REGULATION 2 OF THE EQUALITY ACT 2010 (EQUAL PAY AUDIT) REGULATIONS 2014

Considering Macken v BNP Paribas London Branch 2208142/2017 and others, and the first tribunal-ordered equal pay audit.

The Employment Tribunal on 14 January 2022 handed down its remedy decision in Macken v BNP Paribas, to order that the Respondent undertake an Equal Pay Audit, under Regulation 2 of the Equal Pay Audit Regulations 2014 – the first of its kind.

EQUAL PAY AUDITS UNDER REGULATION 2 OF THE EQUALITY ACT 2010 (EQUAL PAY AUDIT) REGULATIONS 2014 (SI 2014/2559) (“the Equal Pay Audit Regulations”)

An equal pay audit is defined by s.139A(3) Equality Act 2010 (“EqA”) as an “audit designed to identify action to be taken to avoid equal pay breaches occurring or continuing.” An equal pay breach includes both breach of an equality clause implied into a person’s terms of work (ss. 66, 73 EqA) and a breach of the sex discrimination provisions in relation to pay (ss. 39(2), 49(6), 50(6) EqA). This means an equal pay audit can also be triggered by non-contractual pay, such as bonuses.

The Employment Tribunal is placed under a duty when applying the Equal Pay Audit Regulations. Regulation 2 requires that “where a Tribunal finds that there has been an equal pay breach, subject to Regulations 3 and 4, the tribunal must order the Respondent to carry out an audit”.

Regulations 3 and 4 contain certain excluded circumstances, where the Tribunal must not order an equal pay audit.

Regulation 3 says the Tribunal must not order the Respondent to carry out an audit where it considers that:

(a)  The information is already available from an audit completed by the Respondent in the last three years;

(b) It is clear without an audit whether action is required to avoid equal pay breaches occurring or continuing;

(c)  The breach gives no reason to think there may be other breaches; or

(d) The disadvantages of an audit would outweigh the benefits.

Under Regulation 4, existing ‘micro-businesses’ and ‘new businesses’ are for a limited period exempt from tribunal-ordered audits.

Therefore, whilst the general requirement to order an audit is mandatory, there is a wide judicial discretion as to whether or not any of the circumstances in Regulations 3 or 4 apply. This is likely a significant factor in why we see so few tribunal-ordered equal pay audits.

MACKEN v BNP PARIBAS LONDON BRANCH: OVERVIEW OF AUDIT DECISION

On 14 January 2022, the Employment Tribunal handed down their remedy judgment in Macken v BNP Paribas London Branch, including an order that the Respondent, BNP, carry out an audit under Regulation 2 of the Equal Pay Audit Regulations, to include gender pay information relating to all monetary forms of remuneration, including base pay, pension contributions, allowances and discretionary bonus payments.

The Tribunal’s decision was that they had no discretion in the matter, and Regulation 2 compelled them to order the audit. The exemption under Regulation 4 plainly did not apply, and BNP had not completed an audit in the previous three years. The Tribunal did, however, give thoughtful consideration to Regulation 3(b)-(d).

Regulation 3(b) – clear whether action is required to avoid breaches continuing

BNP argue they understood what action was needed to prevent breaches occurring or continuing, without an audit. It now carries out annual equal pay reviews, and has corrected anomalies which existed previously. The Tribunal accepted that BNP were making “strides in the right direction”, but considered that “such significant cultural shifts take many years”, and BNP had elected to retain an opaque pay system. BNP also provided very little information about the exercise undertaken to resolve equal pay anomalies – for example, about the process used to compare roles of ‘equal value’. Further, the equal pay review process only considers base pay, and does not include bonuses – despite the Claimant’s case involving findings of sex discrimination related to her bonus.

Regulation 3(c) – no reason to think there may be other breaches

BNP also argued the Tribunal did not find that equal pay breaches were widespread, so there is no reason to think there may be other breaches. The Tribunal disagreed, finding that they were only required to consider one breach. In doing so, they concluded that BNP’s pay policies and practices fell significantly short of the recommendations set out in the Employment Statutory Code of Practice and Equal Pay Statutory Code of Practice issued by the EHRC. BNP chose to have an opaque pay system, and the logical conclusion was that other women working there may have been in the same position as the Claimant.

Regulation 3(d) – disadvantages of an audit outweighing the benefits

BNP adduced no evidence relevant to this question, but the Tribunal considered it nonetheless. The only disadvantage identified by BNP was a duplication of work already being done. The Tribunal considered there would be no need to undertake a separate internal equal pay review, and that this could be substituted for the Tribunal-ordered audit.

COMMENT AND PRACTICAL IMPLICATIONS

Perhaps the lack of tribunal-ordered audits is not such a bad thing, the effect of the Regulations being that more employers are taking action voluntarily to rectify their pay structures so as to avoid sex discrimination. A voluntary audit and/or rehaul of internal pay structures would certainly be preferred by many to the bad press, deadlines and publishing requirements of a tribunal-ordered audit. For example, on 25 June 2021 in Pridsam v The Club Company (Group) Limited 3333409/2018 and another, an audit was considered but not ordered because the Respondent had amended its pay structure and scheme to be transparent and no longer gender-based.

It is, however, anticipated that Macken v BNP Paribas, being the first decision to order an equal pay audit under Regulation 2, may give scope for further audits to be ordered by tribunals going forward, and give confidence to claimant representatives and judges wishing to challenge respondents’ assertions that they have taken action voluntarily to avoid future breaches.