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Financial Implications of Equal Pay

UNISON Scotland's response to the Scottish Parliament Finance Committee Inquiry into the financial implications of the equal pay aspect of the Single Status Agreement

January 2006

Scottish Parliament Finance Committee
Financial implications of the equal pay aspect of the Single Status Agreement


UNISON Scotland welcomes the decision of the Scottish Parliament Finance Committee to conduct a short inquiry into the financial implications of the equal pay aspect of the Single Status Agreement.

UNISON is the largest trade union in Scottish local government. In this evidence we outline the background to the current problems and our concerns over the funding of the Single Status Agreement.


As with other employers, local government employers have struggled to meet their binding legal obligation to introduce equal pay despite the fact that the relevant law has been in place for over 30 years. In 1999, along with the GMB and T&G unions, UNISON signed the Single Status Agreement with Local Government employers. This agreement was designed to deliver modernised employment relations, across all occupations, building on verifiable pay equality as a cornerstone of the relationship between Councils and their employees. The single status agreement was due for implementation in April 2002. The trade unions recognise that, both financially and logistically, this was a major undertaking for the employers and the unions have been reasonable and patient in dealing with delays in the intervening period.

Local government employers have not been granted the financial resources or flexibility to modernise employment in a manner comparable with secondary school or higher education, health and several other valued public services. UNISON believes that the time has come for the Scottish Executive to play an active role in the delivery of a solution that ensures equality and fairness within modernised local government services.


Job Evaluation & Equal Pay

Although the modernising effect of ‘single status' goes far wider than equal pay, it is the issue of equal pay which accounts for the current problems faced by employers and employees.

Equal pay between women and men is a binding legal obligation. It applies to salaries and to additional benefits such as bonuses or holidays. Where an employee can show a pay inequality with someone of the opposite gender then they will be compensated for up to five years. The comparison must be made between people in similar jobs or jobs of equal value.

There are many sources of pay inequality within local government. For example many jobs traditionally dominated by women are undervalued and underpaid. MSPs will remember the long running Nursery Nurses dispute. That dispute was about the historic undervaluing of women's work. It was the type of dispute the Single Status Agreement was designed to avoid. But that is not an isolated case. UNISON has many members among classroom assistants, homecarers, cooks, cleaners and clerical workers who have historic pay problems that must be addressed.

Another major problem is the fact that women do not get access to bonus schemes commonly offered to male manual workers.

Employers tend to use Job Evaluation schemes to ensure equal pay between women and men. Once jobs are evaluated, employers and trade unions use that data to negotiate around pay and grading models that offer women and men equal rewards. What tends to happen is that pay freezes or red-circling are used to hold back the pay of one group while those previously undervalued and underpaid catch up. Nowhere in the Equal Pay Act does it say an employer can sack a man to create equal pay with a woman. The Equal Pay Act is based on levelling up, not levelling down.

Workers Facing Pay Cuts

Rather than meet their equal pay obligations and raise the pay of women to match that of men, UNISON fears that some employers may be tempted to sack all staff and offer re-engagement on lower salaries and poorer terms and conditions. Although some employees always lose out under job evaluation, widespread substantial pay cuts are simply unacceptable and will inevitably result in further disputes.

What is also unacceptable is the absence of any meaningful dialogue in some parts of the country. UNISON has a duty to its members to check any proposed grading system to make sure it is based on equal pay for work of equal value. In order to do that, UNISON needs to know the data from the job evaluation exercise if we are to negotiate over the implementation of equal pay. Without data access, new terms and conditions cannot be adopted. Having signed an agreement to give the unions this data in 1999 some employers are now refusing to provide the relevant data. UNISON is being forced to refer the matter to the Information Commissioner, all of which brings further delay.

Role for the Scottish Executive

All the trade unions are agreed - the time has come for the Scottish Executive to act. It is no longer an option for the Executive to hide behind the statement that this is a private matter between Council employers and employees. The Scottish Executive rightly supported pay modernisation in health and education. With 80% of local government funding coming from the Executive, councils also need support.

This is also a matter of Scottish public policy. Are public services to be free from discrimination or not? In addition to passing legislation to enable individual claims of equal pay, there are other obligations on member states under EU law. For example, under Article 4 of the Equal Pay Directive member states must take the necessary measures to ensure that "provisions appearing in collective agreements, wage scales, wage agreements or individual contracts of employment which are contrary to the principle of equal pay shall be, or may be declared, null and void or may be amended." Employers in Scottish local government are accountable to the Scottish Parliament and, without changing Westminster legislation on equal pay, the Parliament and the Executive should be assisting local government employers in their efforts to tackle inequality. The Scotland Act 1998 (Sch. 5 section L2) also provides powers for the encouragement of equal opportunities and in particular of the observance of the equal opportunity requirements (this explicitly includes the Equal Pay Act 1970).

Although concerned at the approach of some employers on this issue, UNISON has considerable sympathy for those councils who look at the role of the Executive in health, secondary teaching, universities, SEPA and other areas and ask why no assistance is available from the Scottish Executive, financial or otherwise. The trade unions support the employers call for the position of the Scottish Executive to be reversed.

Financial Consequences

The financial consequence for local authorities comes in two parts. There is the cost of implementing a job evaluation scheme, mostly involving an element of red circling described above. Then there is the cost of compensation for past discrimination in the form of back pay. It is the latter that has attracted most media coverage and the attention of profit seeking lawyers. However, it is equally important to put a fair job evaluation scheme in place to ensure no continuing discrimination and to identify all staff who may be suffering from pay discrimination.

The employers' evidence to the Finance Committee of the Scottish Parliament asserted that the scale of the debt to low paid workers was £560 million. UNISON does not accept that as an accurate figure. The sums quoted in evidence to the parliament reflect past inequalities in relation to bonus. They do not address or reflect the substantial inequalities in relation to past grading inequality because those debts have not been properly quantified and the employers refuse to share the relevant data with the trade unions.

No agency has accurately projected the cost of equal pay in Scottish Local Government largely because until robust job evaluation schemes are in place in every authority it is impossible to accurately calculate a final figure.

Increase in Equal Pay Liability

Despite our disagreement over the scale of equal pay liability the employers and the trade unions are agreed that the scale of equal pay liability could not have been foreseen when the Single Status Agreement was signed in 1999.

The Single Status Agreement was adopted with the intention, among other things, of bringing local authority pay and conditions into line with Equal Pay legislation. The costings associated with Single Status negotiations were based on the rights and obligations under the Equal Pay Act 1970. At the time the Single Status Agreement was signed, s.2(5) of the 1970 Act stated:

(5) A woman shall not be entitled, in proceedings brought in respect of a failure to comply with an equality clause (including proceedings before an industrial tribunal), to be awarded any payment by way of arrears of remuneration or damages in respect of a time earlier than two years before the date on which the proceedings were instituted."

However, the UK government later amended this provision by statutory instrument. The effect of that amendment in Scotland was to increase the scope for equal pay claims from two years prior to the date of proceedings to five years. The explanatory note published with the Equal Pay Act 1970 (Amendment) Regulations 2003 states:

"These Regulations amend the time limit within which a person must institute proceedings before an employment tribunal in respect of a breach of the Equal Pay Act 1970 ("the Act"). The Regulations also amend the time period in respect of which an employment tribunal or court is able to award any payment by way of arrears of remuneration or damages in such proceedings."

"These changes are necessary to reflect requirements of European Community law, specifically Article 141 of the Treaty of Rome (equal pay), as applied in a number of recent cases before the European Court of Justice and the domestic courts".

The case to which the relevant part of the note refers is Preston & Others v. Wolverhampton Healthcare N.H.S. Trust & Others and Fletcher & Others v. Midland Bank Plc [2001] UKHL 5. The view of the House of Lords was that the two year limit on compensation for past discrimination was incompatible with Article 141 of the Treaty of European Union.

In short, the current equal pay liability is 250% larger than could have been forecast by the most detailed analysis in 1999 and this increase in liability is attributable to the failure of the UK Government to legislate on equal pay in compliance with the provisions of community law prior to July 2003.

UK Government Role

UNISON is not suggesting that the UK government should be sued for failing to legislate properly on equal pay. However, it has been suggested in this recent debate that the responsibility for the equal pay debt rests solely with the employers who signed the agreement in 1999. There can be no doubt that the duty to implement equality rests with the employers, however, the scale of the problem the employers presently face is attributable in large part to a failure by the UK government and that therefore they should contribute to the cost, or at the very least not profit from the tax windfall from compensation payments.

In Frankovich, a case where there had been a failure to implement a directive, the European Court said at paragraph 37 "it is a principle of Community law that the member states are obliged to make good loss and damage caused to individuals by breaches of Community law for which they can be held responsible". On the face of it there is a possibility that the UK Government has a direct legal liability for failing to legislate competently on equal pay. The question is whether the failure to legislate adequately on equal pay compensation amounts to a "grave and manifest" disregard for the requirements of community law.

An unpaid debt to low paid women in Scotland of something in excess of £500 million can only be described as a grave matter. The issue in dispute is whether in 1999 the UK government were aware that the Equal Pay Act was not compatible with community law and knowingly failed to amend the law.

This question is best addressed by looking at Marshall v Southampton and South-West Hampshire Area Health Authority (No. 2) [1993] IRLR 445. In March 1980 Miss Marshall was dismissed at the age of 62. At the time of her dismissal men were entitled to work until the age of 65. In 1986 the European Court ruled that she had the right to retire at the same age as a man. When her case returned to employment tribunal in 1988 the Sex Discrimination Act limited compensation to just over £6,000. Miss Marshal returned to the European Court and in 1993 she received a ruling that the attempt by the UK Government to limit compensation for discrimination was unlawful. Miss Marshall was eventually compensated in full.

Critically for our purposes, the ECJ held that

"equality of opportunity ... cannot ... be attained in the absence of measures appropriate to restore such equality when it has not been observed."

"Where financial compensation is the measure adopted in order to achieve the objective indicated above, it must be adequate, in that it must enable the loss and damage actually sustained as a result of the discriminatory dismissal to be made good in full".

The UK government intervened as a party in the Marshall case and therefore was made directly aware of the principle set out above. This ruling made it obvious to the UK Government that remedies for sex discrimination had to be reviewed in order to ensure compliance with community law.

Such a review was conducted by Ann Widecombe, then Secretary of State for Employment, and the result was the Sex Discrimination and Equal Pay Remedies Regulations 1993 which took effect in November of that year. The explanatory note published by the government with those regulations described their purpose thus:

"These Regulations, which are made under section 2(2) of the European Communities Act 1972, are made for the purpose of ensuring that the remedies available under legislation in Great Britain relating to sex discrimination and to equal pay for men and women comply with the requirements of Council Directives 1975/117/EEC and 1976/207/EEC (following the judgment of the European Court of Justice in Case No C271/91-Marshall v Southampton and South-West Hampshire Area Health Authority (No.2))."

Although the regulations removed the limit on compensation payable for sex discrimination, the two-year limit on compensation for equal pay was retained in 1993 and remained in place until the found to be unlawful in the Preston Fletcher case of 2003.

It is UNISON's position that it was manifestly obvious to the Department of Employment at the time of the review in 1993 that the arbitrary limits on compensation under both the Sex Discrimination Act and the Equal Pay Act were incompatible with community law. Indeed, it could be argued that the appropriate amendment to the Equal Pay Act would have been to remove entirely the limit on compensation in line with the law on race, sex and disability discrimination.

As we observed above, it is not now disputed that the law on Equal Pay Compensation in the UK was incompatible with community law until July 2003. It is clear, therefore, that the UK government's failure to put Equal Pay law on a sound statutory footing at the time of the Department of Employment review in 1993 seriously undermined the ability of local government employers and trade unions to accurately project the costs of equal pay during single status negotiations in 1999.


The issue for the Finance Committee is not whether the UK government has a binding legal obligation to compensate employers and employees for their failure to legislate competently on equal pay. The question before the committee is whether local government employers can be blamed now for a lack of foresight in 1999 and penalised for not anticipating that equal pay compensation would reach the levels we are familiar with today.

There are two issues that must be borne in mind. The first is the simple point that local government employers were entitled to assume, in 1999, that they should negotiate single status with reference to the terms of equal pay law as determined by parliament at that time. The second point is an extension of the first. Employers are now aware that, in the light of the 2003 regulations, equal pay liability now extends back over five years. However, had an employer made a payment of compensation spanning five years back in 1999 then, in the absence of a legal justification, such a payment might have been considered ultra vires.

The single status agreement is a product of the legislation which existed at the time the agreement was signed. Given that we now know that legislation to be flawed, it would be unreasonable to criticise local government for costing equal pay compliance in accordance with the national law set down at the time in question. The fact that authorities now have a substantially greater liability to manage is significantly attributable to the UK Government's failure to legislate on equal pay in compliance with the binding obligations of community law.

We believe that both local government employers and trade unions wish to reach fair settlements both in terms of long term fair pay structures and compensation for past discrimination. No one wants lengthy disputes or to divert scarce public resources to the lawyers through litigation. However, the current very tight local government funding settlement does not provide for the cost of this long standing obligation.


For further information please contact:

Matt Smith, Scottish Secretary
UNISON Scotland
14, West Campbell Street,
Glasgow G2 6RX
Tel 0845 355 0845 Fax 0141 342 2835
e-mail matt.smith@unison.co.uk



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