Equality Act 2010 (Equal Pay Audits) Regulations 2014

Baroness Northover Excerpts

Monday 28th July 2014 Grand Committee

Moved by

[Baroness Northover]

That the Grand Committee do consider the Equality Act 2010 (Equal Pay Audits) Regulations 2014.

Relevant document: 7th Report from the Joint Committee on Statutory Instruments

[Baroness Northover (LD)]

My Lords, I am pleased to present these draft regulations to the Committee. They are intended to ensure that employment tribunals require employers who have breached equal pay law to carry out an equal pay audit.

These regulations are needed because, despite the introduction of equal pay legislation in the 1970s, there remains clear evidence of a persisting pay gap between men and women. Our concern is that a certain proportion of this disparity is due to the unlawful pay practices of some employers. Although there has been welcome progress, the Government believe that there is still more to do to help women move towards overall pay parity with their male colleagues. The key to this is continuing to build on the voluntary initiatives that we have introduced, coupled with greater transparency and backed where appropriate with tough measures to hold to account those employers who have been found to have flouted the law, whether knowingly or not.

That is why from 1 October, subject to parliamentary processes, we propose that where an employer has been found by a tribunal to have breached the equal pay or pay-related sex discrimination provisions in the Equality Act 2010, he or she will, by virtue of Regulation 2, be subject to a requirement to conduct an equal pay audit. The regulations contain certain exemptions and exceptions to this requirement, which I will explain shortly. Once undertaken, the results of an audit will enable the employer to identify any action that needs to be taken to prevent equal pay law breaches from continuing or recurring. Moreover, to ensure that this is a transparent process, under Regulation 9 the employer will also be required to publish the results of his audit. This will afford affected employees the opportunity to view the results and consider further action, where it is warranted.

The legislation providing for equal pay between men and women who do the same or equal-value work for the same employer has been in force since 1975. According to statistics published in December 2013 by the Office for National Statistics, the overall median gender pay gap still stands at 19.7%, although this is considerably lower than the figure of 25% 10 years ago. The overall figure does not tell the full story, however. For women under 40 who work full-time, the pay gap has all but been eliminated, but for older women, many of whom take career breaks in order to bring up children, the disparities in pay with their male colleagues become more marked. That is also true for part-time workers.

We are taking a wide-ranging approach to addressing this challenge. For example, we are promoting greater transparency on gender employment issues through banning pay secrecy clauses and promoting “Think, Act, Report”, a framework that encourages employers to think about gender equality on key issues such as recruitment, retention, promotion and pay—it currently covers over 2 million employees in more than 200 leading companies. We have also extended the right to request flexible working to all employees from this year and will be introducing a system of shared parental leave from 2015. Both these measures allow more women to remain at work and so avoid falling behind in pay terms. We have strongly promoted the work of the Women’s Business Council, we have implemented the work of the noble Lord, Lord Davies of Abersoch, on women on boards and from 2015 we will introduce tax-free childcare for working families.

The Committee will, I hope, therefore recognise that the Government are working in many ways to promote greater equality and tackle discrimination in the workplace. However, in cases where unlawful pay discrimination still persists, the regulations before the Committee represent a further important addition to our work.

These regulations will ensure that employers found by an employment tribunal to have broken equal pay law undertake a systematic evaluation of their pay and reward systems to ensure that existing breaches do not continue and that future breaches do not occur. The regulations provide that an equal pay audit should identify any differences in pay, including non-contractual pay, between men and women doing the same or equal work in the organisation.

--- Later in debate ---

[Baroness Donaghy (Lab)]

My Lords, I think it was 10 years ago that I sat on a Government working party chaired by Bob Mason to see how we could make the Equal Pay Act more effective. Central to the recommendations that we made were equal pay audits and the importance of having a transparent pay system. We estimated at the time that it would take about 50 years to obtain equal pay. I looked carefully at the Explanatory Notes for this particular regulation and I thank the Minister for pointing out that the gaps still are very serious. In the build-up the Explanatory Notes accept that the issue of equal pay has an impact on economic growth. It goes on to say that the Government intend to do something about it in these regulations, so I got terribly excited. But then I looked at the impact assessment, which estimates that an average of two equal pay claims will be brought each year. The Minister was so embarrassed by that that she said “two or three” would be brought. As I say, it is estimated that an average of two or three equal pay claims a year may result in the imposition of an equal pay audit order—that is out of 23,638 equal pay cases that were brought in 2012-13. That really is a nut to crack a hammer, is it not?

It is important that the Government realise what message they are giving out about topping and tailing the issue of equal pay for women. We have the noble Baroness the Leader of the House who does not yet enjoy equal pay and we are now to have small businesses and new businesses possibly not being followed up through the law. That sends the wrong signal about equal pay. Will new businesses include those that start up again after bankruptcy, and will there be any qualifications around that? Some companies seem to make quite a habit of that. They start up anew when it suits them. It is important to know what the impact will be on so-called new businesses which are really only starting up again under a different name. Further, does the Minister really think that these regulations will do anything to narrow the pay gap? I have my doubts when the estimate is an average of two cases per year.

[Baroness Northover]

Well, my script says that I am very grateful to all noble Lords who have contributed to this debate, which has been so constructive and considered. However, I can then go on to say that we have been clear, as have all those who participated, that paying women less than men for doing the same, similar or equal value work is totally unacceptable and therefore must be tackled head on. If women are ever to realise their full potential in their chosen career, they must be paid the same as their male counterparts. We believe that these regulations are an important step in the right direction. They will ensure that employers who have been found to have breached equal pay requirements have transparent pay systems where hitherto they have not.

I shall turn to the various questions which have been put to me by noble Lords to see if I can answer some of them. I will follow up my remarks in writing if I do not cover them all. I start by addressing the contribution of the noble Baroness, Lady King. She quoted the figures that were used by the noble Baroness, Lady Thornton, in an Oral Question on 25 June. We had a little discussion back and forth. The previous Government, like this Government, rely on a particular set of figures from the Office for National Statistics published in the Annual Survey of Hours and Earnings. The previous Government and this Government share the view that these are the most robust figures. On the basis of those figures, there is not the falling-off that the noble Baroness, Lady King, mentioned.

There are problems with the set of figures that the noble Baroness, Lady Thornton, and now the noble Baroness, Lady King, have used in the sense that they are not as comprehensive and they are self-reported, whereas the other figures are derived from PAYE and HMRC information. There are very good reasons why the previous Government and this Government both use the ONS figures. However, if one uses the figures referred to by the noble Baroness—I have asked my noble friend Lady Jolly to print out for me what I was given before—one of the things I find quite striking is that the noble Baroness mentioned that pay for women working full time fell by 0.1% for the quarter. These quarterly figures fluctuate considerably, so that the previous quarter saw a 0.4% rise. I do not claim that that is a true representation of the situation because I do not claim that the 0.1% fall is a true representation of the situation any more than would the previous Government, under which the noble Baroness was the Minister. They, too, would not have decided to use this particular set of figures. I know that her colleagues in the other place quoted them, but I suggest to her that she looks again at the Office for National Statistics figures and works out the ones that she should rely on.

[Baroness King of Bow]

I thank the noble Baroness for raising the subject of statistics. For the sake of clarity, I should say that the figure that I gave of 0.1% was for last year, 2013, and not the last quarter. However, I will go away and verify that, although I got it from two different sources. In general, could the noble Baroness tell us whether she feels that we are moving in the right direction in terms of the gender pay gap?

[Baroness Northover]

The figure that the noble Baroness gave was actually for the last quarter, as she will probably find out when she investigates.

One thing that I find striking and encouraging is that the gender pay gap between men and women under the age of 40 who are working full time has narrowed considerably. The difference in the gender pay gap is for those above that age and those working part time. One reason why there is a major difference in part-time work is the type of work that men and women are in. We know that equal numbers of kids are going through school and that often girls come out better qualified. More are going to university, but they are grouping in different subjects. Some of those subjects lead to better-paid careers, which is something that we, like them, seek to address—I am referring to the STEM subjects.

The most important thing is the caring responsibilities that women often have, which is why you start to see this difference as you go through life. That is why in some ways it is quite encouraging to see that the gender pay gap has narrowed so much for those up to the age of 40, although we need to do much more to make sure that that carries on through.

[Baroness Donaghy]

I apologise to the noble Baroness, but I just wanted to query the impact on workers under 40. It might sound like good news, but it might be because men are being paid less in this low-wage economy. Does the noble Baroness have any more information to reassure us on this point?

[Baroness Northover]

I think that the noble Baroness would be reassured by the progress being made in this regard. I will probably need to write to her with the details but, again, I looked at this and I did not see the negative trends that she may be hinting are there. I will write to her and clarify that.

I am glad that the noble Baroness, Lady King, welcomes the audit. Obviously, that follows on after cases have been lost by employers. She is quite right, as is the noble Baroness, Lady Donaghy, to emphasise that it is in the interests of the companies and for the health of the companies to make sure that their employees are paid fairly between the genders. If they are not, there will not be a happy and effective workforce. I think that forward-looking companies recognise that now; indeed, they should recognise that it is in their own interests to make sure that this moves forward. If they lose such cases, they need to take action to put it right.

The kind of pay audits that we are talking about help to shine the spotlight that the noble Baroness mentioned on this. She mentioned the exceptions and seemed to imply that a company could say to the tribunal, “We can’t afford to do this”. I hope that she will be reassured by the fact that the tribunal, not the company, decides whether there are reasons for exemptions. I hope that I illustrated, in listing the four cases where there might be an exemption, how tightly drawn that is. I gave an example in each case of the kind of thing that we are thinking about there. Clearly, if they persist—suppose that they said they were about to go bankrupt and the tribunal thinks that that is the case, but then another case is brought and it turns out they had misled them—they are obviously in a much weaker position.

I reassure the noble Baroness, Lady King, that new businesses only have that exemption for the first year, not for 10 years. She grouped them together, but the committee asked for further elucidation about micro-businesses, which I hope that we have provided.

[Baroness King of Bow]

Before the noble Baroness moves on, as I understand it, micro-businesses and new businesses will be exempt for 10 years.

[Baroness Northover]

No, I will clarify that. As I understand it—I am sure I will be corrected if this is not the case—new businesses are protected for one year only. Micro-businesses are protected, potentially, for 10 years, but providing that they remain micro-businesses. I hope that clarifies the position. I take it the noble Baroness would rather that is not the case, but that is the settlement we have reached on this to try to ensure that micro-businesses do not have disproportionate burdens placed on them. However, they are obviously still subject to the law, and their employees are protected by the law. We are talking here about whether the audit would follow the loss of such a case.

The noble Baroness thought that the penalty of £5,000 should be much higher. The penalty is specified in primary legislation, so we cannot impose a greater penalty in the regulations which follow on from that. It derives from the Equality Act 2010, which she no doubt played a part in, as did the noble Baroness, Lady Thornton. When the Enterprise and Regulatory Reform Act inserted this penalty into that Act, the party opposite did not oppose it.

[Baroness King of Bow]

Would the noble Baroness then agree that we have all got it wrong? Surely it does not make sense for the penalty to be less than the cost of continuing the breach.

--- Later in debate ---

[Baroness Northover]

We will all, no doubt, be monitoring this to see what the effect is. One of the things which happens to a greater extent these days is that people put information about the place they work on social media. This is not the kind of thing which any company wishing to attract talent wants to have flagged among potential employees. Nobody will want to head down the route of losing equal pay cases, and they will certainly not want to have an audit thereafter which shows further challenges within the company. I am sure that we will all monitor this to make sure that it is heading in the right direction.

Similarly, not having a pay audit may make micro-businesses that have lost cases more vulnerable to further claims. Again, I am sure that those businesses will not want that to happen.

[Baroness King of Bow]

I thank the noble Baroness for her indulgence on this, but are these regulations not setting up a scenario where the same employer can breach the same law again and again, and never be forced to take any action? There is no sanction, even if they are ordered to take an equal pay audit and choose not to.

[Baroness Northover]

I am suddenly inspired to say that the regulations allow the tribunal to apply a £5,000 penalty repeatedly if the employer remains in breach. Therefore, it could have quite an effect cumulatively. I hope the noble Baroness will be somewhat reassured that there is a possibility of that follow-up if they are not taking action. I think that I have addressed most of her questions.

I now come to the main points raised by the noble Baroness, Lady Donaghy. I agree absolutely with her support of the notion that unequal pay does not help the business or the economy. That has to be a major incentive for companies to ensure that this moves forward. I do not think I have an answer to what happens if a company goes into bankruptcy and then resurfaces; maybe I have and I have buried it somewhere.

[Baroness Donaghy]

Perhaps the noble Baroness would write to me about that.

[Baroness Northover]

That is extremely kind of the noble Baroness. She asked me quite a bit about narrowing the pay gap. I hope that I have helped to address some of those. This is obviously a lever to help in these cases. It is very important that the law is there, that we ensure it is implemented and that companies are heading in the right direction. However, we all know that there are much wider reasons why this is difficult to shift. We are in line with what is happening in northern European companies—many more women are working than in the eastern European and southern European countries where, curiously enough, there is a narrower pay gap. That is because many women are not working. We share that particular challenge with our northern European neighbours, but we all need to ensure that we take forward the kind of support and legal changes that help to underpin women’s ability to participate in the labour force as equal to men’s. We also need to ensure that we tackle instances where there is genuine discrimination.

[Baroness King of Bow]

May I ask the noble Baroness what I hope is one last question? How many cases do the Government envisage being brought in circumstances where businesses will be asked to carry out an equal pay audit?

[Baroness Northover]

Indeed, the noble Baroness, Lady Donaghy, picked up on what I said in my speech; it is anticipated that it might be two to three a year. If, in due course, we see that this regime is not tight enough, I am sure that we or any other Government would keep that under review. However, these kinds of examples often have a beneficial effect on other companies. The last thing they want to do is have that spotlight on them, either through having lost a case or having their pay audited. This has to be about greater transparency, which can be demanded by a number of women, right up through companies, rather than being grouped at the bottom. I would not be at all surprised if employees in different companies will expect that kind of transparency of modern employers. I do not know whether there is anything else that I need to answer in that regard, but I hear what has been said.

I have tried to answer most of the points that the noble Baronesses have raised. I hope they will accept that it is extremely important to send the message to employers that it is in their interests and everybody else’s to have gender equality in pay in their workplace and that they have to think very seriously about that so that they are not in breach of equal pay law and avoid equal pay claims and, ultimately, the requirements of these regulations. In some ways, it would be good if these regulations did not need to be implemented at all and we just saw a transformation—that would be the best result. However, failing that, I commend the regulations to the Committee and hope that it will approve them.

Motion agreed.