McNeil & Ors v Revenue And Customs

The Claimants in the proceedings which give rise to this appeal, who are the appellants before us, are a group of female employees of the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”), who are the respondents. Jobs in HMRC below Senior Civil Service level are allocated to one of seven grades, each of which attracts its own “pay band” – that is, a range within which the salary of a person in that grade will fall. The Claimants are (or were) employees in grades 6 and 7 (6 being the higher) whose salaries have, over the periods to which their claims relate, been at the lower end of the pay band for their grade. They claim equal pay with male colleagues whose salaries are at or near the top of the relevant band. I shall have to return in due course to how their claim is formulated, but the essence is that statistics show that at the material times women were disproportionately represented at the lower end of the bands and men at the higher – what they describe as “clustering”. It is common ground that the Claimants and their comparators do work rated as equivalent, within the meaning of section 65 (1) (b) of the Equality Act 2010, and accordingly that they are entitled to be paid the same as them unless HMRC can rely on the “material factor defence” under section 69 of the Act, which I set out at para. 9 below.

The Employment Tribunal directed a preliminary hearing on two agreed issues, as follows:

By a Judgment with Reasons promulgated on 17 June 2016 the ET (Employment Judge Snelson, sitting alone) held that the factor causing the pay differentials complained of was “length of service” and that it did not put the Claimants, or women generally, at a particular disadvantage. That meant that HMRC’s material factor defence was proved, and the claims were dismissed accordingly.

The Claimants appealed to the Employment Appeal Tribunal. By a judgment handed down on 27 February 2018 Simler P dismissed the appeal.

This is an appeal against that decision. The Claimants have been represented by Mr Ben Cooper QC and Ms Betsan Criddle and HMRC by Mr Thomas Linden QC, leading Mr Robert Moretto. All counsel save Ms Criddle appeared also in both the ET and the EAT. Their submissions have been of extremely high quality.

The rights formerly conferred by the Equal Pay Act 1970 are now to be found, albeit differently framed, in Chapter 3 of Part 5 of the 2010 Act, under the heading “Equality of Terms”. Chapter 3 contains a distinct regime applying to discrimination in the terms of a contract of employment: it is thus not concerned only with discrimination in pay, but in what follows I will for convenience refer to the “equal pay regime”. The intention is plainly that the underlying principles of the general law of discrimination should apply to the equal pay regime, but its provisions are different in their details from those of Chapter 1, which covers other cases of discrimination in the employment field, and indeed from those of the rest of the Act. There was presumably a good reason for the choice made to maintain in the 2010 Act a distinct regime for equal pay, adopting the essential framework of the 1970 Act, rather than assimilating it to the regime applying generally to discrimination at work; but it has left the law unsatisfactorily complicated.

The structure of Chapter 3 is that it confers rights on an employee (“A”) who is employed on “equal work” with a comparator of the opposite sex (“B”). One of the circumstances in which employees are to be treated as doing equal work is where they are doing work “rated as equivalent”, as the Claimants and their comparators are here. B must not only be doing equal work with A but must also satisfy the criteria for being a comparator in section 79 of the Act: I will refer to someone who satisfies those criteria as “properly comparable”. I will in the following paragraphs assume that the complainant is a woman, and I will for ease of distinction refer to the putative discriminator as “he”.

The principal operative provision of Chapter 3 is section 66, which provides, so far as relevant:

A sex equality clause is a provision that has the following effect—

if a term of A's is less favourable to A than a corresponding term of B's is to B, A's term is modified so as not to be less favourable;

if A does not have a term which corresponds to a term of B's that benefits B, A's terms are modified so as to include such a term.

Section 69 provides for the material factor defence. It reads, so far as relevant:

does not involve treating A less favourably because of A's sex than the responsible person treats B, and

if the factor is within subsection (2), is a proportionate means of achieving a legitimate aim.

A factor is within this subsection if A shows that, as a result of the factor, A and persons of the same sex doing work equal to A's are put at a particular disadvantage when compared with persons of the opposite sex doing work equal to A's.

Sub-sections (1) (b) and (2), taken together, closely mirror the terms of section 19 of the Act, which is headed “indirect discrimination” and which applies to discrimination otherwise than under the equal pay regime. Section 19 reads (so far as material):

For the purposes of subsection (1), a provision, criterion or practice is discriminatory in relation to a relevant protected characteristic of B's if—

A applies, or would apply, it to persons with whom B does not share the characteristic,

it puts, or would put, persons with whom B shares the characteristic at a particular disadvantage when compared with persons with whom B does not share it,

it puts, or would put, B at that disadvantage, and

A cannot show it to be a proportionate means of achieving a legitimate aim.

…”

The definition in section 19 derives from EU legislation. The Directive currently applying to equal pay between men and women is the Equal Treatment Directive 2006/54/EC, article 2.1 (b) of which defines indirect discrimination as occurring

It is relevant to note that the definition of indirect discrimination in the original sex discrimination legislation was differently expressed. Section 1 (1) (b) of the Sex Discrimination Act 1975, as originally enacted, provided that a person discriminated against a woman where:

which is such that the proportion of women who can comply with it is considerably smaller than the proportion of men who can comply with it, and

which he cannot show to be justifiable irrespective of the sex of the person to whom it is applied, and

which is to her detriment because she cannot comply with it.”

As background to the issues on this appeal, I need to make a number of particular points about the effect of those provisions; but what follows is not intended as any kind of overall analysis of this difficult area. Although some of the points are of general application, I will refer more specifically to sex discrimination in the employment field; and I will assume that the claimant is a woman.

(1) “Factor” and “PCP”. One consequence of retaining a distinct regime for equal pay is that section 69, in so far as it covers indirect discrimination, does not employ the familiar terminology of a “provision, criterion or practice”. But in order to preserve coherence in this area the term “factor” in section 69 (2) must be understood to be to the same effect.

(2) Collective disadvantage. The definitions of indirect discrimination in both section 19 and section 69 (2) are concerned with group disadvantage. The essential comparison is between the positions of the men within the relevant pool, viewed as a group, and the women in the pool, likewise viewed as a group. The requirement that the claimant herself should suffer the same disadvantage is additional, and merely ensures that she should not be entitled to complain of a disadvantage to which she is not herself subject. The relevant pool for the purpose of the comparison is all (properly comparable) employees doing equal work to whom the factor in question applies. It follows that it is not necessary that the position of every woman must be worse than that of every man. At para. 27 of her judgment in Essop (p. 1354 B-C) Lady Hale says:

(3) “Particular” disadvantage. In CHEZ Razpredelenie Bulgaria v Komisia za zashtita ot diskriminatsia, case C-83/14, [2016] 1 CMLR 14, the CJEU confirmed that the word “particular” in the phrase “particular disadvantage” was not intended to connote a disadvantage which was “serious, obvious and particularly significant” but simply to make clear that it was persons with the relevant protected characteristic who were disadvantaged: see paras. 99-100 of its judgment (p. 546). (That being so, the word would appear to be, strictly speaking, to be redundant, since that would be the effect of the statutory language even without it.)

(4) “Barrier” and “Enderby-type” discrimination. Although the concept of a PCP, or a “factor”, “putting” women at a disadvantage might seem most naturally to connote something identifiably done by the employer which creates the disadvantage – sometimes called “barrier-type” indirect discrimination – that is not the only situation in which indirect discrimination can be found. In Enderby v Frenchay

(5) Burden of proof. The position about the burden of proof is a little complex. Before we get to the material factor defence a claimant establishes a prima facie case under section 66 simply by identifying a properly comparable man with whom she does work of equal value but who is paid more than her. However, in a case of the present kind that is essentially a formality (Footnote: ²), and the real issue turns on the material factor defence. As to that, the initial burden is on the employer to prove that the differential is the result of an identified factor and that that factor is not directly discriminatory. It is then for A to prove that any such factor puts her, and other women doing equal work with her, at a particular disadvantage compared with men; but if she does so the burden of proving that the factor is a proportionate means of achieving a legitimate aim – for short, that it is justified – is on the employer.

(6) Statistics and “significance”. It will often be the case that claimants will need, or seek, to establish particular disadvantage by a statistical comparison of the extent of the disadvantage (in this case, differential pay) as between men and women – though, as Lady Hale makes clear in Homer, it will not be necessary to do so in every case.

(7) Degree of differential and degree of impact. As already noted, the CJEU in CHEZ confirmed that a disadvantage does not need to be “serious” or “particularly significant” (Footnote: ³) in order to give rise to prima facie indirect discrimination. But that is distinct from the question of the size of the differential between the proportions of men and women who suffer the disadvantage. As to that, it is clear from the case-law that the differential must be “considerable”, or, to put it another way, that “far” more people in the protected group must suffer the disadvantage: see, for example Seymour-Smith at paras. 59-64 (pp. 598-9), and CHEZ, at para. 101. (That is distinct from the point made in para. 19 above about the “significance” of any statistics relied on; but the points may overlap forensically, since one reason why statistics which show only a small differential may not be significant is that small differentials are more likely to arise by chance or be the result of confounding factors.)

Section 14 (1) of the Equality Act 2006 (as amended) empowers the Equality and

The Commission has issued a Code of Practice under section 14 (1) of the 2006 Act. Part 2, headed “Good Equal Pay Practice”, recommends employers to conduct regular equal pay audits in order to identify whether there is in their organisations a “gender pay gap” and suggests a five-step model for doing so. Step 3 is headed Collect and compare pay data to identify any significant pay inequalities between roles of equal value. Two paragraphs are relevant for our purposes:

calculating average basic pay and total earnings, and

comparing access to and amounts received of each element of the pay package.

The “toolkit” referred to in paragraph 179 is published separately. The following passage appeared in the version of the guidance on “step 3” current at the time of the hearings below:

I should sound a note of caution here. When a tribunal is referred to Part 2 of the Guidance in the context of an equal pay claim it needs to bear in mind that the conduct of an equal pay audit is not the same as the determination of an equal pay claim. The figures of 3% and 5% given in the passage quoted from the toolkit are put forward, avowedly, as useful indicators of whether the employer’s pay system may incorporate gender-discriminatory elements: as it says, they will “require exploration and explanation”. It is plainly not the case that any differential of over 5% (or 3% persisting) between the average pay of men and women in the relevant pool will be unlawfully discriminatory: that will depend on what the cause is found to be and if necessary on justification. Nor, equally importantly, will the fact that the differential is lower than those figures necessarily exclude a case of prima facie indirect discrimination. The toolkit itself makes the latter point, concluding step 3 with the caveat that “any pay difference, even when less than 3% or 5%, may be open to legal challenge”.

In the ET the parties produced a very full and clear statement of agreed facts, which I attach to this judgment as Annex 1; and the Judge made some further findings. For present purposes I need only summarise the essential points.

As already noted, we are concerned with grades 6 and 7: each has in fact two pay bands, depending whether the employee is based in London or outside (“nationally”).

The bands are defined only by reference to their maximum and minimum points. Unlike in many older pay schemes in the public sector, there are no fixed points in between: this is not a ladder with defined rungs. Typically the maximum and minimum figures have been raised on an annual basis with effect from 1 June (though latterly the two figures have not gone up at the same rate – see below); but there is no contractual obligation on HMRC to do so, whether by reference to inflation or otherwise, and there was in fact no increase in the three years from 2011 to 2013.

It has for some time been HMRC policy to shorten the range of the bands – that is, to reduce the difference between the minimum and the maximum points. This has been done by increasing the minimum figure, in the years where there has been any increase at all, by a greater amount than the maximum. In the first year covered by the claims (2009/10) the minima for grades 7 and 6 (for London) respectively were £50,888 and £61,317 and the maxima £60,980 and £73,474 – a range of 20%; but by 2014/15 the corresponding figures were £53,196 and £61,590 (grade 7) and £64,098 and £74,209 (grade 6) – a range of 15.8%. There has been an equivalent shortening for employees outside London, but I need not give the figures.

In principle new entrants to the grade will start at the bottom of the band. But the position is complicated by the fact that the present structure dates back only to 2006, following the merger of the Inland Revenue and the Customs and Excise: that required a process described as “assimilation”, under which existing employees might come into the pay bands associated with the new grades part-way up, in order to preserve their previous level of earnings. And even since assimilation individuals may start at a point above the minimum if for some particular reason their pay level has to be preserved.

The very concept of a pay band implies that employees have the opportunity to move up through the band by increases in their annual salary relative to the minimum until they reach the maximum. There is no contractual entitlement to any such increases, and there was in fact a two-year pay-freeze in 2011 and 2012; but the expectation in HMRC, and the usual practice, has been for annual pay awards to be made with effect from 1 June. Awards are expressed as a percentage increase on the existing salary, with the rate depending on the employee’s performance rating for each year: in the period with which we are concerned, however, only those employees who were rated as “poor” (who were a small minority) did not receive an award. The details of the awards made vary over the period, and there are some refinements which can for present purposes be ignored. The broad picture is that except in the two pay-freeze years most employees in grades 6 and 7 received awards that brought them closer to the maximum for the band, with those at or near the minimum benefiting disproportionately (i.e. to the extent that the minimum went up by more than their individual award), and those already at the maximum benefiting only if and to the extent of any increase in the maximum itself. This is not equivalent to a system of “pay progression” in the traditional public sector sense, where employees move up each year through a pre-determined number of pay points; but it does mean that they have an expectation of a pay increase each year (unless they perform positively badly) and also that that increase will involve an element of progression towards the maximum for the band.

It will be apparent from the foregoing that the amount of salary payable to any particular employee in the two grades will depend on a number of variables – the point at which they entered the grade, how many years they have been in it, the amount of any increase in the minimum and maximum for the band and the amount of any pay awards, and their performance, in those years. The result is that in any year there is in each of the pay bands a very wide range of salaries – typically well over a hundred in each band – reflecting different pay histories in the individual cases.

There have throughout the period with which we are concerned been substantially more men than women employed in grades 6 and 7. It is common ground that HMRC has over the period covered by this claim sought to redress that imbalance by recruiting more women. This had increased the proportion of women in grade 6 between 2009 and 2015 from 32.6% (out of a total headcount of 862) to 39.2% (out of

It appears from the figures at para. 28 above that a woman at the bottom of either band, whether in London or nationally, would be earning over £10,000 less than a man at the top of the same band, though we were told by Mr Cooper that the differentials complained of in these proceedings were “up to around £5,000”: of course individual comparisons are bound to yield varying figures.

It is important, for the purposes of the arguments before us, to understand the evolution of the Claimants’ case. I therefore start by summarising the pleadings and evidence chronologically.

The earliest ET1s, which date from early 2014, were accompanied by comparatively summary “Details of Complaint”. These, strictly unnecessarily, pleaded a positive case in response to HMRC’s anticipated reliance on the operation of “length of service” as a determinant of pay. It was contended that length of service was a factor which placed women at a particular disadvantage. I need not summarise all the points made in support of that contention, because they were subsequently narrowed, but they included (at para. 7 (b)) an allegation that the operation of length of service resulted in “clustering” of women towards the lower end of the pay bands and of men towards the higher end; and (at para. 7 (c)) an allegation based on the result of an equal pay audit conducted in 2010 which showed that the median pay (Footnote: ⁴) for women was

HMRC’s ET3 attached full Grounds of Resistance pleaded by Mr Moretto and dated 23 May 2014 in terms common to all the claims. Again, I need not summarise all the points made, but it was denied that HMRC’s pay system put women at a particular disadvantage or, more particularly, that there had been statistically significant differences in the pay of men and women. In response to the case based on the difference in the median pay of men and women, HMRC set out at paras. 34 and 35 of the Grounds figures for the differential in the average – that is, mean – pay of men and women. I attach at Annex 2 to this judgment tables setting out the figures in question. (Footnote: ⁵) It will be seen that they show that, although there has throughout the period covered by the claims been a difference in the average pay of men and women in both grades, the differential has never been more than 1.9% for grade 6, taking the London and national figures together, and never more than 2.3% for grade 7 (though there are slightly greater differentials for London if taken on its own); and that it has, viewed overall, been falling over the period.

The Claimants were required to particularise their case on particular disadvantage. They did so by Further Particulars, pleaded by Mr Cooper, dated 1 October 2014. I need to give a fairly full summary of these.

Under the heading “The core allegation of particular disadvantage”, the Particulars plead (at para. 3):

The Particulars continue with the heading “The appropriate analytical method(s) for testing the core allegation”. Paras. 5 and 6 contend that the “core allegation” does not neatly correspond to either barrier discrimination (of which Seymour-Smith is referred to as an exemplar) or to Enderby-type discrimination and that the methods applied to prove discrimination in those kinds of case cannot be directly transplanted. Para. 7 reads:

Paras. 10 of the Particulars sets out in some detail the reasons why “the method outlined at paragraph 7 above is more appropriate as a means of logically testing the

Paras. 12-14 of the Particulars, under the heading “Statistical analysis”, summarise the results of an analysis following the method advanced at para. 7 conducted by Dr Alison Hall, whose report was served with the Particulars. Dr Hall is an HR professional specialising in equal pay analysis, though she is not a qualified statistician. In sections 5 and 6 of her report Dr Hall exhibited tables which showed, for each of the two grades (separately for London-based and “national” employees), and for each of the six years with which we are concerned (2009-2014), the proportion of male and female employees in each quartile and decile of the relevant band (Footnote: ⁶). The tables are at Annexes 3 and 4 to this judgment. What the tables in Annex 3 show is that for both grades (both in London and nationally) and for all six years there were substantially more women than men in the lowest quartile and substantially more men than women in the highest quartile. The precise figures vary, but, for example, in 2014 in London 44% of the women in grade 6 were in the lowest quartile, as against 26.5% of the men; the corresponding figures for grade 7 were 53.8% of the women as against 42.4% of men. The disproportions are both smaller and less consistent for the two middle quartiles (though these account for well under half the headcount in both grades). The tables in Annex 4 show an essentially consistent picture when the analysis is done by deciles. Dr Hall said that the figures were statistically significant by reference to the so-called χ² (“chi-squared”) (Footnote: ⁷) test.

Para. 15 of the Particulars reads:

HMRC served a Response to the Claimants’ Particulars, settled by Mr Linden and Mr Moretto, on 1 December 2014. I need not summarise these because the various respects in which they take issue with the Claimants’ case will sufficiently appear below.

HMRC’s Response exhibited a report dated 27 November 2014 from Dr Gary Brown, the Principal Methodologist at the Office for National Statistics, which challenged Dr Hall’s use of a χ² analysis and her reliance on the value of differentials in median pay (though this had in fact been abandoned by counsel – see para. 42 above). Each expert produced two further reports, partly responding to the other’s views and partly also addressing further data supplied by HMRC. They had a telephone discussion on 17 April 2015, of which an agreed note was prepared. I need not give a full summary of the differences between them. However, I should note that the essential reason why Dr Brown did not accept that it was appropriate to use a χ² analysis in the context of the present case was that it turned “base pay, which is a semi-continuous variable, into a categorical value”.

On 13 May 2015 the Claimants served Further Particulars of Indirect Discrimination. As to these, I need only note that they continued to put their case squarely on “a substantial differential distribution of women compared with men within each pay scale, with a substantially greater proportion of women in each grade than men towards the bottom of each pay scale and a substantially higher proportion of men in each grade than women towards the top of each pay scale” (see para. 26.1).

I wish to say by way of preliminary that the Employment Judge’s reasons are exemplarily thorough and thoughtful.

In his Introduction the Judge identifies the way in which the Claimants’ case has evolved prior to the hearing. He quotes in full paras. 3 and 7 of the October 2014 Particulars, which he describes as “admirably clear”. He notes a number of points which either had been previously pleaded but abandoned or had been specifically disavowed. In particular:

It had originally been pleaded, as he noted at para. 3 of his Reasons, “that the length of service criterion disadvantages women because they have had later career starts and/or career breaks to have children”; but that case was abandoned in the March 2014 Particulars. Previous equal pay challenges based on the use of length of service as a determinant of pay have proceeded on the basis that those were the reasons why it put women at a particular disadvantage: see in particular the litigation relating to the pay of female inspectors in the Health and Safety Executive in determining the pay of its inspectors (Cadman v Health and Safety Executive [2004] EWCA Civ 1317, [2005] ICR 1546, (CA) and [2006] ICR 1623 (CJEU) and Wilson v Health and Safety Executive [2009] EWCA Civ

The Claimants had in the May 2015 Particulars disavowed “any complaint that either of the other determinants of basic pay (starting salary and performance) is discriminatory”: Reasons, para. 4 (1).

The Judge noted that in the March 2014 Particulars the Claimants

The Judge recorded at para. 4 (3) of the Reasons that the Claimants “accept that average pay statistics … do not show significant long-term differences between the pay of men and women”. This is of course a reference to para. 15 of the March 2014 Particulars: see para. 42 above. It is important to emphasise that the argument before the Judge proceeded unequivocally on that basis.

I need say nothing about the Judge’s findings of fact beyond what I have set out above, save that I should perhaps note that at para. 25 of the Reasons he said:

I turn to his conclusions on the two preliminary issues.

The question raised by this issue is what is or are the factor or factors, for the purpose of section 69 of the Act, causing the difference in salary between any claimant and her comparator. As set out above, it was the Claimants’ case that the factor in question was “length of service”. Mr Linden argued that that was not accurate. The salary of any particular employee in any given year was the result of a number of variables, of which length of service is only one: see para. 31 above.

The Judge accepted Mr Linden’s proposition as far as it went, but he held that the Claimants were entitled to argue that length of service was the only one of those factors that had a discriminatory effect and to focus their claim on it accordingly. As he put it at para. 33 of the Reasons:

HMRC has not sought to challenge the Judge’s conclusion on issue (1), and we must accordingly proceed on the basis that “length of service” is a factor contributing to the determination of pay in the grades in question, and address the Claimants’ case that it accounts for (at least part of) the differentials between them and their comparators. But it is worth noting what that factor connotes in the context of this case. HMRC’s system is not, as explained above, one where employees move up a ladder with predetermined rungs. They benefit from length of service only in the sense that the more years they have been in the grade the more opportunities they have had to benefit from annual pay awards (when made). In this sense, as Mr Linden pointed out, “length of service” is a factor in any system where an employer tends to increase pay for employees over a period of time, and he suggested that the present case was closer to the Enderby type than to the barrier type. That is a nice point, but it is unnecessary to pursue it for our purposes.

I pause here to note one issue which does not arise. The reason why the use of length of service as a determinant of pay in the present case disadvantages women, as pleaded by the Claimants, is the increase in recent years in the proportion of women recruited, which it is said must tend to operate to depress the pay of women as a group. Differential recruitment of that kind is not in itself discriminatory against women: on the contrary, it might be thought to reflect a proper appreciation of equality issues. However it is clear as a matter of authority that that is irrelevant at

The Judge identified three issues arising under this head, but two are no longer live before us. He dealt with the issue which is relevant for our purposes at paras. 40-50 of the Reasons, under the heading “Statistics: distribution or mean?”. He began, at para. 40, by pointing out that the parties’ statistical evidence did not meet head on. As he said:

He then went on at paras. 41-42 to summarise the parties’ submissions, in terms which I think it is useful to set out in full, although they have to some extent already been foreshadowed in my consideration of the pleadings:

The Claimants' case is that the system of pay progression based on length of service produces a disparate distribution by gender across the pay scales.

Comparison of mean averages (as proposed by the Respondents) does not assist in a proper evaluation of the Claimants' case because (a) it brings into account the large part of basic pay which is unaffected by the s.69(2) factor and (b) it masks differential distribution by smoothing it out.

By contrast, an analysis of the proportions of men and women within each decile or quartile of the pay scales will serve to identify any disparity and demonstrate whether it is significant.

Dr Hall's Chi-square analysis lends further support to the Claimants' case.

Application of the methodology referred to in (4) and (5) shows clearly that women are over-represented as the lower end of the pay scales and under-represented at the upper end.

Accordingly, without prejudice to any objective justification defence, particular disadvantage is made out.

The Claimants' statistical approach based on distribution is flawed because it ignores actual pay, replacing it with an approximation.

The Claimants' figures also ignore distribution both within and outside any selected decile, quartile or other segment of the population.

The Claimants' case depends on impermissibly breaking down basic pay, which is indivisible, in order to isolate the notional sub-element referable to length of service.

The Claimants' approach is arbitrary in that the pools for comparison would have to depend (for the purposes, presumably, of the issue under s.69(2) of individual disadvantage, i.e. whether 'A' is put at a particular disadvantage), on the identity of the particular Claimant under consideration.

The Claimants' approach is also crude, misleading and, in practical terms, unworkable.

Dr Hall's Chi-squared analysis is unsound and proves nothing.

The only proper way to test the Claimants' case on group disadvantage is through measuring mean average pay. On that approach, the undisputed figures conclude the particular disadvantage issue in favour of the Respondents.”

The Judge’s reasons for preferring HMRC’s submissions are at paras. 43-50. Again, I think I should set them out in full.

The second fundamental problem with the Claimants’ argument is that it ignores the undisputed reality that, as the average figures show, there is no significant long-term difference between the basic pay of men and women in either of the two grades. Given that reality, it necessarily follows that, in so far as selective analysis based on deciles, quartiles or any other slice of the total grade population reveals a ‘clustering’ phenomenon apparently favouring men over women, there must be a (more or less) counter-balancing advantage the other way, within and/or outside the relevant decile, quartile or other slice. Otherwise, the mean figures would not tell the story they do. This being so, the methodology advanced on behalf of the Claimants cannot be regarded as a reliable instrument and certainly does not substantiate the assertion that women are collectively disadvantaged.

Thirdly, I am much more impressed by the evidence of Dr Brown than that of Dr Hall, whose qualifications and experience do not seem to me, with respect, to equip her fully for the task entrusted to her. I accept the entirety of Dr Brown’s evidence, including his remarks about the chi-squared test. It satisfies me that the statistics relied on by the Claimants are statistically insignificant.

Fourthly, I agree with Mr Linden that it is not permissible to divide basic pay into separate elements in order to challenge the length of service criterion. The sex equality clause under s. 66 modifies any ‘term’ shown to be less favourable than the corresponding ‘term’ of any comparator. The term relied on in this case is that which entitles the Claimants and their comparators to basic pay. Basic pay is indivisible, albeit that the figure in any particular case is explained by several factors of which length of service is one. Moreover, for the reasons already given, the Claimants’ statistical evidence does not make good a theory of particular disadvantage attributable to any proposed ‘sub-term’, even if such were permissible.

Fifthly, I agree with Mr Linden that the distribution-based approach favoured by the Claimants would be unworkable in practice and liable to produce most undesirable results. If it was permissible, no employer could be sure of escaping liability under the equal pay provisions, or at least being put at risk in having to make out objective justification, since it would never be possible to guard against a complaint that, on this or that selective statistical analysis of a portion of the relevant population, one gender group appeared to enjoy an advantage over the other.

Sixthly, the logic of the Claimants’ case does indeed, as Mr Linden pointed out, admit the possibly that distribution statistics could establish the ‘particular disadvantage’ of one gender group in respect of basic pay in a case where overall mean figures showed, by reference to the same term, that it was substantially advantaged. If the law contemplated a finding of particular disadvantage of gender group X as against gender group Y in circumstances where group X was the better paid of the two, Mr Bumble’s celebrated remark would be entirely apposite. I do not, however, accept that view of the law.

Seventhly, although I accept that the categories of indirect discrimination are not closed and the law is constantly developing, it is a material fact that there is no authority to support the Claimants’ case. I do not refer only to decisions of the higher courts. The Equality and Human Rights Commission (‘EHRC’) Code of Practice on Equal Pay (2011) says nothing about distribution-based analysis. It does refer (para. 177) to the need for employers to calculate average basic pay and total earnings. Likewise the guidance in the EHRC ‘Equal Pay Audit Toolkit’ (‘the Toolkit’), which points out that

For all of these reasons, I reject the Claimants’ case on the statistics issue. The result is that they fail to establish particular disadvantage by their chosen route of distribution-based analysis. No alternative is advanced and, as I have noted, they do not dispute that average figures do not disclose significant, long-term differences between the basic pay of men and women in either of the two relevant grades. I am in no doubt that they are right to accept that those figures are against them. The Respondents have demonstrated (not that they bore any legal onus) that the differences in basic pay have been consistently marginal, have diminished over time, and will diminish further as time passes.”

The heart of that reasoning is in the first two points, at paras. 43-44. In short, what the Judge holds is that in principle the only reliable way of demonstrating that women in the grades in question were at a particular disadvantage was to show that there was a significant and long-term difference in the average pay of men and women in them; that HMRC’s analysis measured that directly; and that the Claimants’ analysis measured something different, i.e. distribution, which was at best a less accurate surrogate for the average earnings, and whose results logically could not undermine HMRC’s analysis. The remaining points are essentially subsidiary: some may need some elucidation, but I will return to them when I come to address the issues myself.

I mean no disrespect to the careful judgment of Simler P in the EAT if at this point I say no more than that her reasoning is essentially in line with that of the Judge in the ET. The question for us is whether the ET made an error of law, and I do not wish to lengthen an already long judgment by going over the same ground twice: Simler P’s judgment is of course fully reported ([2018] UKEAT 0183/17, [2018] ICR 1529). I will, however, refer to certain passages in the course of my discussion below.

The Claimants plead what is described as their “overriding ground of appeal” as follows:

The EAT (and ET) erred in reaching the purported conclusion that the statistics relied on by the Appellants were not sufficiently significant. Both that conclusion and the evidence of the Respondent’s expert, Dr Brown, relied on in support of it, were premised on the fundamental underlying error that it is the (average) amount or value of pay differentials, as opposed to their disparate incidence as between women and men, that has to be measured. In light of the ET’s finding of fact (recorded by the EAT at [§§30 (vii) EAT judgment]) that the statistics confirmed the clustering of women at the bottom of the pay range and men at the top of the pay range, and in any event based on the statistical evidence of differential distribution as a whole, the only proper conclusion was that significant disparate impact (and consequently particular disadvantage) was established.

Alternatively, if (contrary to the Appellants’ primary case) a differential distribution analysis was not the sole appropriate method for testing particular disadvantage, the EAT (and ET) erred in (a) holding that it was not open to the Appellants to maintain, and in failing to consider, their alternative case that such disadvantage should be analysed by reference to average variable pay together with evidence of differential distribution; and (b) not concluding that analysis of average variable pay established that length of service had put the Appellants and women generally at a particular disadvantage compared with men.”

I will consider those grounds in turn.

The starting-point must be to appreciate that the (collective) disadvantage relied on in the present case is not of the usual kind. In the typical case the disadvantage is the non-receipt of a defined benefit – for example, qualification for a job, or for promotion, or an extra day’s holiday, or a specific level of pay. In such a case particular disadvantage, or disparate impact, is measured by comparing the proportions of men and of women in the pool who enjoy that benefit. Here, however, the disadvantage of which the Claimants complain is not binary. There is a wide range of individual salaries within the pay bands, and it is impossible to say that this or that figure represents the point below which an employee is disadvantaged, or above which they are advantaged. This is what Dr Brown means by saying that “base pay … was a semi-continuous (Footnote: ⁹) variable, [not] a categorical value”: see para. 44 above. There is thus no fixed touchstone of disadvantage.

Mr Cooper submitted that where resort to the traditional approach is not available the touchstone for proving (collective) particular disadvantage must be the incidence of disadvantage – that is, relatively how many women are disadvantaged (or, to put the same thing another way, relatively how often women are disadvantaged). If you can show that proportionately more women are towards the bottom, and (therefore) proportionately more men towards the top, of the scale in question, that necessarily shows that women are disadvantaged. It is, as he put it in his skeleton argument, logically “the only permissible choice”.

The application of the concept of particular disadvantage in a “continuum” case of this kind has not been explicitly discussed in any of the authorities, and it has required some careful thinking. But I have come to the clear conclusion that the ET and the EAT were right to reject the approach argued for by Mr Cooper. I do not believe that what the statute requires to be measured is the “incidence” of disadvantage. As Simler P points out at paras. 45-46 of her judgment, the distribution of men and women within a pay band only means anything in so far as it represents what sums they are in fact paid. It seems to me necessarily to follow that it is essential to take into account the actual amounts paid to each person in the group; and the only way in which that can be done definitively is by taking an average.

The difference between the two approaches can be illustrated by a very stark example. Take the case of a pay-band of between £50,000 and £80,000 p.a., with 100 men and 100 women in it. Assume that there are only three pay-points, as follows:

I do not believe that to find in such a case that the women in the pool, viewed as a group, are at a “particular disadvantage” is consistent with the nature of the statutory exercise, which depends on the impact of the factor in question on pay. In my view that means that it is necessary to bring into the analysis the actual amounts paid to (all) the women in the pool. That is, as I understand it, the point being made by the Employment Judge at para. 43 of his reasons, and developed at para. 46.

Of course in the present case the Claimants have not simply divided the pool into two halves – lower and upper – but have done their analysis by quartiles and deciles. But the conceptual problem is the same. There could in principle be an uneven distribution of salary points, as between men and women, within each quartile or decile, potentially masking the fact that one or other gender is disproportionately represented at the top or bottom of each segment. The only way to ensure that the distribution analysis is entirely reliable and accurate is to create a segment for each distinct pay-point: otherwise you are, as Dr Brown put it in his oral evidence, “not using all the data available”. But, as he said, if you do in fact use all the data available you are simply calculating an average.

Mr Cooper submitted that an approach which, by taking an average, focuses on the position within the whole pool “smooths out” gender differences which occur within it and (as he put it in his skeleton argument) “masks disadvantage experienced by a significant proportion of women found at the bottom of the grade by lumping them together with other women who may not be so disadvantaged …”. That is a tendentious way of putting it, not least because it assumes that the women at the lower end of the band are indeed suffering “disadvantage”, which is assuming what he has to prove. I accept of course that applying my approach to the example at para. 64 means that the fact that there are disproportionately more women at the bottom of the band (55:45) is outweighed by the fact that there are (even) more disproportionately more women at the top (45:0). But I do not think that that can be described as masking some disadvantage suffered by women as a group. Rather, what it means is that the application of the factor has led to some women being disproportionately at the top end of the pay range (however defined) and to others being disproportionately at the bottom end (however defined). In such a case, I do not think it is possible to say that women as a whole are disadvantaged without taking into account what the women in question, and likewise the men in comparison with whom they are said to be disadvantaged, are in fact paid.

The truth is that establishing the existence of disadvantage by reference to “distribution” in fact means abandoning any usable reference point: there is no rational basis for selecting one part of the pool rather than another in which to look for disadvantage. What if it were only in the bottom decile that there were disproportionately more women than men and the disproportion were the other way round in the remaining nine ? The logic of Mr Cooper’s position is that “particular disadvantage” could be established by reference to the bottom decile only because it

Mr Cooper referred to the passage which I have quoted at para. 15 above from Lady Hale’s judgment in Essop, which makes the point that a PCP may be indirectly discriminatory even if not all women are disadvantaged by it. But that is to confuse the simple binary case with the case of a (semi-) continuum like the present. In the kinds of cases to which Lady Hale was referring there is no doubt that the women who cannot meet the height requirement, or work full-time, are disadvantaged, and who they are; and the fact that they may be only a minority of the women in the pool is neither here nor there. But the problem is that in our case there is no equivalent touchstone of disadvantage.

There is another problem with Mr Cooper’s approach, though it is ultimately simply an aspect of the underlying error of principle. If a pay system can be found to be (prima facie) indirectly discriminatory on the basis of a distribution analysis (by reference to whatever part of the pool a claimant may choose to focus on), it will be impossible in practice for an employer ever to be sure that its system was not potentially unlawful. Nor, since a distribution analysis affords no way of putting a number on the extent of the disadvantage suffered are there any fixed points for the purpose of examining justification or identifying an appropriate remedy. Only averages give a workable tool for measurement.

Mr Cooper sought to support his proposition by referring to a number of authorities – specifically Seymour-Smith (at paras. 59-60 of the judgment of the Court (p. 597 FH)), Barry v Midland Bank plc [1999] 1 WLR 1465, per Lord Nicholls at p. 1474 EH), Home Office v Bailey (per Peter Gibson LJ at paras. 29-31 (pp.1069-70)) and Essop (per Lady Hale at paras. 23-25 and 27-29 (pp. 1353-4)). However, none of those cases were concerned with the present situation: in each the disadvantage was binary in character, and the passages in question do no more than consider aspects of the conventional approach.

Mr Cooper also submitted that the principle affirmed by the CJEU in CHEZ that particular disadvantage need not be “serious” meant that the “extent” of the differential must be treated as irrelevant. But, again, that is a different point. The point of taking an average of the earnings of the men and women in the pool is to establish whether women are at any disadvantage in the first place: the “CHEZ point” becomes relevant only once it is established that they are.

In fact, such authority as there is goes the other way. In Handels-og Kontorfunktionærernes Forbund i Danmark v Dansk Arbejdsgiverforening (Danfoss A/S) case 109/88, [1991] ICR 74, the ECJ said, at para. 16 (p. 80 C-D):

I should make it clear that it does not follow that a distribution analysis of the kind done by Dr Hall is of no value. In a case where the average pay of women within a pool is less than that of men, there are likely be disproportionately more men at the higher end of the pay band and disproportionately fewer at the lower end, subject to the important qualification about the evenness of the distribution discussed above. But a distribution analysis which shows that that is the case is an inherently inferior surrogate for the more reliable and accurate analysis provided by the comparison of averages. It cannot in those circumstances be right, where the figures for an analysis of average pay are available, to eschew them in favour of a less accurate analysis. It is important to recall that this part of the argument is put squarely on the ground of principle; how particular disadvantage might be proved in a case where figures for average pay are not available is not something on which we need express a view.

I would therefore reject the Claimants’ case as to the correct approach in principle to the assessment of particular disadvantage in the present case and dismiss the “overriding ground of appeal”. I believe that my reasoning essentially corresponds to that of Simler P at paras. 48-50 of her judgment.

It might be thought to follow that I need say nothing about the three “subsidiary” grounds of appeal, but in fact they do raise some points with which I need to deal.

As pleaded, this ground does not appear to go much beyond the fundamental point of principle which I have already considered. It does, however, incorporate a particular point about how any average differential should be calculated which is also central to the third subsidiary ground.

The premise of the point is that the discrimination complained of in this case affects only a part of total pay: everyone receives at least the minimum rate for the band in question, and length of service can only affect the part of total pay between that figure and the maximum. That being so, Mr Cooper contends, to focus on the average differential in total pay understates any disparate impact which length of service may be shown to have. The correct picture can only be seen by focusing on what he called “the variable element” in pay – that is, the part covered by the pay band. In his skeleton argument (though in fact in the part concerned with his second subsidiary ground) he set out a table showing that the average differentials shown in HMRC’s tables, which were (very broadly) around 2%, would have been (again, broadly) around 20% if calculated only in relation to the pay band range. That distortion may lead to factors which unquestionably have a disparate impact between the sexes, and which may lead to differentials of some thousands of pounds in individual cases, being treated as non-discriminatory.

The same argument was advanced below. Simler P dealt with it at paras 52-56 of her judgment. At para. 52 she says:

In response to that reasoning Mr Cooper submitted that the fact that a term-by-term analysis was required for the purpose of section 66 did not mean that it should be read over into the exercise required by section 69. As for the allegedly distorting effect identified by Simler P, he submitted that HMRC’s approach itself involved the more fundamental distortion to which I have already referred.

I agree with Simler P that Mr Cooper’s argument must be rejected. The essence of the disadvantage alleged is, straightforwardly, that women in the relevant group are paid less than men. To express it in terms of “disadvantage in respect of the top (say) £10,000 of the pay range” is an artificial and unjustified subtlety in circumstances where, as she says at para. 52, no distinction between different categories of basic pay is recognised either by contract or by practice. I think Mr Cooper is probably right to say that the Hayward/Brownbill line of authorities is not directly in point, though they do lend some indirect support to the basic point that it is inappropriate to start dividing up “pay” in this context. However, I do see real force in the point made by Simler P at paras. 55-56 of her judgment, which reinforces the conclusion that I would in any event reach.

Having said all that, I do not believe that the issue has the significance which Mr Cooper attaches to it in this context. I do not believe that calculating the average by reference to total (basic) pay will prevent claimants from establishing particular disadvantage on the basis only that the disadvantage is small in percentage terms. As noted at para. 20 above, there is a distinction in the authorities between the approach to establishing disparate impact/particular disadvantage, for which a “considerable” difference is required in the proportions of men and women affected, and the approach to the size of the disadvantage itself, which need not be “serious”. The latter approach is the relevant one in the present case. In particular, as noted at para. 24 above, the percentage figures mentioned in the Commission’s “toolkit” do not represent any kind of minimum threshold. In response to questions from the Court, Mr Linden accepted that if it were clearly established that the use of length of service as a criterion led to women being paid, on average, less than men, it would not be an answer to say that the differential was less than 3%: he said that that was clear from CHEZ. That being so, there is no need to focus on the variable element in the Claimants’ pay in order to get over the supposed threshold.

Again, as pleaded this ground does not raise any point which I have not already discussed. But it is the vehicle, in Mr Cooper’s skeleton argument, for a challenge to the Employment Judge’s observation, at para. 44 of the Reasons, that if the distribution analysis shows clustering of the kind relied on in any particular segment of the pool there must be “a ... counter-balancing advantage the other way” within or outside that segment – “otherwise, the mean figures would not tell the story they do”. He says that there is no evidence of any such “counter-balancing advantage”. But I think that the Judge was simply making the same point that I have made at para. 67 above: the average necessarily gives the most accurate picture of collective advantage or disadvantage.

This ground on its face goes beyond the point of principle which I have already addressed under the “overriding ground”, because it relies on an alternative case which it is said that the ET and EAT wrongly refused to entertain.

As pleaded, the alternative case relies on the submission that “disadvantage should be analysed by reference to average variable pay together with evidence of differential distribution”, which I have rejected at paras. 79-81 above. In the EAT Mr Linden objected that the alternative case had not been advanced in the ET and that it was too late for it to be advanced for the first time on appeal. Mr Cooper referred to a footnote in the October 2014 Particulars which showed that the point had been made below and said that he had also referred to it in his closing submissions before the Judge – though only, as he candidly acknowledged, as an argument to support the distribution-based analysis rather than as an alternative in its own right. Simler P considered that question carefully at paras. 58-62 of her judgment. She concluded, at para. 62:

In the course of his oral submissions before us Mr Cooper made it plain that he would wish, if permitted, to advance a variant of the alternative case referred to in this ground. In particular, in his submissions in reply he referred to Mr Linden’s concession, recorded at para. 82 above, that particular disadvantage could be proved by a differential in average of pay of less than 3%. HMRC’s own figures showed a differential over the entire period of, broadly, 2%; and that was an ample basis for a finding of particular disadvantage.

Mr Linden submitted that it was still less open to Mr Cooper to advance in this Court, for the first time, a case based on the difference in the average total pay of men and women in the two grades than it had been to advance a case in the EAT a case based on differences in the variable element. In response, Mr Cooper referred to the same materials as he had relied on in the EAT.

In my view it would indeed be wrong for this Court to allow the appeal on the basis of the alternative case that Mr Cooper now seeks to advance. I endorse what Simler P said about the similar issue below, but the objection is a fortiori as regards a comparison of average total pay. As appears from the account which I have given of the history of their pleaded case, the Claimants have from at least the October 2014 Particulars onwards clearly disavowed reliance on HMRC’s figures for average pay as a way of proving their case. Para. 15 of those Particulars could not be more explicit. It would be extraordinary to permit the volte-face which Mr Cooper now, albeit only by way of alternative, seeks to make. He said that it was only in this Court that Mr Linden had made the concession that there was no “3% threshold”. But that is not a good answer. It was the Claimants, not HMRC, who had treated the 3% figure mentioned in the toolkit as a threshold (see paragraph 7 (c) of the original Details of Claim); and there was no obligation on HMRC to question whether they needed to do so. The Claimants had HMRC’s figures from the very early stages of the litigation, and they could have based an alternative case on them if they had chosen to do so.

There are, it is true, exceptional cases where a party is permitted to switch horses on appeal, where the issue is one of pure law and this Court could safely determine the new case for itself. But I do not believe that that is the case here; and indeed I understood Mr Cooper to accept in the course of his reply submissions that if he were permitted to rely on this alternative the case would have to be remitted to the ET. It is not enough for the Claimants simply to rely on the differential shown in HMRC’s figures: it is necessary that they should show that it was the result of the factor on

I would add, with all due caution because the issue was not live before us, that even if the Claimants had proved particular disadvantage HMRC might well have had a good case on justification. As I observed in Naeem (see the note referred to at para. 24 above), it would be harsh if an employer who made a deliberate attempt to increase the diversity of its workforce made a rod for its own back because it thereby created a disproportion in the relative lengths of service of men and women in the workforce. I do not suggest that that is a complete answer, since tribunals are entitled to look critically at pay ranges which are too long or where the rate of progress is unreasonably slow; but the Employment Judge’s observations at para. 50 of his

I would dismiss the appeal.

I agree.

I also agree.

HM Treasury has overall responsibility for the Government's public sector pay policy, which includes defining the overall parameters for Civil Service pay and budget for all government departments. Each year, HM Treasury publishes Civil Service Pay Guidance. For example, the 2010/11 guidance is at pages 1173-1203 of the hearing bundle.

Pay for delegated grades (AA to Grade 6) has been delegated to Government departments since 1996. In line with public sector pay policy, and therefore operating within the pay guidance set by HM Treasury, HMRC submits a pay remit proposal in relation to these grades to its Minister, which for HMRC is the Treasury Minister. Following approval of the total spending allocation, and under collective bargaining,

HMRC was formed in April 2005 by the merger of two separate Government departments, Inland Revenue ('IR') and HM Customs and Excise ('C&E'). Following negotiations with the DTUS, a set of pay and other terms and conditions was implemented for staff in the new department. The new terms and conditions aligned the pay and grading systems of the former departments. They also involved an "assimilation exercise" in 2006 based upon the length of past satisfactory performance in the current grade. Further details about this assimilation exercise are given below.

Prior to the merger in 2005, IR and C&E had separate delegated pay arrangements aligned with their own business needs, considering a range of factors including grading, location, staffing levels and business priorities.

As at April 2005 IR was the bigger department with approximately 77,000 people, compared to 24,000 in C&E (page 971AB).

IR's pre-merger grading structure mirrored the traditional Civil Service structure though the grades had different names. For example, Grade 7 was known as Band B2 and Grade 6 was Band B1.

IR's grading structure had a pay system that had:

London and National pay zones;

A two tier pay structure (with an upper and lower tier) and a 'pay target' within each band. The 'pay target' was 81% up the pay range for the National zone and 86% up the pay range for the London zone (page 950B), (See tables on pages 950F to 950I for details of the IR maxima, minima and pay targets between 2002 and 2004).

Annual pay awards payable from 1 August each year consisted of:

A flat rate monetary basic performance award, the value the same for each individual in the pay band, and;

A flat rate monetary progression award for staff below their maximum. The value of the award differed depending where an individual sat in the pay range (i.e. upper or lower tier, above or below pay target), and;

A lump sum, non-consolidated additional award for satisfactory performers.

IR's pay system provided for guaranteed pay progression (subject to performance) for Bands B2 and B1 from the pay range minimum to the 'target rate' in 7 years, and from

The IR pay offer 2002-2004 document in the bundle shows (see table on page 950H) that following the 2004 pay award, so just prior to the merger:

B2 National (Grade 7) pay range minimum was £37,630 and pay range maximum was £47,590;

B2 London (Grade 7) pay range minimum was £42,250 and pay range maximum was £54,170;

B1 National (Grade 6) pay range minimum was £45,670 and pay range maximum was £58,530;

B1 London (Grade 6) pay range minimum was £51,320 and pay range maximum was £65,270.

The table on page 950AY shows pay range length for IR B1 and B2 grades at 2004 were:

B2 National 26.5%

B2 London 28.2%

B1 National 28.2%

B1 London 27.2%

C&E's grading system pre-merger did not align with the traditional Civil Service seven graded structure. From 1996 C&E had a twelve graded structure with junior and middle management grades (Administrative Assistant to Senior Officer) having both a general and technical band (Bands 1 to 10). Grade 7 and Grade 6 were not split and were Bands 11 and 12 respectively.

In 1996 C&E amalgamated Band 1 and 2 (for the Administrative assistant grade) so at April 2005 (the time of the merger) C&E had 11 pay bands numbered 2-12. (See table on page 950 AR, within the 2004 C&E pay settlement document)

C&E's grading structure was supported by a pay structure that had:

London, National and other premium pay zones;

An 'entry point rate' (pay range minimum) and a 'bonus point rate' (pay range maximum) for each of the 11 bands in the National pay zone (with higher entry point rate and bonus point rate for the London pay zone). The pay ranges were subject to annual review, and would increase according to C&E's reward strategy and available funds. (The terminology was changed to minimum and maximum in the 2004 pay offer: see page 950AU)

In addition, Office Premium allowances were payable to individuals working in London, and in a few other hotspot locations which had recruitment or retention challenges.

The annual pay awards payable from 1 June (see page 950AR for the 2004 award) consisted of:

A salary-related percentage-based increase for Top and Good performers, with Less Effective performers receiving a lower award; and

A flat rate monetary progression award for Top and Good performers (only if they were below their pay band maximum) and

A non-consolidated non-pensionable lump sum award for Top performers

The salary-related percentage-based increase mirrored the increase applied to the pay range entry point and the bonus point rate. For example, in 2004 the pay range entry and bonus points (the minimum and maximum) were increased by 2.6%, so staff received an initial increase of 2.6% to their salary (i.e. before the addition of the progression award) to preserve their position within the pay range and thereby ensure that any 'progression award' would actually move them up to a higher position. C&E had an aim – but not a guarantee – that people would reach the bonus point of their pay band in around 9 years (see page 971AI). It is not known how long this took in practice at Band's 11 and 12 prior to the merger.

The 2004 C&E pay settlement document shows (see table on page 950AX) that following the 2004 pay award, i.e. just prior to the merger:

Band 11 National (Grade 7) pay range minimum was £40,954 and pay range maximum was £48,285;

Band 11 London (Grade 7) pay range minimum was £43,012 and pay range maximum was £50,711;

Band 12 National (Grade 6) pay range minimum was £51,164 and pay range maximum was £60,322;

Band 12 London (Grade 6) pay range minimum was £53,682 and pay range maximum was £63,292.

It also shows the pay range length for C&E Band 11 and Band 12 (National and London) was 17.9% (see page 950AY).

The HMRC pay Remit 2005/6 to 2007/8 includes a table at page 971AW which shows both the 'existing' (2004) pay ranges for IR and C&E prior to the merger, and the 'proposed' (2005 to 2008) pay ranges for HMRC post-merger. This provides a useful summary and comparison of the grading and pay bands pre and post merger, showing how they differed.

A new set of pay, grading, terms and conditions were required for the newly merged HMRC as the former departments arrangements were so different, especially for C&E staff who would move from an eleven banded structure back to a traditional seven banded one. Transitional arrangements also had to be put in place.

The documents at pages 950BB to 971BJ of the bundle – in particular the HMRC Pay Remit 2005/6 to 2007/8 – date from 2005 and refer to the various pay options which were considered for the newly merged department, and those which were eventually put forward to the Paymaster General by HMRC. The pay structure options and proposals are summarised at Appendix B of the Remit document, on pages 971AA to 971BB.

Since 2005, the merged department has had seven grades below the Senior Civil Service, which reflects the traditional Civil Service grading structure (see page 980). Each of the seven grades has a London and a National pay band (see page 964), with the London pay band being on average 15% higher owing to the associated costs of living in London. Each pay band has a minimum and a maximum rate of pay, with no set points (such as milestones, or incremental increases) in between (see page 981 and the table on page 1172).

HMRC does not have contractual pay progression; movement up through the pay range for each grade is by annual pay awards, payable on 1 June. The value of these annual pay awards is not guaranteed, and varies each year, impacting on the rate at which a person's pay will increase during their time in grade.

HMRC operates a performance management system, where people receive an annual rating based on their performance at 31 March. Up to March 2013, the ratings were Top; Good; Improvement Needed and Poor Performance. Since 2005, the consolidated value of the pay award for both Top and Good performance was the same, so people progressed at the same rate if they joined on the same day and remained in the same grade and pay location (page 982). A person with an Improvement Needed mark received a lower award and those managed under Poor performance did not receive an award.

In April 2013, HMRC modified its performance management system, and the ratings are now Exceeded, Achieved, Must Improve and Poor Performance. The pay policy has not changed as a result, as both performance management systems have many similarities, although currently the value of the consolidated pay award is the same for Exceeded, Achieved and Must Improve performance.

HMRC employed 64,515 people as at 31 January 2015, of whom 3,010 (5% of the total workforce) were employed at Grade 7 and 1,262 (2% of the total workforce) were at the more senior Grade 6, being the two grades relevant to this case. For Grade 7, 2,027 employees were in the National pay band and 983 were in the London pay band as at 31 January 2015. For Grade 6, 718 were in the National pay band and 544 were in the London pay band as at 31 January 2015.

Between 1 April 2005 and 31 January 2015, HMRC reduced its total workforce by 40,155 from 104,670 to 64,515. However, during this period the number of Grade 7 staff increased from 2,424 to 3,010 (i.e. by 25%), and the number of Grade 6 staff also increased from 1,225 to 1,262 (i.e. by 3%).

Historically, pay awards were agreed with HM Treasury as a multi-year settlement, often covering three years at a time. This practise ceased following the public sector pay freeze (see below), so pay awards are now settled on an annual basis. To be eligible for a pay award, a person must have been in post on 1 June of the settlement year, and have completed at least 91 days paid reckonable service in the appraisal year ending 31 March, with a performance mark of Top, Good or Improvement Needed (see pages 1038, 1104 and 1154).

Before the merger, IR and C&E had very different terms and conditions, including pay and grading. Transitional arrangements to take effect from 1 June 2006 had been agreed with the DTUS and HM Treasury to align pay for staff from the two merging departments where there were unjustifiable differences. This was necessary because former C&E staff had moved from the traditional Civil Service seven-graded structure in 1996 to an eleven-graded structure, where grades AO, Officer, Higher Officer and Senior Officer had each been split into two grades. IR had maintained the traditional Civil Service seven-graded structure. (See page 980). In the interests of fairness, HMRC sought to ensure that, when staff transferred to the relevant new HMRC grade, their pay reflected the number of years of satisfactory or better performance in their equivalent 'old' grade as at 31 May 2006 (pages 951-971).

HMRC's first pay settlement was an average of 3.86% for each of the three years from 1 June 2005 to 31 May 2008, including an assimilation exercise in 2006. The settlement percentage reflects the amount that the paybill increased by, in total, though individual pay awards ranged from 0% - 10%.

The annual pay award (known as stage 1) was paid to all eligible staff on 1 June 2006 as normal practice, and was then followed by the assimilation exercise (stage 2), also on 1 June 2006. For the purposes of the assimilation exercise only, notional pay points and rates within each new pay range were set, establishing the minimum pay a person would receive for a given historical duration of satisfactory or better service, e.g. someone with 2 years satisfactory service (but less than three years) as at 31 May 2006 would move to the notional rate for point 2, if their pay, after the stage 1 pay award was below this notional rate. So a Grade 7 or 6 with at least 8 years satisfactory service could move to the maximum of the pay range, which was point 8 in the notional tables if their pay was still below the maximum after the pay award. If they were already being paid above the notional rate for their historical length of service, their pay remained the same. No-one received a pay cut on assimilation. (See pages 986, 998-9, 1001-2).

To ensure that the assimilation exercise did not disadvantage any particular group of staff, HMRC included all service in the equivalent grade including periods of maternity leave, both paid and unpaid, and career breaks (whether male or female). The exercise was intended to ensure parity of pay according to length of service for men and women from the two former departments (see pages 1017-1019).

A further assimilation exercise was repeated on a smaller scale for selected groups on 1 June 2007 (depending on when staff opted in to the arrangements).

The pay award in 2005 (i.e. for the year 2004-5, but paid out post-merger) maintained many of the elements of the two former departments, chiefly because individuals had had their performance assessed up to 31 March 2005 under their former department's arrangements, and with different performance management processes.

Former C&E Band 11's (Grade 7) and Band 12's (Grade 6) received their pay award on 1 June 2005 (under C&E's existing arrangements) and were paid a nonconsolidated bonus. Former IR B2's (Grade 7) and B1's (Grade 6) received their pay award on 1 August 2005 (under IR's existing arrangements) and were paid an individual non-consolidated bonus if they received a Top performance rating.

As part of the HMRC terms and conditions it was agreed to introduce a common pay award settlement date of 1 June. This meant IR staff would receive their 2006 award just 10 months after they received their 2005 award so the amounts were amended to reflect this.

The next pay award, for 2005/6 – which formed part of the 2005-2008 3 year settlement – was the first year that all HMRC staff were assessed on their performance using a common performance management system. It was also the year when the first assimilation exercise was carried out.

By 2008, pay band lengths had decreased from a combined IR/CE average of 38% (pre-merger) down to 23% (page 1025).

In 2008, the overall pay settlement from 1 June 2008 to 31 May 2011 was 2.4% for each of the three years, and in 2008/09 pay offer HMRC announced that for the 2009/10 and 2010/11 pay awards, greater priority would be given to progression and further range shortening (see page 1027). In 2008/09, the minima for all grades increased by 3% by 4.1% on average for 2009/10, and by 4.6% on average for 2010/11. The settlement was agreed by the trade union.

The Government announced a two year pay freeze for public sector workforces from 2011 for those earning above £21,000 per annum, which included all Grade 7s and Grade 6s. The immediate pay freeze applied to all organisations and departments in the Civil Service that had not entered into legally binding pay agreements. As HMRC had already agreed a pay settlement for 2010, the pay freeze took effect from June 2011 for staff in grades AA to Grade 6. (The Senior Civil Service had a pay freeze of three years from 1 April 2010 to 31 March 2013). Cabinet Office instructions to HR Directors on the implementation of this policy are set out at pages 1204-1212.

Details of HMRC's pay offer during the pay freeze, i.e for 2011/12 and 2012/13, covering the grades for staff earning less than £21,000, are set out at pages 10811087. Following the Government's Spending Review published in October 2010, in the 2011 Autumn Statement the Chancellor of the Exchequer announced that pay awards for the public sector would average 1% for the two years following the pay freeze – 2013/14 (see pages 1088 and 1129). This was later extended to three years, i.e. to 2015/16, in the 2013 Budget (see page 1131).

For the 2013 pay award, which averaged 1%, the value of the award paid to people at the pay range maximum for all grades was 0.70%. Awards greater than 1% were paid to people below the maximum, which would provide them with some movement towards the maximum (see pages 1138-1142). The maximum was frozen. The award was implemented following discussion and consultation with DTUS, rather than negotiation, as they do not have a mandate to negotiate pay settlements below 3%.

For the 2014 pay award, which again averaged 1%, the value of the award paid to people at the pay range maximum was 0.50% for Grade 7s and 6s, and 0.55% for other grades. Awards greater than 1% were paid to people below the maximum to provide them with some movement towards the maximum (see pages 1153 and 1168). The maximum of the pay range was frozen and the pay range minimum increased. For the first time, people on the 2013 minimum received the increase to the new minimum and then received the pay award. In previous years, the new minimum was applied after the pay award. As in the previous year, the award was implemented following discussion and consultation with DTUS rather than negotiation.

Details of the 2015/16 pay award are in the hearing bundle at pages 1172P to 1172AD.

The 1% average pay award applicable to the public sector workforce in 2013/14 and

HMRC increased the pay range maximum for all grades by 0.5% in recognition of the fact that individuals on maximum had not received a consolidated pay increase for five years, since 2010.

The remainder of the sum available was used to pay awards of greater than 1% to individuals who were below maximum, to provide movement towards pay range maximum for each grade. Pages 1172P-1172AD. As in 2014, the minimum grade increase was applied before individual pay awards were added to ensure progression within grade.

As in the previous year the award was implemented following discussion and consultation with DTUS.