Last week the Government announced a further consultation on equal pay audits. This followed an earlier consultation in the Summer of 2012 and recent changes made to the Equality Act 2010. Broadly, the changes mean that the Government can now make employment regulations requiring an employment tribunal to order an employer to carry out an equal pay audit. This order can be made only where the tribunal finds that there has been an equal pay breach. Typically, an equal pay breach will occur where the terms and conditions (particularly pay) of a woman are less favourable than a man as a result of unlawful sex discrimination. But it is important to remember the legislation prohibits discrimination against men as well as women. The purpose of this further consultation is to consult on the content of these future employment regulations.
The power to make employment regulations requiring an equal pay audit is restricted under the Equality Act 2010. In particular, the regulations must provide for an equal pay audit not to be ordered where the tribunal considers that:
(a) an audit completed by the employer in the previous 3 years meets requirements under the regulations;
(b) it is clear without an audit whether any action is required to avoid equal pay breaches occurring or continuing;
(c) the breach the tribunal has found gives it no reason to think that there may be other breaches; or
(d) the disadvantages of an equal pay audit would outweigh its benefits.
Some examples of how the Government considers these first three exemptions might work are given under the consultation with the common themes being the need for employers to demonstrate open and transparent pay systems, grading systems and policies. The last exemption is slightly different with the Government giving an example of an employer's business being forced into liquidation as a result of having to undertake an equal pay audit. It is possible that these exemptions might be given a broad meaning in the final regulations. If so, this may give an Employment Tribunal limited discretion to order an equal pay audit in practice.
The very suggestion by the Government that the cost of undertaking an equal pay audit could force a struggling business into insolvency is an interesting one. The consultation contains no information about the likely costs of an equal pay audit but in an impact assessment undertaken in April 2012, the average cost was estimated to be in the region of £12,800. However, it was recognised that costs may vary depending on a number of factors including the complexity of the work undertaken and how much of the required information had already been gathered and stored by the employer on its IT/administration systems.
Views are sought in the consultation on a number of other issues including whether the regulations should cover anything else, who should sign-off the equal pay audits, what additional guidance might be required and whether any data protection issues are likely to arise. One issue closed after the last consultation concerns publication - employers will be required to disclose the results of an equal pay audit only to employees and not to publish them in the wider public domain.
Another issue under consideration is whether equal pay audits will influence more employers into settling equal pay claims. The business risks of an employer having to undertake and disclose the results of equal pay audit could be significant. There is the risk of further litigation, disruption and cost to an employer's business, as well as possible reputational damage where the results of an equal pay audit reach a wider audience than the employer intended. A big disincentive raised by employers about carrying out a voluntary equal pay audit is the fear of discovering expensive problems given that claims for underpayment can go back six years. It is perhaps not too much of a leap then to speculate that the threat of a compulsory equal pay audit would encourage employers who are nervous about their pay systems, to settle individual claims quickly to avoid the transparency which would come from a compulsory audit.