The Employment Appeal Tribunal (EAT) has held in Graysons Restaurants Ltd v Jones that potential compensation awards arising from equal pay claims can constitute “arrears of pay” under the law, meaning they form debts to be paid from the National Insurance Fund in the event of an insolvency. This is the case even if the claims still have to be determined.
Basic facts
In 2007, a group of female school cooks and kitchen assistants commenced equal pay claims against Liverpool City Council. Their employment subsequently transferred to Hopkinson Catering Limited (a private company) and then to Duchy Catering. When the latter went into administration in 2009, Graysons purchased Duchy's assets and took over the women’s contracts.
It was accepted by all parties that the claimants were carrying out work rated as equivalent to that of their male comparators and were being paid less for doing it. It was also accepted that a transfer had taken place from Duchy Catering to Graysons which was subject to the provisions of the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006.
Before the tribunal could consider the “material factor” defence raised by the company, a question arose as to who was ultimately liable for the claims in the event that they succeeded. Graysons position was that no liability transferred to them on the basis that the employees could apply to the Secretary of State for payment out of the National Insurance Fund.
Relevant law
Section 182 of the Employment Rights Act 1996 states that where an employer has become insolvent, an employee’s employment has terminated, and the employee was entitled to be paid a debt by the employer at the date of the insolvency, the Secretary of State shall make payment of the debt out of the National Insurance Fund.
Section 184 states that “debt” for the purposes of section 182 includes arrears of pay (limited to a maximum of eight weeks).
Tribunal decision
The tribunal held that until an actual award had been made in relation to an equal pay claim, no debt or payment was due. On this basis, the tribunal concluded no debt/arrears of pay existed yet for the purposes of section 182, meaning the full potential liability for the claims transferred to Graysons.
If wrong on this issue, the tribunal held that any liability in excess of the eight-week sum (guaranteed by the statutory scheme) would transfer to Graysons.
EAT decision
The EAT held that equal pay arrears can be “arrears of pay” for the purposes of section 184, and therefore a “debt” within section 182. There was a presumption that equality clauses operated in the claimants’ contracts since their work had been rated as equivalent to that of their comparators. Unless that presumption was subsequently rebutted by a material factor defence, the claimants had a legal entitlement to be paid in accordance with the equality clause for the work they carried out before the date of the insolvency. As such, they were entitled to arrears of pay as at the date of the insolvency, thereby falling within the ambit of sections 182 and 184.
The tribunal was therefore wrong to conclude that arrears of pay arising from an undecided equal pay claim could not be a claim for “arrears of pay” under section 184. Likewise the tribunal was wrong to conclude that it could not constitute a debt within section 182.
However, the EAT upheld the tribunal’s decision that liability for any amounts over and above the eight-week arrears (which could be recovered from the National Insurance Fund) transferred to Graysons.