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Outsourcing the problem: equal pay and local authority trading companies
Twenty-five years after an agreement between local authorities and trade unions to tackle equal pay, and fifteen years after the deadline agreed upon for local authorities to review and address pay inequalities through pay and grading evaluations, equal pay is well and truly back in the news.
The most high-profile story has been Birmingham City Council’s issuing of a section 114 notice over an equal pay liability estimated at £760 million but this is far from an isolated incident:
A recent Employment Tribunal decision has found that Fife Council’s job evaluation scheme was flawed;
Councils in Cumbria, Dundee, Sheffield and Coventry are facing fresh claims; and
1,000 cases have been launched against Sunderland Care & Support, a wholly owned local authority trading company of Sunderland City Council.
The complaint against Sunderland Care & Support is that as well as paying £5,000 a year less than men in equivalent roles, workers are not given access to the Tyne & Wear Pension Fund, which is part of the Local Government Pension Scheme.
The situation in Sunderland highlights an important principle in equal pay law, namely that workers in one employer can often compare themselves to workers in an ’associated employer’. This means that a female worker at one associated employer can compare themselves with a male worker at another associated employer – and vice versa.
Local authorities have increasingly considered local authority trading companies (LATC) as an option when looking at changing their service delivery models. Where outsourcing has fallen out of favour, a local authority may well consider that an LATC addresses some of the key issues with outsourcing, offering increased control and the opportunity for any profit to come back into the local authority.
Our experience is that local authorities sometimes assume that they will be able to adopt a different set of terms in the LATC to the terms that apply to the local authority. Indeed, this can sometimes be one of the drivers for using the LATC. Whilst it may sometimes be permissible to have different terms in the LATC and the local authority, this will need careful justification.
Where there has been a difference in terms between the LATC and local authority but the service has now been outsourced to the private sector, local authorities shouldn’t assume that they are now off the hook. The effect of equal pay laws is to imply an equality clause into all contracts of employment so that if there has been a breach of equal pay laws, the lower-paid staff member’s contract will be uprated to match the corresponding level of pay/benefits in the comparator’s contract. This is a permanent change and will be the case even if neither the employer nor the employee has realised it. This is a term that transfers under TUPE, so that the private sector contractor is responsible for higher pay – and may be entitled to claim the cost of this under indemnities negotiated with the local authority in the outsourcing contract.
For more information, please contact Matthew Gregson – matthew.gregson@anthonycollins.com or Doug Mullen - douglas.mullen@anthonycollins.com
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